[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3482 Introduced in House (IH)]

113th CONGRESS
  1st Session
                                H. R. 3482

To amend the Securities Investor Protection Act of 1970 to confirm that 
a customer's net equity claim is based on the customer's last statement 
and that certain recoveries are prohibited, to change how trustees are 
                   appointed, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 14, 2013

Mr. Garrett (for himself, Mrs. Carolyn B. Maloney of New York, Mr. King 
      of New York, Mr. Luetkemeyer, Mr. Himes, Mrs. Bachmann, Mr. 
   Westmoreland, Mr. Al Green of Texas, Mr. Hurt, Mr. Fincher, Mrs. 
 McCarthy of New York, Mr. Mulvaney, Mr. Ross, Mrs. Wagner, Mr. Murphy 
 of Florida, Mr. Cassidy, Mr. Sessions, Ms. Ros-Lehtinen, Mr. Deutch, 
  Mr. McCaul, Mr. Harper, Mr. Culberson, Mr. Duncan of Tennessee, Mr. 
 Boustany, and Mr. Griffin of Arkansas) introduced the following bill; 
       which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
To amend the Securities Investor Protection Act of 1970 to confirm that 
a customer's net equity claim is based on the customer's last statement 
and that certain recoveries are prohibited, to change how trustees are 
                   appointed, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Restoring Main Street Investor 
Protection and Confidence Act''.

SEC. 2. SECURITIES INVESTOR PROTECTION ACT OF 1970 AMENDMENTS.

    (a) Net Equity Based on Last Statement.--Section 16(11) of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(11)) is 
amended to read as follows:
            ``(11) Net equity.--
                    ``(A) In general.--The term `net equity' means the 
                dollar amount of the account or accounts of a customer, 
                to be determined by--
                            ``(i) calculating the sum which would have 
                        been owed by the debtor to such customer if the 
                        debtor had liquidated, by sale or purchase on 
                        the filing date--
                                    ``(I) all securities positions of 
                                such customer (other than customer name 
                                securities reclaimed by such customer); 
                                and
                                    ``(II) all positions in futures 
                                contracts and options on futures 
                                contracts held in a portfolio margining 
                                account carried as a securities account 
                                pursuant to a portfolio margining 
                                program approved by the Commission, 
                                including all property collateralizing 
                                such positions, to the extent that such 
                                property is not otherwise included 
                                herein; minus
                            ``(ii) any indebtedness of such customer to 
                        the debtor on the filing date; plus
                            ``(iii) any payment by such customer of 
                        such indebtedness to the debtor which is made 
                        with the approval of the trustee and within 
                        such period as the trustee may determine (but 
                        in no event more than sixty days after the 
                        publication of notice under section 8(a)).
                    ``(B) Treatment of certain commodity futures 
                contracts.--A claim for a commodity futures contract 
                received, acquired, or held in a portfolio margining 
                account pursuant to a portfolio margining program 
                approved by the Commission or a claim for a security 
                futures contract, shall be deemed to be a claim with 
                respect to such contract as of the filing date, and 
                such claim shall be treated as a claim for cash.
                    ``(C) Treatment of accounts held by a customer in 
                separate capacities.--In determining net equity under 
                this paragraph, accounts held by a customer in separate 
                capacities shall be deemed to be accounts of separate 
                customers.
                    ``(D) Reliance on final customer statement.--
                            ``(i) In general.--In determining net 
                        equity under this paragraph, the positions, 
                        options, and contracts of a customer reported 
                        to the customer as held by the debtor, and any 
                        indebtedness of the customer to the debtor, 
                        shall be determined based on--
                                    ``(I) the information contained in 
                                the last statement issued by the debtor 
                                to the customer before the filing date; 
                                and
                                    ``(II) any additional written 
                                confirmations of the customer's 
                                positions, options, contracts, or 
                                indebtedness received after such last 
                                statement but before the filing date.
                            ``(ii) Exception when debtor's records 
                        indicate higher value.--Notwithstanding clause 
                        (i), if the books and records of the debtor 
                        indicate that the net value of a customer's 
                        positions, options, and contracts reported to 
                        the customer as held by the debtor, and any 
                        indebtedness of the customer to the debtor, is 
                        greater than the net value of the customer as 
                        calculated under clause (i) using the 
                        customer's last statement, then the 
                        determination of the net equity of the customer 
                        under this paragraph shall be done using the 
                        books and records of the debtor instead of the 
                        customer's last statement.
                            ``(iii) Fraud exception.--The provisions of 
                        this subparagraph shall not apply to any 
                        customer that--
                                    ``(I) knew the debtor was involved 
                                in fraudulent activity with respect to 
                                any customer of the debtor which 
                                reasonably indicated a fraud adversely 
                                affecting a substantial number of 
                                customers; or
                                    ``(II) was a person that--
                                            ``(aa) was, or was required 
                                        to be, registered--

                                                    ``(AA) as a broker 
                                                or dealer under the 
                                                Securities Exchange Act 
                                                of 1934; or

                                                    ``(BB) as an 
                                                investment adviser 
                                                under the Investment 
                                                Advisers Act of 1940, 
                                                or that would have been 
                                                required to register as 
                                                an investment adviser 
                                                under the Investment 
                                                Advisers Act of 1940 
                                                but for section 203(m) 
                                                of such Act;

                                            ``(bb) knew, or, due to the 
                                        activities of such person 
                                        causing such person to be 
                                        described under item (aa), 
                                        should have known, that the 
                                        debtor was involved in 
                                        fraudulent activity with 
                                        respect to any customer of the 
                                        debtor; and
                                            ``(cc) did not notify SIPC, 
                                        the Commission, or law 
                                        enforcement personnel that the 
                                        debtor was involved in such 
                                        fraudulent activity.''.
    (b) Allocation of Customer Property to Customers.--Section 8(c) of 
the Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-2(c)) 
is amended--
            (1) in paragraph (1), by amending subparagraph (B) to read 
        as follows:
                    ``(B) second, to customers of such debtor, as 
                described under paragraph (4);''; and
            (2) by adding at the end the following:
            ``(4) Allocation of customer property to customers.--
                    ``(A) In general.--Allocations of customer property 
                to customers under paragraph (1)(B) shall be made such 
                that customers share in customer property based on a 
                methodology--
                            ``(i) based on the net equity of a 
                        customer, as determined using the last 
                        statement issued by the debtor to the customer 
                        before the filing date;
                            ``(ii) determined by the trustee, in 
                        consultation with the Commission; and
                            ``(iii) approved by the court.
                    ``(B) Alternate methodology.--If the trustee 
                determines that allocating customer property in 
                accordance with subparagraph (A) would be unfair and 
                inequitable to a substantial segment of customers and 
                would not fully serve the remedial purposes of this 
                Act, allocations of customer property to customers 
                under paragraph (1)(B) shall be made such that 
                customers share in customer property based on a fair 
                and reasonable methodology, with special consideration 
                for the typical, non-professional investor, that--
                            ``(i) if the trustee determines that it is 
                        necessary in order to reach a fair and 
                        reasonable result, is determined without regard 
                        to section 16(11)(D);
                            ``(ii) is determined by the trustee, in 
                        consultation with the Commission; and
                            ``(iii) is approved by the court.
                    ``(C) Public notice and comment.--Before approving 
                a proposed methodology under subparagraph (A)(ii) or 
                subparagraph (B)(ii), the court shall--
                            ``(i) notify customers and other interested 
                        parties that the court is considering the 
                        proposed methodology; and
                            ``(ii) provide the customers and interested 
                        parties an opportunity to provide comments on 
                        the proposed methodology.''.
    (c) Prohibition on Certain Recoveries.--
            (1) In general.--Section 8 of the Securities Investor 
        Protection Act of 1970 (15 U.S.C. 78fff-2) is amended by adding 
        at the end the following new subsection:
    ``(g) Prohibition on Certain Recoveries.--Notwithstanding any other 
provision of this Act, a trustee may not recover any property 
transferred by the debtor to a customer before the filing date unless, 
at the time of such transfer, such customer--
            ``(1) knew the debtor was involved in fraudulent activity 
        with respect to any customer of the debtor which reasonably 
        indicated a fraud adversely affecting a substantial number of 
        customers; or
            ``(2) was a person that--
                    ``(A) was, or was required to be, registered--
                            ``(i) as a broker or dealer under the 
                        Securities Exchange Act of 1934; or
                            ``(ii) as an investment adviser under the 
                        Investment Advisers Act of 1940, or that would 
                        have been required to register as an investment 
                        adviser under the Investment Advisers Act of 
                        1940 but for section 203(m) of such Act;
                    ``(B) knew, or, due to the activities of such 
                person causing such person to be described under 
                subparagraph (A), should have known, that the debtor 
                was involved in fraudulent activity with respect to any 
                customer of the debtor; and
                    ``(C) did not notify SIPC, the Commission, or law 
                enforcement personnel that the debtor was involved in 
                such fraudulent activity.''.
            (2) Construction.--Nothing in this Act, or the amendments 
        made by this Act, shall be construed as prohibiting a trustee 
        appointed under the Securities Investor Protection Act of 1970 
        from recovering property transferred by a debtor to a person 
        who is not a customer of the debtor.
    (d) Appointment of Trustees.--
            (1) In general.--Section 5(b)(3) of the Securities Investor 
        Protection Act of 1970 (15 U.S.C. 78eee(b)(3)) is amended to 
        read as follows:
            ``(3) Appointment of trustee and attorney.--
                    ``(A) In general.--If the court issues a protective 
                decree under paragraph (1), such court shall forthwith 
                appoint, as trustee for the liquidation of the business 
                of the debtor and as attorney for the trustee, such 
                persons as the court determines best fit to serve as 
                trustee and as attorney from among the persons selected 
                by the Commission pursuant to subparagraph (B). The 
                persons appointed as trustee and as attorney for the 
                trustee may be associated with the same firm.
                    ``(B) Commission candidates.--The Commission shall 
                maintain a list of candidates for the position of 
                trustee and attorney for the trustee for a debtor in a 
                liquidation proceedings, and shall periodically update 
                the list, as appropriate. With respect to a debtor and 
                upon the court issuing a protective decree under 
                paragraph (1), the Commission shall forthwith provide 
                the court with such list.
                    ``(C) Disinterest requirement.--No person may be 
                appointed to serve as trustee or attorney for the 
                trustee if such person is not disinterested within the 
                meaning of paragraph (6), except that for any specified 
                purpose other than to represent a trustee in conducting 
                a liquidation proceeding, the trustee may, with the 
                approval of SIPC and the court, employ an attorney who 
                is not disinterested.
                    ``(D) Qualification.--A trustee appointed under 
                this paragraph shall qualify by filing a bond in the 
                manner prescribed by section 322 of title 11, United 
                States Code, except that neither SIPC nor any employee 
                of SIPC shall be required to file a bond when appointed 
                as trustee.
                    ``(E) Prohibition on trustee serving in multiple 
                liquidations.--A trustee may not be appointed under 
                this paragraph if the trustee is currently serving as 
                trustee for the liquidation of the business of another 
                debtor under this Act.''.
            (2) Compensation for trustee and attorney.--Section 5(b)(5) 
        of the Securities Investor Protection Act of 1970 (15 U.S.C. 
        78eee(b)(5)) is amended--
                    (A) in subparagraph (A), by adding at the end the 
                following: ``The court shall publicly disclose all such 
                allowances that are granted.'';
                    (B) by amending subparagraph (C) to read as 
                follows:
                    ``(C) Awarding of allowances.--Whenever an 
                application for allowances is filed pursuant to 
                subparagraph (B), the court shall determine the amount 
                of allowances, giving due consideration to the nature, 
                extent, and value of the services rendered.''; and
                    (C) by adding at the end the following:
                    ``(F) SIPC disclosures.--SIPC shall issue quarterly 
                public reports on--
                            ``(i) all payments made by SIPC to the 
                        trustee;
                            ``(ii) all other costs in connection with 
                        the liquidation proceeding, including legal and 
                        accounting costs; and
                            ``(iii) all additional expenses incurred by 
                        SIPC, and the nature of such expenses.''.
            (3) Effective date.--The amendment made this subsection 
        shall take effect with respect to trustees and attorneys 
        appointed after the date of the enactment of this Act.
    (e) Definition of Customer Status.--Section 16(2)(B) of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78lll(2)(B)) is 
amended--
            (1) in clause (ii), by striking ``; and'' and inserting a 
        semicolon;
            (2) in clause (iii), by striking the period at the end and 
        inserting a semicolon; and
            (3) by adding at the end the following new clauses:
                            ``(iv) any person that had cash or 
                        securities that were converted or otherwise 
                        misappropriated by the debtor (or any person 
                        who controls, is controlled by, or is under 
                        common control with the debtor, if such person 
                        was operating through the debtor), irrespective 
                        of whether the debtor held or otherwise had 
                        custody, possession, or control of such cash or 
                        securities; and
                            ``(v) any other person that the Commission, 
                        in its discretion and without any need for 
                        court approval, deems a customer of the 
                        debtor.''.
    (f) Determination of Need of Protection.--Section 5 of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78eee) is 
amended--
            (1) in subsection (a)(3)--
                    (A) by amending the heading for such paragraph by 
                inserting ``the commission or'' before ``sipc'';
                    (B) in the first subparagraph (A)--
                            (i) by inserting ``The Commission or'' 
                        before ``SIPC may''; and
                            (ii) by inserting ``the Commission or'' 
                        before ``SIPC determines''; and
                    (C) by redesignating the second subparagraph (A) 
                and the first subparagraph (B) as clauses (i) and (ii), 
                respectively, and moving such clauses 2 ems to the 
                right; and
            (2) in subsection (b)(1), by striking ``application by 
        SIPC'' and inserting ``application by the Commission or SIPC''.
    (g) Timing of SIPC Advances; Result of Delay.--Section 9 of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-3) is 
amended by adding at the end the following:
    ``(f) Timing of SIPC Advances; Result of Delay.--
            ``(1) In general.--SIPC advances made to satisfy customer 
        claims pursuant to subsection (a) shall be made before the end 
        of the 3-month period beginning on the date that is the end of 
        the 6-month period described under section 8(a)(3), plus the 
        amount of any extension granted under such paragraph.
            ``(2) Result of delay.--If SIPC fails to make advances to 
        the trustee in the period specified in paragraph (1), then for 
        purposes of calculating a customer's net equity under this Act, 
        interest shall accrue beginning on the date that is the end of 
        the 3-month period specified in paragraph (1).
            ``(3) Court determination.--If the trustee determines that 
        enough information has been provided to SIPC to make an advance 
        pursuant to subsection (a), the trustee may petition the court 
        to have the court direct SIPC to make such advance.''.
    (h) Timing of Payments to Customers.--Section 8(b) of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78fff-2(b)) is 
amended--
            (1) in paragraph (1), by striking ``and'' at the end;
            (2) in paragraph (2), by striking the period at the end and 
        inserting a semicolon; and
            (3) by inserting after paragraph (2) the following:
            ``(3) upon petition by a customer, order the trustee to 
        carry out the obligations of the trustee under this subsection 
        with respect to such customer; and
            ``(4) if the court determines that the trustee has 
        improperly delayed carrying out the obligations of the trustee 
        under this subsection, impose financial sanctions on the 
        trustee.''.
    (i) Commission Authority To Require SIPC Action.--Section 11(b) of 
the Securities Investor Protection Act of 1970 (15 U.S.C. 78ggg(b)) is 
amended to read as follows:
    ``(b) Commission Authority To Require SIPC Action.--In the event of 
the refusal of SIPC to commit its funds or otherwise to act for the 
protection of customers of any member of SIPC, the Commission may 
require SIPC to discharge its obligations under this Act without court 
approval.''.
    (j) Limitation on SEC Loans to SIPC.--Section 4(g) of the 
Securities Investor Protection Act of 1970 (15 U.S.C. 78ddd(g)) is 
amended by inserting after ``this Act'' the following: ``and the 
Commission, in consultation with the Secretary of the Treasury, 
determines that SIPC is unable to borrow in the public debt markets at 
reasonable terms (both as to yield and maturity)''.
    (k) Inspection of SIPC Members by SEC and Self-Regulatory 
Organizations.--
            (1) In general.--The Securities Investor Protection Act of 
        1970 (15 U.S.C. 78aaa et seq.) is amended--
                    (A) in section 11, by adding at the end the 
                following:
    ``(e) Inspection of SIPC Members by SEC.--The Commission shall 
carry out periodic inspections of SIPC members to ensure that the 
information such members provide to customers, including information 
contained in account statements and transaction confirmations, is 
accurate.''; and
                    (B) in section 13(c)--
                            (i) by redesignating paragraphs (1) and (2) 
                        as subparagraphs (A) and (B), respectively, and 
                        moving such subparagraphs 2 ems to the right;
                            (ii) by striking ``The self-regulatory 
                        organization'' and inserting the following:
            ``(1) In general.--The self-regulatory organization''; and
                            (iii) by adding at the end the following:
            ``(2) Inspection of information provided to customers.--
        Under such regulations as the Commission may prescribe, the 
        self-regulatory organization of which a member of SIPC is a 
        member or in which it is a participant shall inspect or examine 
        such member to--
                    ``(A) assess the financial stability of such 
                member; and
                    ``(B) ensure that the information such member 
                provides to customers, including information contained 
                in account statements and transaction confirmations, is 
                accurate.''.
            (2) Report.--Not later than the end of the 1-year period 
        beginning on the date of the enactment of this Act, the 
        Securities and Exchange Commission shall issue a report to the 
        Committee on Financial Services of the House of Representatives 
        and the Committee on Banking, Housing, and Urban Affairs of the 
        Senate on the implementation of the amendments made by this 
        subsection.

SEC. 3. EFFECTIVE DATE.

    Except as provided under section 2(d)(3), the amendments made by 
section 2 shall take effect with respect to a liquidation proceeding 
under the Securities Investor Protection Act of 1970 that--
            (1) was in progress on the date of the enactment of this 
        Act; or
            (2) is initiated after the date of the enactment of this 
        Act.
                                 <all>