[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5852 Introduced in House (IH)]

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114th CONGRESS
  2d Session
                                H. R. 5852

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 provide the Securities 
   and Exchange Commission with oversight of the Securities Investor 
            Protection Corporation, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 14, 2016

Mr. Luetkemeyer (for himself, Mr. Sessions, and Mrs. Carolyn B. Maloney 
 of New York) 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 provide the Securities 
   and Exchange Commission with oversight of the Securities Investor 
            Protection Corporation, 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. 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) 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.''.
    (e) Commission Oversight of SIPC.--Section 3 of the Securities 
Investor Protection Act of 1970 (15 U.S.C. 78ccc) is amended by adding 
at the end the following:
    ``(f) Commission Oversight of SIPC.--The Commission may--
            ``(1) direct SIPC to take any action pursuant to this Act 
        that the Commission determines is necessary or appropriate in 
        the public interest, for the protection of investors, or 
        otherwise in furtherance of the purposes of this Act.; and
            ``(2) issue or revise any regulation under this Act.''.
    (f) Fund Replenishment.--Section 4 of the Securities Investor 
Protection Act of 1970 (15 U.S.C. 78ddd) is amended by adding at the 
end the following:
    ``(j) Fund Replenishment.--
            ``(1) Replenishment plan.--If the balance of the Fund 
        decreases by 50 percent or more during a fiscal year, SIPC, in 
        consultation with the Commission, shall establish and carry out 
        a fund replenishment plan, under which SIPC shall borrow in the 
        public debt markets on terms and conditions which permit debt 
        repayments and the reasonable buildup of fund reserves to be 
        covered from existing annual assessments.
            ``(2) Transfer of amounts with respect to fraudulent 
        debtors.--If the Commission determines that payments from the 
        SIPC Fund will be required because the management of a 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) committed fraud, the Commission may 
        transfer amounts from a fund established under section 308 of 
        the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) to the SIPC 
        Fund, if the Commission determines that such transfer will--
                    ``(A) enable prompt assistance to customers of the 
                debtor (or person); and
                    ``(B) allow for the maintenance of adequate 
                resources in the SIPC Fund.''.
    (g) Commission Report on Liquidation Proceedings.--Section 11(c) of 
the Securities Investor Protection Act of 1970 (15 U.S.C. 78ggg(c)) is 
amended by adding at the end the following:
            ``(3) Report on liquidation proceedings.--The Commission 
        shall, after the end of the 90-day period beginning on the date 
        that a liquidation proceeding is commenced under this Act, 
        promptly 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 providing the status 
        of customer claims in such proceeding, including amounts paid 
        under this Act to settle such claims and the amount of 
        outstanding claims.''.

SEC. 2. EFFECTIVE DATE; RULE OF APPLICATION.

    (a) In General.--The amendments made by section 1 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.
    (b) Ongoing Proceedings.--Notwithstanding subsection (a), with 
respect to a liquidation proceeding under the Securities Investor 
Protection Act of 1970 that was in progress on the date of the 
enactment of this Act--
            (1) section 8(c)(4) of the Securities Investor Protection 
        Act of 1970, as added by this Act, shall not apply to such 
        liquidation proceeding; and
            (2) the amendments made by section 1 shall not apply with 
        respect to a customer involved in such proceeding if the 
        trustee in such proceeding determines that the customer's 
        claims under the Securities Investor Protection Act of 1970, as 
        in effect on the day before the date of enactment of this Act, 
        have been fully satisfied.
    (c) Payment Requirements for Certain Proceedings.--
            (1) In general.--The trustee with respect to a liquidation 
        proceeding of a debtor under the Securities Investor Protection 
        Act of 1970 shall make such delivery of securities or payment 
        of amounts to the customers of the debtor as are necessary to 
        satisfy the net equity claims of such customers before the end 
        of the 60-day period beginning on the date of the enactment of 
        this Act--
                    (A) in the case of any proceeding that was in 
                progress on the date of the enactment of this Act; and
                    (B) in the case of any proceeding--
                            (i) initiated after the date of the 
                        enactment of this Act; and
                            (ii) with respect to which the Securities 
                        Investor Protection Corporation had been asked 
                        to initiate a proceeding against such debtor 
                        before the date of the enactment of this Act 
                        and had refused.
            (2) Report on failure to satisfy claims.--If, with respect 
        to a proceeding described under paragraph (1), the net equity 
        claims of the customers of the debtor in such proceeding are 
        not satisfied within the 60-day period required under such 
        paragraph, 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 explaining why such claims were not 
        satisfied before the end of such period.
    (d) Definitions.--For purposes of this section, the terms 
``customer'', ``debtor'', ``net equity'', and ``security'' have the 
meaning given those terms, respectively, under section 16 of the 
Securities Investor Protection Act of 1970.
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