There are two primary reasons why significant funds are not available for distribution at this time: required reserves and ongoing appeals.
Required Customer Fund Reserves for Deemed Determined Claims
First, while the number of allowed claims is – to date – 2,557 and the dollar amount of allowed claims to date is approximately $14.092 billion, both the number of allowed claims and the dollar amount will increase. There remain 116 claims which have been "deemed determined" by the SIPA Trustee; however, the final status of each claim remains contingent on the outcome of its respective litigation. If a “deemed determined” claim becomes allowed, it would become eligible for all pro rata distributions to date, currently totaling up to 48.802 percent of the amount of the allowed claim. For this potential scenario, the SIPA Trustee has, to date, reserved approximately $2.017 billion.
Court-Ordered Reserves for Time-Based Damages Issue
The Supreme Court of the United States announced, on June 25, 2012, that it had denied two writs for certiorari which had asked the Court to review the SIPA Trustee’s net equity methodology. The Court’s action finalized the SIPA Trustee’s “cash-in, cash-out” formula as the measure for determining eligibility for pro rata distributions from the BLMIS Customer Fund.
On July 26, 2012, the SIPA Trustee filed a motion in the United States Bankruptcy Court for the Southern District of New York seeking approval for an allocation of recovered monies to the BLMIS Customer Fund and for a second pro rata interim distribution from the Customer Fund to BLMIS customers with allowed claims.
However, over time, more than 1,200 objections had been filed relating to the time-based damages issue. The objections related to additional payments, based on the New York state statutory pre-judgment interest rate of 9 percent, inflation or other damages calculations, sought by certain claimants.
On August 22, 2012, the Honorable Burton R. Lifland approved the SIPA Trustee’s motion for the allocation and a second pro rata interim distribution and, at the same time, ordered the SIPA Trustee to establish a reserve representing 3 percent of all BLMIS Customer Fund recoveries, should the time-based damages matter be resolved in favor of the appellants. To date, that reserve amount totals $1.449 billion.
On September 10, 2013, the United States Bankruptcy Court for the Southern District of New York approved the SIPA Trustee’s motion to deny time-based damages adjustments to customer claims. That decision was appealed by certain objecting parties on September 24, 2013. An order was filed by the Bankruptcy Court certifying the order of September 10, 2013 for immediate appeal to the United States Court of Appeals. The appeal was accepted by the Second Circuit on January 22, 2014, and oral arguments were heard on Tuesday, October 14, 2014.
On February 20, 2015, the Second Circuit reaffirmed the decision of the Bankruptcy Court that claimants in the SIPA liquidation of BLMIS are not entitled to time-based damages.
On April 15, 2015, the SIPA Trustee filed a motion in the Bankruptcy Court seeking to allocate $1.249 billion, which had been held in reserve related to the time-based damages issue, to the BLMIS Customer Fund and requesting authorization for a sixth pro rata interim distribution from the Customer Fund to BLMIS customers with allowed claims. A hearing was originally scheduled for May 28, 2015. For more information on this filing, click here.
On May 26, 2015, the SIPA Trustee filed a notice of adjournment of the May 28 hearing for approval of the sixth interim distribution motion. The notice, filed with the United States Bankruptcy Court for the Southern District of New York, adjourns the hearing until July 29, 2015.
The May 28 hearing was originally scheduled for seven days after the expiration of the time period within which claimants could ask the Supreme Court of the United States to review the Second Circuit decision by filing a petition for a writ of certiorari. If no petitions had been filed, the SIPA Trustee’s sixth distribution motion hearing would have been able to go forward on that date.
Although as of June 24, 2015, no petitions for certiorari have been filed, certain parties requested an extension of the deadline to file a petition for certiorari. The request was granted by the Supreme Court of the United States and the deadline was extended to July 20, 2015.
The SIPA Trustee is hopeful that no petition for certiorari will be filed with the Supreme Court by July 20 so that the hearing regarding the sixth distribution motion may go forward on July 29, 2015. If the distribution motion is approved, the SIPA Trustee will release $1.249 billion of the reserved $1.449 billion, with $904 million available for immediate distribution to customers with allowed claims.
However, if a petition for certiorari is filed by July 20, 2015, the sixth distribution motion hearing will be adjourned again, until such time as the Supreme Court resolves the petition for certiorari.
Other Customer Fund Required Reserves
As of June 24, 2015, approximately $302 million must be reserved in the Customer Fund for certain deferred payments, unallocated funds and other matters related to the liquidation.
Amount Unavailable to the Customer Fund Due to Required Reserves and Appeals
Portions of recoveries and settlement agreements have not yet been collected, due to appeals, the timing of payments of certain settlement monies and other issues. Therefore, these funds cannot be either allocated to the Customer Fund or distributed to BLMIS customers with allowed claims until these issues are resolved. As of June 24, 2015, approximately $236.7 million relating to settlement reserves and other matters must be held in reserve.