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 – 2,551 and the dollar amount of allowed claims to date is approximately $13.338 billion, both the number of allowed claims and the dollar amount will increase. There remain 123 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 $2.357 billion. The ultimate amount of additional allowed claims depends on the outcome of litigation or negotiation, and could add billions of dollars to the total amount of allowed claims.
Court-Ordered Reserves for Time-Based Damages Issue
More than 1,200 objections have been filed relating to the time-based damages issue. The objections relate to additional payments based on the New York state statutory pre-judgment interest rate of 9 percent, inflation, or other damages calculations. 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 objecting parties on September 24, 2013 and on the same day 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. An immediate 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. The reaffirmation resolved the question regarding whether customers are entitled to some form of interest on the dollars deposited with BLMIS that were never invested, but instead were stolen to give to other customers. This decision clears the way for the SIPA Trustee to distribute more than $1.449 billion to customers with allowed claims. The only obstacle that could stand in the way of this additional distribution is the potential for a petition for certiorari by the defendants on this decision. The SIPA Trustee is hopeful that further delay will be viewed as pointless and that no petition will be filed. Regardless, he will file an application to the Bankruptcy Court seeking approval of an allocation authorizing him to distribute, as soon as possible, the funds that have been held in reserve awaiting the Second Circuit's time-based damages decision.
Other Customer Fund Required Reserves
As of March 6, 2015, approximately $4.8 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 March 6, 2015, approximately $236.7 million relating to settlement reserves and other matters must be held in reserve.