One of the SIPA Trustee’s many jobs has been to review BLMIS records to determine whether payments made by BLMIS prior to the Filing Date of December 11, 2008 constitute avoidable and recoverable transfers.
In a SIPA liquidation, the SIPA Trustee has the ability to seek to recover transfers of money within a certain period of time prior to the commencement of the liquidation proceeding. The resulting actions by the SIPA Trustee are called “avoidance actions” and they seek the return of transfers to the Customer Fund, for the benefit of all customers with allowed claims. The SIPA Trustee is required by the Securities Investor Protection Act to pursue these actions.
The SIPA Trustee’s review indicates that certain BLMIS accountholders (“BLMIS Transferees”) received avoidable transfers – totaling billions of dollars – and his counsel at BakerHostetler have commenced efforts to recover these excess amounts. The associated legal complaints are called “avoidance action” lawsuits; it was required by law that most of these avoidance action complaints be filed before the second anniversary of the commencement of the BLMIS liquidation proceeding, which was December 11, 2010. Once recovered, these funds will ultimately be deposited into the Customer Fund for pro rata distribution to satisfy allowed claims at the earliest possible date.
There are clear, step-by-step instructions on how to respond to an avoidance action complaint, which are detailed in the Litigation Case Management Procedures for Avoidance Actions. The SIPA Trustee’s goal remains to negotiate, not litigate, and the steps are designed to facilitate the evaluation and administration of each case and encourage an out-of-court, amicable resolution.