February 12, 2013
Updated September 7, 2012: The website says the SIPA Trustee has recovered or entered into agreements to recover $9.144 billion. It also says that $7.346 billion is currently in the Customer Fund. Why can't additional recovered funds be distributed now?

The SIPA Trustee is sensitive to the urgent needs of former customers of BLMIS and wishes that it were possible to return recovered funds to claimants more quickly. Unfortunately, because of pending litigation challenging the SIPA Trustee's settlements and methodologies, including the issue of time-based damages, and conditions related to certain settlement agreements, not all funds that have been recovered or will be paid to the SIPA Trustee are available for distribution at this time. In addition, while a substantial portion of recovered funds appears to be available in the Customer Fund for distribution, those monies were actually set aside as part of the first pro rata interim distribution and are being held for accounts deemed determined pending the outcome of litigation.

As of September 7, 2012, the SIPA Trustee has recovered or entered into agreements to recover approximately $9.144 billion. More than $1.46 billion of these funds are unavailable for distribution, primarily due to pending appeals that challenge two significant settlements, and conditions related to other settlements. Until those appeals are resolved, the SIPA Trustee is prevented by law from distributing those funds.

Also, while the amount of allowed claims is approximately $7.5 billion, that amount will increase. This is due to the 229 additional claims that have been deemed determined by the SIPA Trustee pending the outcome of litigation. Some BLMIS customers, including feeder funds against which the SIPA Trustee has filed complaints, received significant preferential transfers or withdrawals from their BLMIS accounts in the 90 days prior to the fraud’s discovery. By law, these funds must be returned to the BLMIS estate. Once these customers return the preferential transfers, their claims may be reclassified as allowed and the dollar amount of the total allowed claims amount will increase. We currently estimate this increase could be more than $10 billion.

The SIPA Trustee is well aware of the need to return recovered funds to those from whom the funds were stolen as quickly as possible. On August 22, 2012, the SIPA Trustee’s July 26, 2012 motion for the allocation of approximately $5.5 billion to the Customer Fund and a second pro rata interim distribution of approximately $2.4 billion was approved by the Honorable Burton R. Lifland of the United States Bankruptcy Court for the Southern District of New York. The record date for the second pro rata interim distribution is September 12, 2012.

More than 1,240 objections were filed based on time-based damages issue, with some claimants seeking as much as 9 percent interest. In its Order, the Court instructed the SIPA Trustee to reserve 3 percent for the time-based damages issue, which allows for the distribution of approximately 33.5 percent of the allowed claim amount of each individual account, unless the claim is fully satisfied.

On September 5, 2012, the United States Bankruptcy Court issued an Order setting forth the briefing schedule for the time-based damages issue. Briefing will extend through December, 2012, with a hearing before the court on January 10, 2013.