H. R. 5032
IN THE HOUSE OF REPRESENTATIVES
April 15, 2010
Mr. Ackerman (for himself, Mr. Maffei, Mr. King of New York, Mr. Klein of Florida, Mr. Perlmutter, and Ms. Speier) introduced the following bill; which was referred to the Committee on Financial Services
To amend the Securities Investor Protection Act of 1970 to provide insurance coverage for certain indirect investors caught in Ponzi schemes, and for other purposes.
This Act may be cited as the
Ponzi Scheme Investor Protection Act
Additional protections for investors in Ponzi schemes
The Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.) is amended by inserting after section 8 the following new section:
Special provisions related to Ponzi schemes
Determination by trustee
Promptly after the appointment of the trustee, such trustee shall determine if the debtor is a Ponzi scheme. If the trustee determines that the debtor is a Ponzi scheme—
the trustee shall notify SIPC;
SIPC shall make such determination publicly available, including on SIPC’s Web site; and
if the trustee determines that customers invested more than $1,000,000,000 in such Ponzi scheme, the trustee and SIPC shall, not later than 30 days after such determination is made, jointly submit to the Committee on Financial Services of the House, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Secretary of the Treasury a reasonable expected timeline for the consideration of claims made under this section.
Statement of claim
An indirect Ponzi scheme investor may, not later than the end of the 1-year period beginning on the date SIPC makes a determination publicly available under subsection (a), file with the trustee a written claim—
stating the type of securities held by the Ponzi scheme on behalf of the Ponzi scheme investor on behalf of the indirect Ponzi scheme investor;
stating the number of such securities, or in the case of a pooled investment, the percentage of such securities;
stating the amount of any funds invested by the indirect Ponzi scheme investor with the Ponzi scheme investor that were invested with the Ponzi scheme, but for which the indirect Ponzi scheme investor has not received a statement or other documentation that would allow the indirect Ponzi scheme investor to identify in which securities the Ponzi scheme stated such funds were invested; and
containing such other information as SIPC may determine necessary to carry out the provisions of this section.
At the time an indirect Ponzi scheme investor makes a claim under paragraph (1), the indirect Ponzi scheme investor shall also file a copy of the claim with the appropriate Ponzi scheme investor.
Coordination with Ponzi scheme investor
To the extent necessary, the trustee shall coordinate with Ponzi scheme investors to ensure proper payments to indirect Ponzi scheme investors under this section.
Payments to indirect Ponzi scheme investors
After receipt of a written statement of claim pursuant to subsection (b), unless the trustee determines such claim to be fraudulent, the trustee shall, with respect to the securities that are the subject of such claim, take the following actions in the following order:
With respect to a claim relating to securities of a class and series of an issuer which are ascertainable from the books and records of the Ponzi scheme or are otherwise established to the satisfaction of the trustee, deliver securities of such class and series to the indirect Ponzi scheme investor if and to the extent available to satisfy such claims in whole or in part, with partial deliveries to be made pro rata to the greatest extent considered practicable by the trustee.
Pay the indirect Ponzi scheme investor a cash amount equal to—
the value of any securities identified in the claim and not otherwise delivered to the indirect Ponzi scheme investor under subparagraph (A); and
the value of any funds identified in the claim as being invested in the Ponzi scheme by the Ponzi scheme investor on behalf of the indirect Ponzi scheme investor, but for which the indirect Ponzi scheme investor is unable to identify in which specific securities the Ponzi scheme stated such funds were invested.
The aggregate amount of the value of all securities and cash delivered under paragraph (1) may not exceed, for each indirect Ponzi scheme investor, an amount equal to—
the aggregate amount of all cash and securities invested in the Ponzi scheme by the Ponzi scheme investor on behalf of the indirect Ponzi scheme investor that is recovered by the Ponzi scheme investor from the trustee.
Advances by SIPC
With respect to payments made pursuant to this section, the trustee may satisfy claims out of moneys made available to the trustee by SIPC notwithstanding the fact that there has not been any showing or determination that there are sufficient funds of the Ponzi scheme available to satisfy such claims.
By accepting any security or cash from the trustee under this section, the indirect Ponzi scheme investor agrees to waive the right to sue the Ponzi scheme investor with respect to such security or with respect to the security that was the basis for such cash payment.
For purposes of this subsection, the value of a security shall be deemed to be the amount listed for such security on the last statement the indirect Ponzi scheme investor received from the Ponzi scheme investor before the trustee determined the debtor was a Ponzi scheme pursuant to subsection (a).
Prohibition on double payments
Securities delivered pursuant to subsection (d), and securities, or percentages of securities, which were the basis for cash paid pursuant to subsection (d), may not be the basis for any other payment by the trustee or SIPC under this Act.
Recovery of funds
The trustee of a Ponzi scheme may not seek to recover money, including profits, from any investor in the Ponzi scheme unless such investor was either complicit or negligent in their participation in the Ponzi scheme.
Non-Applicability if lawsuit filed
This section shall not apply to a claim filed by an indirect Ponzi scheme investor if such investor has filed a lawsuit against the Ponzi scheme investor, the Ponzi scheme, or the trustee in connection with the securities that are the basis of such claim.
With respect to the appointment of a trustee made before the date of the enactment of this section, such trustee shall make the determination required under subsection (a) not later than 30 days after such date of enactment, and only if such trustee makes a determination that the debtor is a Ponzi scheme and customers invested more than $1,000,000,000 in the Ponzi scheme.
If the Secretary of the Treasury makes a determination that claims under this section are not being considered in accordance with the timeline submitted to the Secretary under subsection (a)(3), the Secretary may require any future payments made under this section to be made with interest.
SIPC shall issue regulations to carry out the provisions of this section.
SIPC authority To advance funds
Section 9 of such Act (15 U.S.C. 78fff–3) is amended by adding at the end the following new subsection:
Advances related to Ponzi schemes
SIPC shall advance to the trustee—
such moneys as may be required to pay claims made under section 8A; and
such moneys as may be required to carry out section 8A.
SIPC Fund assessment
Not later than the end of the 60-day period beginning on the date of the enactment of this Act, SIPC shall issue regulations to modify the SIPC Fund assessment levels to ensure they are adequate to cover the anticipated costs to the SIPC Fund of carrying out the amendments made by this Act.
Section 16 of the Securities Investor Protection Act of 1970 (15 U.S.C. 78lll) is amended by adding at the end the following new paragraph:
Definitions related to Ponzi schemes
The term Ponzi scheme means any fraudulent investment operation which is managed in a manner that provides investors with returns (or purported returns) derived substantially from investments made by other investors rather than from profits.
Ponzi scheme investor
The term Ponzi scheme investor means a customer of a debtor, where the trustee of such debtor has determined the debtor to be a Ponzi scheme.
Indirect Ponzi scheme investor
The term indirect Ponzi scheme investor means any person (including any person with whom the Ponzi scheme investor deals as principal or agent) who is an investor in a Ponzi scheme investor and on whose behalf the Ponzi scheme investor has a claim on account of securities received, acquired, or held by the Ponzi scheme in the ordinary course of its business as a broker or dealer from or for the securities accounts of such Ponzi scheme investor for safekeeping, with a view to sale, to cover consummated sales, pursuant to purchases, as collateral, security, or for purposes of effecting transfer.