a Securities Investor Protection Act (SIPA), which provides
benefits to “customers” of failed brokerage firms such as Madoff’s, “customers”
share in the recovery of their property, namely cash and securities during a
firm’s liquidation. But were those who indirectly invested with Madoff—such as those in ERISA-regulated plans—“customers”
under SIPA? That was the question facing Judge Denise Cote.
SIPA defines “customer”
three ways. Those who indirectly invested funds with Madoff argued they fell
under the third definition—“any person who has deposited cash with
the debtor for the purpose of purchasing securities.”
The court disagreed. “The ERISA claimants are mistaken,” Cote wrote. “One
cannot deposit cash with the debtor if this cash belongs to another.”
In an ERISA-regulated plan, Cote noted,
assets are held and owned by the plan’s trustees, not by its participants.
for the full opinion.