As a BLMIS customer with an allowed claim, the governing SIPA statute provides you with preferred status in the hierarchy under which creditors are paid from the estate.
There are two primary reasons why significant funds are not available for distribution at this time:
First, while allowed claims currently approximately $7.3 billion, that amount is expected to increase.
Additional claims have been deemed determined by the SIPA Trustee pending the outcome of litigation. Some 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 allowed claims will increase. We currently estimate this increase could be more than $10 billion.
Impact of Third-Party and Other Appeals and Issues
The second reason why more funds are not immediately available involves appeals and issues.
Significant portions of recoveries and settlement agreements have not been collected yet, 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.
Appeals of settlements:
Two claimants have separately appealed the most significant settlement obtained to date – the $5 billion settlement with the estate of Jeffry Picower. Other funds affected by appeals include the $1.025 billion Tremont settlement. Until those appeals are resolved and the funds are collected, they cannot be allocated to the Customer Fund or distributed to BLMIS customers with allowed claims.
Additional funds unavailable due to appeals include the $220 million settlement with the Norman F. Levy family. Also, approximately $198.5 million relating to settlement reserves and other matters must be held in reserve.
Appeal of net equity decision:
The net equity methodology, or the SIPA Trustee’s formula for determining eligibility for pro rata distributions to BLMIS customers with allowed claims from the Customer Fund based on cash-in, cash-out of BLMIS, also remains under appeal.
On August 16, 2011, the United States Court of Appeals for the Second Circuit upheld the SIPA Trustee’s determination regarding the calculation of net equity and rejected the use of the fictitious November 2008 BLMIS statements in determining the value of claims. Petitions for a panel rehearing of that decision, or, in the alternative, for rehearing en banc, were denied.
As of February 6, 2012, three parties petitioned for Writs of Certiorari with the Supreme Court of the United States, requesting further review of the net equity decision. Until a final, unappealable decision is reached on net equity, the Trustee must hold funds in reserve as if net equity appellants had prevailed and eligibility for distributions from the Customer Fund were based on the final, November 2008 BLMIS statements.
Other reserves:
Once a final, unappealable decision is reached on net equity, there are additional unresolved matters that will then require determination, including constant dollar, the time value of money or interest. All of these matters will be heard and determined by the courts and, until resolved, require reserves.