Nos ; IN THE Supreme Court of the United States

Transcription

1 Nos ; 1129 IN THE Supreme Court of the United States SECURITIES INVESTOR PROTECTION CORPORATION, STATUTORY INTERVENOR PURSUANT TO SECURITIES INVESTOR PROTECTION ACT, 15 U.S.C. 78EEE(D), Petitioner, and IRVING H. PICARD, TRUSTEE FOR THE LIQUIDATION OF BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Petitioner, v. IDA FISHMAN REVOCABLE TRUST, Respondents. ON PETITIONS FOR WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT BRIEF IN OPPOSITION FOR RESPONDENTS LISTED IN THE APPENDIX HELEN DAVIS CHAITMAN Counsel of Record BECKER & POLIAKOFF LLP 45 Broadway (212) Attorneys for Respondents Listed in the

2 i QUESTION PRESENTED Where no Court of Appeals has held otherwise, did the Court of Appeals for the Second Circuit correctly rule that there is no Ponzi scheme exception to the protections of 11 U.S.C. 546(e), which limits fraudulent transfer actions against customers of SEC-registered securities brokers in order to assure stability in the securities markets?

3 ii CORPORATE DISCLOSURE STATEMENT This brief in opposition to the petitions for writs of certiorari (the Petitions ) is filed on behalf of the parties identified in A (the Respondents ). None of the corporate Respondents has a parent corporation and no publicly held company owns 10% or more of any corporate Respondent s stock.

4 iii TABLE OF CONTENTS Page QUESTION PRESENTED i CORPORATE DISCLOSURE STATEMENT ii TABLE OF CONTENTS iii TABLE OF CITED AUTHORITIES v INTRODUCTION COUNTERSTATEMENT OF THE CASE A. Statutory Background B. Factual Background and Procedural History Background Information About Madoff Securities The Clawback Suits The District Court Decision The Court of Appeals Decision REASONS FOR DENYING THE PETITIONS THE SECOND CIRCUIT CORRECTLY INTERPRETED SECTION 546(E)

5 iv Table of Contents Page A. It Is Undisputed that Madoff Securities was a Stockbroker B. The Transfers Are Settlement Payments under Section 741(8) Section 741(8) does not contain a purchase or sale requirement The Petitioners cases are inapposite...21 C. The Payments Were In Connection With a Securities Contract The Account Documents fit the definition of securities contract The in connection with requirement is easily satisfied here CONCLUSION APPENDIX a

6 Cases v TABLE OF CITED AUTHORITIES Page Ali v. Federal Bureau of Prisons, 552 U.S. 214 (2008) Andrus v. Glover Constr. Co., 446 U.S. 608 (1980) Bevill, Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan Ass n, 878 F.2d 742 (3d Cir. 1989) Calyon N.Y. Branch v. American Home Mortg. Corp. (In re American Home Mortg., Inc.), 379 B.R. 503 (Bankr. D. Del. 2008) Connecticut Nat l Bank v. Germain, 503 U.S. 249 (1992) Contemporary Indus. Corp. v. Frost, 564 F.3d 981 (8th Cir. 2009) passim Engine Mfrs. Ass n v. S. Coast Air Quality Mgmt. Dist., 541 U.S. 246 (2004) Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011) passim Grade v. FCStone, LLC, 746 F.3d 244 (7th Cir. 2014)

7 vi Cited Authorities Page Grayson Consulting, Inc. v. Wachovia Secs., Inc. (In re Derivium Capital LLC), 716 F.3d 355 (4th Cir. 2013) Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000) Homes v. Sec. Investor Prot. Corp., 503 U.S. 258 (1992) Hoskins v. Citigroup, Inc. (In re Viola), 469 B.R. 1 (B.A.P. 9th Cir. 2012), aff d on other grounds, 583 F. App x 669 (9th Cir. 2014) , 19, 24, 25 In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011) In re Century Brass Prods., Inc., 22 F.3d 37 (2d Cir. 1994) In re D.E.I. Systems, Inc., 996 F. Supp. 2d 1142 (D. Utah Jan. 23, 2014) In re Grafton Partners, L.P., 321 B.R. 527 (B.A.P. 9th Cir. 2005) In re Lehman Bros. Holdings Inc., 469 B.R 415 (Bankr. 2012) , 32

8 vii Cited Authorities Page In re QSI Holdings, Inc., 571 F.3d 545 (6th Cir. 2009) , 20, 23 In re Quebecor World (USA) Inc., 480 B.R. 468 ( 2012) In re Refco, Inc. Sec. Litig., 2009 WL ( Nov. 13, 2009), report and recommendation adopted sub nom. In re Refco Sec. Litig., 2010 WL ( Jan. 12, 2010) In re Resorts Intern., Inc., 181 F.3d 505 (3d Cir. 1999) , 20, Instituto de Prevision Miliatar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) Jackson v. Mishkin (In re Adler, Coleman Clearing Corp.), 263 B.R. 406 ( 2001) Johnson v. Neilson (In re Slatkin), 525 F.3d 805 (9th Cir. 2008) Kaiser Steel Corp. v. Charles Schwab & Co., Inc., 913 F.2d 846 (10th Cir. 1990) , 20, 24 Kipperman v. Circle Trust F.B.O., (In re Grafton Partners, LP), 321 B.R. 527 (B.A.P. 9th Cir. 2005)

9 viii Cited Authorities Page Kmart Corp. v. Cartier, Inc., 486 U.S. 281 (1988) , 17 Lamie v. United States Trustee, 540 U.S. 526 (2004) Merrill, Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) Official Comm. of Unsecured Creditors of Nat l Forge Co. v. Clark (In re National Forge Co.), 344 B.R. 340 (W.D. Pa. 2006) Official Comm. of Unsecured Creditors Quebecor (USA) Inc. v. American United Life Ins. Co. (In re Quebecor World (USA) Inc.), 719 F.3d 94 (2d Cir. 2013) Pennsylvania Dep t of Pub. Welfare v. Davenport, 495 U.S. 552 (1990) Peterson v. Somers Dublin Ltd., 729 F.3d 741 (7th Cir. 2013) passim Picard v. Katz, 462 B.R. 447 ( 2011) , 24 Picard v. Katz, 466 B.R. 208 ( 2012)

10 ix Cited Authorities Page S.E.C. v. Zandford, 535 U.S. 813 (2002) Sec. Investor Prot. Corp. v. Barbour, 421 U.S. 412 (1975) Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6 (1971) Tennessee Valley Auth. v. Hill, 437 U.S. 153 (1978) Trezziova v. Kohn (In re Herald, Primeo & Thema), 730 F.3d 112 (2d Cir. 2013) U.S. v. Smith, 499 U.S. 160 (1991) Wider v. Wootton, 907 F.2d 570 (5th Cir. 1990) Wyle v. Howard, Weil, Labouisse, Freidrichs Inc. (In re Hamilton Taft & Co.), 114 F.3d 991 (9th Cir. 1997) Statutes and Other Authorities 11 U.S.C. 101(53A)

11 x Cited Authorities Page 11 U.S.C U.S.C. 544(b) U.S.C. 546(e) passim 11 U.S.C U.S.C. 548(a)(1) U.S.C. 548(a)(1)(A) , 16, U.S.C. 548(a)(1)(B) U.S.C U.S.C. 741(7) U.S.C. 741(7)(A) , U.S.C. 741(7)(A)(i) , U.S.C. 741(7)(A)(vii) , U.S.C. 741(7)(A)(x) , U.S.C. 741(7)(A)(xi) , U.S.C. 741(8) passim

12 xi Cited Authorities Page 15 U.S.C. 78aaa , 3, U.S.C. 78c(a)(13) U.S.C. 78c(a)(14) U.S.C. 78eee(a)(3) U.S.C. 78eee(b)(3) U.S.C. 78eee(b)(4) U.S.C. 78fff-2(b) U.S.C. 78fff-2(c) U.S.C. 78fff-2(c)(3) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No , 119 Stat Financial Netting Improvements Act of 2006, Pub. L. No , 120 Stat H.R. Rep. No (1982), reprinted in 1982 U.S.C.C.A.N H.R. Rep. No (I) 2005, reprinted in 2005 U.S.C.C.A.N

13 xii Cited Authorities Page N.Y. C.P.L.R N.Y.U.C.C. Article N.Y.U.C.C (b)(1) Supreme Court Rule Supreme Court Rule 10(a) , 14 Webster s 3d New Int l Dictionary (1993) , 30

14 1 INTRODUCTION Under our democratic system, the legislature writes the laws and the courts enforce their plain meaning. It is not the function of the courts to subvert the clear language of a statute. Yet, that is precisely what Petitioners, Irving H. Picard, Trustee (the Trustee ) of Bernard L. Madoff Investment Securities LLC ( Madoff Securities ), and the Securities Investor Protection Corporation ( SIPC ), asked the United States Court of Appeals for the Second Circuit to do. It is undisputed that Madoff Securities was an SEC-regulated stock brokerage fi rm. The Second Circuit correctly applied the plain language of 11 U.S.C. Section 546(e) to hold that the agreement between the customers of Madoff Securities and the brokerage firm constituted a securities contract and that the customers withdrawals from their accounts constituted settlement payments. Based on those findings, the court held that the payments received by customers of Madoff Securities fell within the safe harbor of Section 546(e). There is no Court of Appeals which has held to the contrary. The argument of Petitioners and amici curiae is that the Second Circuit should have created a per se exception to Section 546(e) for Ponzi schemes. Not only is there no Court of Appeals decision that has accepted this argument, but it was rejected by the Seventh Circuit in Peterson v. Somers Dublin Ltd., 729 F. 3d 741, 749 (7th Cir. 2013), where a bankruptcy trustee asked the court to chuck 546(e) out the window in a Ponzi scheme case. The court wrote: [w]e apply the text which both Houses of Congress approved and the President signed not themes from a history that was neither passed by a majority of either House nor signed into law. Similarly,

15 2 in Hoskins v. Citigroup, Inc. (In re Viola), 469 B.R. 1, 10 (B.A.P. 9th Cir. 2012), afff d on other grounds, 583 F. App x 669 (9th Cir. 2014), the Bankruptcy Appellate Panel rejected the same argument, writing: [i]t is not the place of this Panel to read in an expansion of clear statutory limits. Charles Ponzi s scheme was uncovered in the 1920 s and surely, if Congress had intended to write into Section 546(e) a Ponzi scheme exception, it could easily have done so. Absent an exception in the statute, as the Second Circuit correctly held, a court has no power to legislate such an exception into the law. Petitioners suggest that there is a split in the Circuits in principle. Even assuming such an amorphous split would fall within the scope of Rule 10(a) of the Rules of this Court, none exists. The cases on which the Petitioners rely are cases where Section 546(e) did not apply because the debtor was not a stockbroker. See e.g., Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 809 (9th Cir. 2008); Wider v. Wootton, 907 F.2d 570, 571 (5th Cir. 1990) (Tr. Pet. at 27-28; SIPC Pet. at 29-30); Kipperman v. Circle Trust F.B.O., (In re Grafton Partners, LP), 321 B.R. 527 (B.A.P. 9th Cir. 2005). Thus, the petitions should be denied. COUNTERSTATEMENT OF THE CASE A. Statutory Background Congress enacted the Securities Investor Protection Act of 1970 ( SIPA ), 15 U.S.C. 78aaa et seq., to protect investors of a failed brokerage firm and thereby instill confidence in the capital markets. See Sec. Investor Prot.

16 3 Corp. v. Barbour, 421 U.S. 412, 415 (1975). SIPA created SIPC, which is responsible for initiating liquidation proceedings when it determines that a member broker has, inter alia, failed or is in danger of failing to meet its obligations to customers. Homes v. Sec. Investor Prot. Corp., 503 U.S. 258, 261 (1992) (quoting 15 U.S.C. 78eee(a)(3)). If the court agrees, it must appoint a trustee to liquidate the firm and transfer the proceeding to the bankruptcy court. See 15 U.S.C. 78eee(b)(3), (4). A SIPA trustee s duties include marshalling customer property and distributing the property ratably to customers of the failed brokerage fi rm. See 15 U.S.C. 78fff-2(b) and (c). If the pool of customer property is insufficient to satisfy the customers claims, the SIPA trustee may recover any property transferred by the debtor which, except for such transfer, would have been customer property, but only if and to the extent that such transfer is voidable or void under the [the Bankruptcy Code]. See 15 U.S.C. 78fff-2(c)(3). The Bankruptcy Code allows a bankruptcy trustee to avoid certain payments made by the debtor pre-petition. Section 548 provides in relevant part: (a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily

17 4 (A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or (B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor s ability to pay as such debts matured; or (IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business. 11 U.S.C. 548(a)(1).

18 5 The Bankruptcy Code also permits a trustee to avoid any transfer that an unsecured creditor can avoid under applicable state law. See 11 U.S.C. 544(b). Under New York s fraudulent transfer law, which applies here, the reach back period for fraudulent transfers is six years. See N.Y. C.P.L.R Congress recognized that the insolvency of one stock brokerage firm can have a ripple effect on the securities market. See H.R. Rep. No at 1 (1982), reprinted in 1982 U.S.C.C.A.N. 583, 583. Hence, Congress enacted an exemption in Section 546(e) from a bankruptcy trustee s avoidance powers for certain securities-related payments made by a debtor. Id. at 2; see also 11 U.S.C. 546(e). Section 546(e) provides in relevant part: [T]he trustee may not avoid a transfer that is a... settlement payment,... made by or to (or for the benefit of) a... stockbroker..., or that is a transfer made by or to (or for the benefit of) a... stockbroker,... in connection with a securities contract... that is made before the commencement of the [bankruptcy] case, except under section 548(a)(1)(A) of [the Bankruptcy Code]. 11 U.S.C. 546(e). The Bankruptcy Code defi nes stockbroker as a person, with respect to which there is a customer, that is engaged in the business of effecting transactions in securities... for the accounts of others, or with members of the general public, from or for such a person s own account. 11 U.S.C. 101(53A); see 11 U.S.C. 741 (defining customer ).

19 6 The Bankruptcy Code defines a settlement payment to include a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, a net settlement payment, or any other similar payment commonly used in the forward contract trade. 11 U.S.C. 741(8). The Bankruptcy Code defines securities contract broadly to include ten different types of agreements or transactions, plus an eleventh catch-all provision that encompasses any other agreement or transaction that is similar to an agreement or transaction referred to in the definition. See id. 741(7). Three of those types are relevant here: a contract for the purchase, sale, or loan of a security, id. 741(7)(A)(i); a master agreement, id. 741(7)(A)(x); and a security agreement or arrangement related to any agreement or transaction referred to in this subparagraph, including any guarantee or reimbursement obligation by or to a stockbroker, id. 741(7)(A)(xi). B. Factual Background and Procedural History 1. Background Information About Madoff Securities Madoff Securities was a securities brokerage fi rm registered with the SEC. Pet. App. 32a, 36a. 1 It purported to operate three business units: an investment advisory unit, a market making unit, and a proprietary trading unit. Id. Respondents were customers of Madoff 1. All citations to the appendices will be to the SIPC Petitioner s (Pet. App.), unless otherwise noted herein.

20 7 Securities investment advisory unit. Id. at 37a. Although the Trustee s complaints against the Respondents allege that Madoff Securities investment advisory unit did not engage in securities transactions, the Trustee s expert concluded that Madoff Securities market making and proprietary divisions engaged in legitimate trading. Id. at 36a. Indeed, it was only by virtue of such trading and its other trappings of legitimacy that Madoff Securities could maintain its registration with the SEC. Id. Customers of the investment advisory unit, including the Respondents, entered into a Customer Agreement, an Option Agreement, a Trading Authorization Limited to Purchases and Sales of Securities and Options, or some combination of the three (together, the Account Documents ) with Madoff Securities when opening their accounts. Id. at 32a; id. at 17a. In the Customer Agreement, each customer authorized Madoff Securities to open or maintain an account for his benefit. Id. at 17a. The Trading Authorization appointed Madoff Securities as the customer s agent and attorney in fact to buy, sell and trade in stocks, bonds, and any other securities in accordance with [Madoff Securities ] terms and conditions for the [customer s] account. Id. (internal citation omitted). The Option Agreement authorized Madoff Securities to engage in options trading for the customer s account. Id. The Account Documents also gave Madoff Securities the discretion to liquidate securities in the customers accounts as necessary to implement their sell orders and withdrawal requests. See id. at 27a. Pursuant to the Account Documents, Madoff Securities purported to make securities investments on customers behalf by executing a split strike conversion

21 8 strategy with customers funds. Id. at 33a; 9a. The split strike conversion strategy entailed timing the market to purchase a basket of stocks on the S&P 100 Index and then hedging those purchases with related options contracts. Id. at 9a. Madoff Securities sent monthly statements... to each of its investment advisory clients showing the securities that Madoff Securities claimed to hold for the client and the trades that it claimed to have executed on the client s behalf during the applicable period. Id. at 33a. Madoff Securities, however, never or almost never executed any trades on behalf of the customers of the investment advisory unit. Id. When a customer requested a withdrawal from his account, Madoff Securities paid the customer from the comingled bank account where customers funds were collectively held and reflected the transaction on the monthly statements sent to the customer. Id. at 9a-10a. 2. The Clawback Suits In December 2008, the Madoff scheme was exposed and liquidation proceedings began in the district court. Id. at 10a. The Trustee commenced hundreds of clawback suits against Madoff Securities customers, pursuant to Section 548(a)(1)(A) and (B), as well as New York s fraudulent transfer law under Section 544, seeking to avoid, and thereby to recover, funds that the customers withdrew from their accounts before the fraud was uncovered. Id. at 32a. Certain customers moved to dismiss the complaints, arguing that Section 546(e) created a safe harbor that insulated the transfers from the Trustee s avoidance action. The parties agreed that the district court s decision in those cases would also apply to eighty of the Trustee s other pending recovery actions against Madoff Securities customers. Id. at 31a.

22 9 3. The District Court Decision The district court agreed with the customers that Section 546(e) barred the recovery of their withdrawals, except in the case of actual fraud. Id. at 34a-35a. That was the second time the district court held that Madoff Securities was a stockbroker, and that the withdrawals made by its customers were both settlement payments and made in connection with a securities contract. Id. 37a-41a. The court acknowledged that it had previously concluded that 546(e) precludes the Trustee from bringing any action to recover from any of Madoff s customers any of the monies paid by Madoff Securities to those customers except in the case of actual fraud[,] and incorporated its decision by reference, but nevertheless considered the matter de novo, notwithstanding its finding that collateral estoppel likely barred the Trustee from relitigating the issue. Id. at 34a-35a (internal citation omitted). The district court held that Madoff Securities, which was registered as a stockbroker with the SEC, engaged in legitimate trading on behalf of two of its divisions, held itself out to all of its customers as a firm engaged in effecting securities transactions, and was a stockbroker under the Bankruptcy Code. Id. 36a-37a. It found that the Account Documents clearly qualify as securities contracts. Id. at 38a. Recognizing that the transfers the Trustee seeks to avoid are protected under Section 546(e) as transfers made by a stockbroker in connection with a securities contract, the court held that the withdrawals also constituted settlement payments and fell within the safe harbor created by Section 546(e). Id. at 39a.

23 10 4. The Court of Appeals Decision In a thoroughly reasoned opinion, the Second Circuit unanimously affi rmed. Id. at 3a. The fact that Madoff Securities was a stockbroker for purposes of Section 546(e) was undisputed. Id. at 14a. The court s analysis, therefore, turned on whether the transfers either were made in connection with a securities contract or were settlement payments. Id. at 15a. The court explained that the term securities contract expansively includes contracts for the purchase or sale of securities, as well as any agreements that are similar or related to contracts for the purchase or sale of securities and that the definition is broadened even further because 546(e) also protects a transfer that is in connection with a securities contract. Id. at 16a-17a. The Second Circuit concluded that the Account Documents constituted securities contracts based on four separate grounds. Id. at 18a-20a. First, the Account Documents are securities contracts because [o]n their face, [they] are agreements by which [Madoff Securities] will acquire or dispose of securities on behalf of its customers. Id. at 18a. Second, the Account Documents are master agreements. Id. at 18a-19a. Third, the Account Documents fit the definition of a securities contract as any security agreement or arrangement related to any agreement or transaction referred to in this subparagraph, including any guarantee or reimbursement obligation by or to a stockbroker because they obligate Madoff Securities to reimburse its customers upon a request for withdrawal. Id. at 19a. Lastly, the court found that relationship between [Madoff Securities] and its customers established by the Account Documents involved agreement[s] that are similar to contracts for

24 11 the purchase, sale or loan of a security.... Id. at 20a (citing 11 U.S.C. 741(7)(A)(i), (vii)). The Second Circuit rejected the Trustee s argument that Section 546(e) does not apply because Madoff Securities never initiated, executed, completed or settled the securities transactions it promised to engage in. The court explained that this argument misses the point because [i]t does not engage with the language Congress chose for 741(7) and 546(e) which do not contain a purchase or sale requirement. Id. at 20a. The court wrote: Section 546(e) only requires that a covered transfer be broadly related to a securities contract, not that it be connected to an actual securities transaction. Id. at 21a. Furthermore, the court held that adoption of the Trustee s interpretation risks the very sort of significant market disruption that Congress was concerned with. Id. at 21a-22a. The court recognized that [t]he magnitude of [Madoff Securities ] scheme, which included thousands of customers and billions of dollars under management, is unprecedented. Id. at 22a. It concluded, therefore, that [p]ermitting the clawback of millions, if not billions, of dollars from [Madoff Securities ] clients many of whom are institutional investors and feeder funds would likely cause the very displacement that Congress hoped to minimize in enacting 546(e). Id. Moreover, it held that Madoff Securities customers have every right to avail themselves of Section 546(e) protection given they had every reason to believe it was conducting securities transactions. Id. The court also rejected the Trustee s argument that the Account Documents must specifically identify

25 12 any security, issuer, quantity, price, or other terms necessary to describe a security transaction to constitute securities contracts[,] concluding that [t]his argument constructs a requirement that the law does not contain. Id. The court recognized that [t]he Trading Authorization identifies a specific category of public securities (S&P 100 stocks) to be traded[,] which satisfies the requisite level of specificity. Id. Having found that the Account Documents were securities contracts, the court ha[d] little difficulty concluding that the customers withdrawals were made in connection with those agreements. Id. at 24a-25a. The court explained that [i]n the context of 546(e), a transfer is in connection with a securities contract if it is related to or associated with the securities contract. Id. at 25a (quoting Webster s 3d New Int l Dictionary 481 (1993)). It held that the in connection with requirement was satisfied because Madoff Securities represented that it would transact securities, customers deposited money based on that representation and entered into securities contracts, and customers... withdrawals from their accounts were therefore related to, and associated with, this securities contract. Id. The court rejected the Trustee s argument that Ponzi scheme payments, by definition, are not in connection with a securities contract because the agreements were either irrelevant or the payments were not authorized by the agreements. Id. The court explained that Section 546(e) sets a low bar for the required relationship between the securities contract and the transfer sought to be avoided. Id. at 26a. Furthermore, Congress could have raised the bar by requiring that the transfer be made

26 13 pursuant to, or in accordance with the terms of, or as required by, the securities contract, but it did not. Id. The court found, therefore, that the transfers were made in connection with a securities contract. The fact that a payment was made in connection with a Ponzi scheme does not mean that it was not at the same time made in connection with a (breached) securities contract because [a]fter all, a transfer can be connected to, and can be made in relation to, multiple documents or purposes simultaneously. Id. The Second Circuit held that there was another basis to shield the transfers from avoidance under 546(e). Id. The transfers constitute settlement payments under that provision. Id. The court dismissed the Trustee s contention that the transfers are not settlement payments because no trading actually occurred, explaining that the term settlement payment has been broadly interpreted to apply to the transfer of cash or securities made to complete [a] securities transaction. Id. at 27a (quoting Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329, 334 (2d. Cir. 2011)). Each time a customer requested a withdrawal from [Madoff Securities], he or she intended that [Madoff Securities] dispose of securities and remit payment to the customer. Id. Therefore, each transfer constituted a settlement payment. Id. The court also rejected the Trustee s argument that application of Section 546(e) would be inconsistent with In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011)(the Net Equity Decision ), in that it would be tantamount to giving legal effect to Madoff s fraud. Id. at 27a-29a. The court explained that in enacting the Bankruptcy Code, Congress struck careful balances

27 14 between the need for an equitable result for the debtor and its creditors, and the need for finality. Id. at 28a (citing In re Century Brass Prods., Inc., 22 F.3d 37, 40 (2d Cir. 1994)). And by enacting 546(e), Congress provided that, for a very broad range of securities-related transfers, the interest in finality is sufficiently important that they cannot be avoided by a bankruptcy trustee at all, except as actual fraudulent transfers under 548(a)(1)(A). Id. at 29a. It recognized, therefore, that the court is obliged to respect the balance Congress struck among these complex competing considerations. Id. REASONS FOR DENYING THE PETITIONS Petitioners grievance with the Second Circuit s decision is that the court refused to re-write Section 546(e) to the Petitioners liking. But even if Petitioners could make out a case that the Second Circuit committed legal error (which they cannot), the correction of legal error of itself is not the accepted office of certiorari, and not even Petitioners contend the Second Circuit s decision has so far departed from the accepted and usual course of judicial proceedings as to warrant granting the writ pursuant to Rule 10(a). A petition for certiorari is rarely granted when the asserted error consists of... the misapplication of a properly stated rule of law. R. 10. However, assuming error correction were the touchstone, the Petitions would still fail because Petitioners do not even make out an arguable case for error or misapplication of a properly stated rule of law. As this Court has repeatedly held, it is Congress that writes the laws and the courts that enforce them. The Second Circuit applied this settled rule faithfully and correctly.

28 15 THE SECOND CIRCUIT CORRECTLY INTERPRETED SECTION 546(E) Statutory interpretation must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose. Engine Mfrs. Ass n v. S. Coast Air Quality Mgmt. Dist., 541 U.S. 246, 252 (2004) (citation omitted). If the statute is clear and unambiguous, courts must give effect to Congress unambiguously expressed intent. Kmart Corp. v. Cartier, Inc., 486 U.S. 281, 281 (1988). Section 546(e) establishes an exception to a trustee s power to avoid transfers by stockbrokers that are made in connection with securities contract[s] or those that constitute settlement payment[s] : The trustee may not avoid a transfer that is a... settlement payment, as defined in section 101 or 741 of this title, made by... a... stockbroker... or that is a transfer made by... a... stockbroker... in connection with a securities contract, as defined in section 741(7)... that is made before the commencement of the case, except under section 548(a)(1)(A) of this title. 11 U.S.C. 546(e) (emphasis added). Six Courts of Appeal have held that Section 546(e) must be applied according to its plain terms. See Peterson, 729 F.3d at 749 ( We apply the text [of Section 546(e)]..., not themes from a history that was neither passed by a

29 16 majority of either House nor signed into law ); Enron, 651 F.3d at 339 ( Because we reach this conclusion by looking to the statute s plain language, we decline to address Enron s arguments regarding legislative history, which, in any event, would not lead to a different result. ); In re QSI Holdings, Inc., 571 F.3d 545, 550 (6th Cir. 2009) (rejecting a proposed limitation on Section 546(e) where nothing in the statutory language indicates that Congress sought to limit that protection in the way proposed); Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 986 (8th Cir. 2009) ( Here, the relevant text has a sufficiently plain and unambiguous meaning. ); In re Resorts Intern., Inc., 181 F.3d 505, 516 (3d Cir. 1999) ( [W]e see no absurd result from the application of the statute s plain language and will not disregard it. ); Kaiser Steel Corp. v. Charles Schwab & Co., Inc., 913 F.2d 846, 850 (10th Cir. 1990) (rejecting proposed limitation based on legislative history, holding that because of the variety and scope of different securities transactions, and the absence of any restrictions in sections 546(e) and 741(8), it would be an act of judicial legislation to establish such a limitation. ); see also Official Comm. of Unsecured Creditors Quebecor (USA) Inc. v. American United Life Ins. Co. (In re Quebecor World (USA) Inc.), 719 F.3d 94, 99 (2d Cir. 2013) (following Third, Sixth, and Eighth Circuits in holding that plain language of Section 546(e) governs scope). Section 546(e) contains a specific exception for actual fraudulent transfers under Section 548(a)(1)(A) and, if Congress intended to include another exception for Ponzi schemes, it would have done so. But it did not. Therefore, a court has no power to legislate a Ponzi scheme exception to the safe harbor created by Section 546(e). See Andrus v. Glover Constr. Co., 446 U.S. 608, (1980)

30 17 ( [W]here Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied.... ); Tennessee Valley Auth. v. Hill, 437 U.S. 153, 188 (1978) (refusing to adopt exemption not provided for by plain language of Endangered Species Act and noting, under the maxim of expressio unius est exclusio alterius, we must presume that [the express exemptions] were the only hardship cases Congress intended to exempt ); Grade v. FCStone, LLC, 746 F.3d 244, 253 (7th Cir. 2014) (declining to read into Section 546(e) an exception for preferential transfers). Although a resort to legislative history is unnecessary where, as here, the statutory language is clear, see Kmart Corp. 486 U.S. at 281, the legislative history of Section 546(e) illustrates that Congress has significantly expanded the scope of the statute over the years through amendments, often with the goal of reduc[ing] systemic risk in the banking system and financial marketplace. See, e.g., H.R. Rep. No (I) 2005, at 20, reprinted in 2005 U.S.C.C.A.N It has never adopted the exception Petitioners ask the Court to engraft. In 2005, Congress enlarged the scope of the persons protected by the safe harbor of Section 546(e). See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No , 119 Stat. 23 (adding financial participant as a person protected under Section 546(e)). Congress also enlarged the reach-back period for actual fraudulent transfer claims to two years, but, notably, it did not enact an explicit exception for Ponzi schemes. Id. In 2006, Congress enlarged the safe harbor to include transfers by or to stockbrokers (as well as financial institutions and other entities) in connection with

31 18 securities contracts, excluding those reached by the twoyear reach back period. Financial Netting Improvements Act of 2006, Pub. L. No , 120 Stat See U.S. v. Smith, 499 U.S. 160, (1991) ( Congress express creation of... two exceptions convinces us that the Ninth Circuit erred in inferring a third exception.... ). As the District Court for the Southern District of New York correctly recognized in Picard v. Katz, relying on the fact that Congress had revisited Section 546(e) on numerous occasions: [i]f Congress did not mean to be taken literally, Congress had ample opportunity to narrow or alter the wording, but Congress chose not to. 462 B.R. 447, 452, n.3 ( 2011). Accordingly, as the District Court correctly held and the Second Circuit affirmed, the Petitioners proposal to read a Ponzi scheme exception into the statute cannot be squared with the fact that only an exception for actual fraudulent transfers is explicitly set forth in Section 546(e). See Pet. App. 42a ( The Trustee offers no explanation for why Congress, if it had in fact wanted to enact the general fraud exception the Trustee advocates, did not express that intention in the statute, when it did express its desire to exempt 548(a)(1)(A). ). Numerous courts have reached the same conclusion. See Peterson, 729 F.3d at 749 ( [i]f the Trustee were right that 546(e) is irrelevant when the debtor in bankruptcy had any role in a fraud, why did Congress add the exception referring to 548(a)(1)(A)? The presence of an exception for actual fraud makes sense only if 546(e) applies as far as its language goes. ); Grayson Consulting, Inc. v. Wachovia Secs., Inc. (In re Derivium Capital LLC), 716 F.3d 355, 366 (4th Cir. 2013) (declining to add an extra-statutory fraud exception [for Ponzi schemes] to the stockbroker

32 19 defense in light of several explicit exceptions, including claims under Section 548(a)(1)(A)); Wyle v. Howard, Weil, Labouisse, Freidrichs Inc. (In re Hamilton Taft & Co.), 114 F.3d 991, 994 (9th Cir. 1997) (rejecting Trustee s contention that claim should be exempt from 546(e) s reach because the transfer at issue was fraudulent ); In re Viola, 469 B.R. at 10 (declining to create an exception for fraudulent schemes); Official Comm. of Unsecured Creditors of Nat l Forge Co. v. Clark (In re National Forge Co.), 344 B.R. 340, 370 (W.D. Pa 2006) ( [I]f Congress had intended to exempt from 546(e) s protection allegations of actual fraud under state law fraudulent transfer theories, it could have easily done so. ). Thus, the Second Circuit correctly gave effect to the statute that Congress wrote. A. It Is Undisputed that Madoff Securities was a Stockbroker Petitioners abandoned on appeal the argument that Madoff Securities was not a stockbroker. See Pet. App. 14a. Applying the plain language of the statute, the Second Circuit then held that the payments that customers received from Madoff Securities are protected from avoidance because they were payments by a stockbroker that were both settlement payment[s] and in connection with a securities contract. See id. at 15a. B. The Transfers Are Settlement Payments under Section 741(8) 1. Section 741 (8) does not contain a purchase or sale requirement. Section 741(8) defines settlement payment expansively to include preliminary, partial, and interim

33 20 settlement payments, or a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade[.] 11 U.S.C. 741(8). This definition is extremely broad. Enron, 651 F.3d at 334; accord In re QSI Holdings, Inc., 571 F.3d at 549; Contemporary Indus. Corp., 564 F.3d at 985. Settlement payments include[] almost all securities transactions. In re Resorts Int l, Inc., 181 F.3d at 515; accord Kaiser Steel, 952 F.2d at 1237; In re QSI Holdings, Inc., 571 F.3d at ; Contemporary Indus. Corp., 564 F.3d at 987. As the Second Circuit held, the transfers here fall within the Bankruptcy Code s broad defi nition of settlement payment because the withdrawals constituted settlement payments of Madoff Securities obligations to customers under, among other things, the Account Agreements and Article 8 of the N.Y.U.C.C. Pet. App. 27a. Because the customer[s] granted Madoff Securities discretion to liquidate securities in their accounts to the extent necessary to implement their sell orders or withdrawal requests, each transfer in respect of a such an order or request constituted a settlement payment. Id. The Trustee argues that a settlement payment requires an actual transaction. (Tr. Pet. at 15.) However, as the Second Circuit correctly held, nowhere does Section 546(e) require an actual purchase or sale of a security. A court cannot change the statute s meaning by injecting additional terms. See Lamie v. United States Trustee, 540 U.S. 526, 534 (2004) ( It is well established that when the statute s language is plain, the sole function of the courts at least where the disposition required by the text is not absurd is to enforce it according to its terms. ) (quoting Hartford Underwriters Ins. Co. v.

34 21 Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) (internal quotation marks omitted)); Connecticut Nat l Bank v. Germain, 503 U.S. 249, (1992) ( [C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there. ); accord Enron, 651 F.3d at (rejecting invitation to read into Section 546(e) a purchase or sale requirement). Because Section 546(e) has no purchase or sale requirement, it is irrelevant that Madoff Securities never bought or sold securities for its customers. 2. The Petitioners cases are inapposite. a. Relying on Enron the Trustee argues that, because settlement refers to the completion of a securities transaction[,] [t]he sine que non of a settlement payment is... that it concludes an actual transaction. (Tr. Pet. at 15 (quoting Enron, 651 F.3d at 336.)) The reliance is misplaced; Enron, explicitly rejected a similar argument. 651 F.3d at Enron argued that Section 546(e) did not apply because a settlement payment must involve the purchase or sale of equity securities, not just a retirement of debt securities. See id. at 336. But the Second Circuit held that it would not impose such a requirement on 741(8) because there is no basis in the Bankruptcy Code or the case law for a purchase or sale requirement. Id. at 338. The Trustee s contention here that Section 546(e) requires a securities transaction suffers from the same defect. Pet. App. 20a-21a; see also Trezziova v. Kohn (In re Herald, Primeo & Thema), 730 F.3d 112, 118 (2d Cir. 2013) ( [T]he fact that Madoff Securities may not have actually executed their pretended securities trades does not take this case outside the ambit of SLUSA. ) (citing Instituto de Prevision Miliatar v. Merrill Lynch, 546 F.3d 1340, 1352 (11th Cir. 2008)).

35 22 There is no Court of Appeals that has acceded to the request that it expand on the plain meaning of Section 546(e). For example, in Contemporary Indus. Corp., the appellant argued that certain payments made as part of a leveraged buyout were not settlement payments under Section 546(e) because that section was enacted to protect the stability of the financial markets and only protects payments made to settle public securities transactions. 564 F.3d at 984. The Eighth Circuit rejected this argument because nothing in the text of Section 546(e) limited it to public transactions. See id. at 986. b. The Trustee argues that fraudulent payments in connection with a Ponzi scheme should not be regarded as settlement payments because they are not commonly used in the securities trade[.] (Tr. Pet. at 19.) But, as the Trustee admits, in Enron, the Second Circuit rejected the argument that the fi nal phrase of Section 741(8) s definition of settlement payment i.e., commonly used in the securities trade excludes all payments that are not common in the securities industry[.] See Enron, 651 F.3d at 335. The Enron court reasoned that the phrase commonly used in the securities trade modified only the immediately preceding phrase any other similar payment because there was no comma separating the modifier commonly used in the securities industries from the antecedent any other similar payment[:] Under the rule of the last antecedent,... a limiting clause or phrase... should ordinarily be read as modifying only the noun or phrase that it immediately follows. Barnhart v. Thomas, 540 U.S. 20, 26, 124 S.Ct. 376, 157 L.Ed.2d 333 (2003); see also Stepnowski v. Comm r, 456 F.3d

36 23 320, 324 n. 7 (3d Cir.2006) ( Under the lastantecedent rule of construction,... the series A or B with respect to C contains two items: (1) A and (2) B with respect to C. ). Enron seizes on a corollary rule of construction under which a modifier... set off from a series of antecedents by a comma... should be read to apply to each of those antecedents. Kahn Lucas Lancaster, Inc. v. Lark Int l Ltd., 186 F.3d 210, 215 (2d Cir.1999), abrogated on other grounds as recognized by Sarhank Grp. v. Oracle Corp., 404 F.3d 657, 660 n. 2 (2d Cir.2005). Id. at The court, therefore, concluded that the phrase is not a limitation on the definition of settlement payment, but rather, as our sister circuits have held, it is a catchall phrase intended to underscore the breadth of the 546(e) exemption. Id. at 336 (citations omitted). The Sixth and Eighth Circuits agree. See e.g., In re QSI Holdings, Inc., 571 F.3d at 550; Contemporaneous Indus. Corp., 564 F.3d at 986. Enron s holding has been favorably cited in other cases. See e.g., In re Quebecor World (USA) Inc., 480 B.R. 468, 474 ( 2012); In re D.E.I. Systems, Inc., 996 F. Supp. 2d 1142 (D. Utah Jan. 23, 2014). c. The Trustee attempts to create a conflict between Enron and decisions of other Courts of Appeals, but Enron like other federal appellate courts recognizes that settlement payments are transfers of money or securities to complete a securities transaction. See Enron, 651 F.3d at ; accord Contemporary Indus. Corp., 564 F.3d at 985; In re Resorts Int l, 181 F.3d at

37 ; In re Kaiser Steel Corp., 952 F.2d at The meaning of settlement payment, i.e., a transfer made to complete a securities transaction, does not change based on whether fraud had some impact on the transfer. See Katz, 462 B.R. at 452. Moreover, as the Enron court correctly held, construction of Section 546(e) in a way that would depend on a factual determination in each case regarding the commonness of a given transaction as the Trustee proposes would result in commercial uncertainty and unpredictability at odds with the safe harbor s purpose and in an area of law where certainty and predictability are at a premium. 651 F.3d at 336 (citations omitted; emphasis added). d. The Trustee relies on In re Grafton Partners, L.P., 321 B.R. 527 (B.A.P. 9th Cir. 2005), but Grafton predates the 2006 amendment that added the securities contract prong to Section 546(e), did not involve a stockbroker, and is inconsistent with the Bankruptcy Appellate Panel for the Ninth Circuit s more recent decision rendered in In re Viola, 469 B.R. 1, in Viola dealt with the precise issue here: an attempt to impose a Ponzi scheme exception on Section 546(e). The Ninth Circuit Bankruptcy Appellate Panel, like the Seventh Circuit, rejected the argument that Section 546(e) should not be used as a free pass to avoid liability in a scheme to defraud. 469 B.R. at 10; accord Peterson, 729 F.3d at The Viola court held that the argument was inconsistent with the text of Section 546(e): the drafters of the Bankruptcy Code have already provided a limitation on 546(e) to that effect by excluding actual fraudulent transfers from the protections of 546(e). Id.

38 25 The Viola court explained that the plain language of Section 546(e) precluded the trustee from avoiding transfers made by a Ponzi scheme debtor, reasoning that [i]t is not the place of this Panel to read in an expansion of clear statutory limits. Id.; see also In re Refco, Inc. Sec. Litig., 2009 WL , at *5 ( Nov. 13, 2009) report and recommendation adopted sub nom. In re Refco Sec. Litig., 2010 WL ( Jan. 12, 2010). e. The Trustee also relies upon Bevill, Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan Ass n, 878 F.2d 742 (3d Cir. 1989). However, in that case, the Third Circuit considered what constituted a settlement payment within the unique nature of the federal government s securities repurchase market. f. The Trustee cites Contemporary Indus. Corp., but, in that case, the Eighth Circuit addressed whether Section 546(e) applied to payments made to selling shareholders in connection with a leveraged buyout of privately held securities. See 564 F.3d at 986. The Court s reasoning in Contemporary Indus. Corp. is, however, consistent with the Second Circuit s reasoning. The Contemporary Indus. Corp. court began and ended its analysis with the statutory text, concluding that the relevant text has a sufficiently plain and unambiguous meaning. Id. Based on the statute s plain language, it concluded that [n]othing in the relevant statutory language suggests Congress intended to exclude these payments from the statutory definition of settlement payment simply because the stock at issue was privately held. Id.