1 00:00:00,000 --> 00:00:26,400 of the 2 00:00:26,920 --> 00:00:29,840 and 3 00:00:29,840 --> 00:00:40,240 the 4 00:00:30,160 --> 00:00:40,440 一 5 00:00:31,100 --> 00:00:32,920 We're were 6 00:00:32,760 --> 00:00:43,680 contemplating the 7 00:00:40,340 --> 00:00:47,560 record. Founding that ducks 8 00:00:40,380 --> 00:00:46,900 whether the district, 9 00:00:43,780 --> 00:00:47,980 got him, 10 00:00:47,040 --> 00:00:51,560 that the net investment as a 11 00:00:47,680 --> 00:00:52,280 matter of law for calculating 12 00:00:51,120 --> 00:00:55,160 the net equity in 13 00:00:51,660 --> 00:00:55,860 appellants, buying a hold 14 00:00:55,860 --> 00:01:03,760 the net investment method 15 00:00:56,560 --> 00:01:04,660 should be rare because it 16 00:01:00,160 --> 00:01:07,700 wipes out a customer's entire 17 00:01:03,900 --> 00:01:08,700 investment history. The court 18 00:01:04,800 --> 00:01:09,700 approved the use of the net 19 00:01:07,840 --> 00:01:13,680 investment method in that case 20 00:01:08,840 --> 00:01:17,680 only because of this 21 00:01:09,840 --> 00:01:18,380 extraordinary facts. The very 22 00:01:13,800 --> 00:01:22,320 first fact that case. I mean, 23 00:01:17,820 --> 00:01:24,520 this is part of the same 24 00:01:24,520 --> 00:01:32,260 case. The net investment method 25 00:01:28,260 --> 00:01:32,960 that we seem to apply here that 26 00:01:29,220 --> 00:01:33,560 being the fact that these 27 00:01:32,400 --> 00:01:37,300 sales were not actually made. 28 00:01:33,100 --> 00:01:41,300 We're talking about fictitious 29 00:01:33,700 --> 00:01:42,440 amounts fictitious statements. 30 00:01:37,440 --> 00:01:45,340 And so that what made that case 31 00:01:41,440 --> 00:01:46,040 unusual is the same thing that 32 00:01:42,580 --> 00:01:49,440 makes this one unusual and not 33 00:01:45,480 --> 00:01:50,340 one where it seems like the 34 00:01:46,180 --> 00:01:50,980 last thing that would be 35 00:01:49,580 --> 00:01:51,680 appropriate. 36 00:01:51,680 --> 00:01:57,520 And so that's the case that 37 00:01:52,380 --> 00:01:58,220 we're dealing with. The fact 38 00:01:55,320 --> 00:02:02,060 that we're dealing with one 39 00:01:57,660 --> 00:02:03,060 Ponzi scheme, both involving 40 00:01:58,360 --> 00:02:03,920 Bernie made off is not 41 00:02:02,200 --> 00:02:06,100 dispositive that the that other 42 00:02:03,200 --> 00:02:10,060 than the net equity decision, 43 00:02:04,060 --> 00:02:10,800 the case that is most similar 44 00:02:06,240 --> 00:02:14,040 to the at bar is the New Times 45 00:02:10,200 --> 00:02:14,740 case that also was a Ponzi 46 00:02:10,940 --> 00:02:18,140 scheme that also and in that 47 00:02:14,180 --> 00:02:19,040 case, civic and the civic 48 00:02:19,040 --> 00:02:25,940 trustee, the other one, the 49 00:02:22,040 --> 00:02:26,640 other one, the other one, the 50 00:02:23,100 --> 00:02:30,680 other thought they were buying 51 00:02:26,080 --> 00:02:32,680 real securities that never 52 00:02:26,780 --> 00:02:33,380 were actually purchased. And 53 00:02:30,820 --> 00:02:34,680 the civic and the civic trust 54 00:02:32,820 --> 00:02:36,920 he applied the net investment 55 00:02:33,520 --> 00:02:38,760 method to the first class of 56 00:02:34,820 --> 00:02:40,960 customers and applied the last 57 00:02:37,060 --> 00:02:42,960 statement method to the second 58 00:02:38,880 --> 00:02:44,860 class of customers, which now 59 00:02:41,080 --> 00:02:46,900 leads to so the point is that 60 00:02:43,100 --> 00:02:47,600 even within one Ponzi scheme, 61 00:02:47,600 --> 00:02:51,760 there's a different method 62 00:02:49,300 --> 00:02:53,800 applied to the second class of 63 00:02:50,300 --> 00:02:54,500 customers where there's 64 00:02:51,900 --> 00:02:57,500 different methods applied. And 65 00:02:53,940 --> 00:02:58,500 that's what we're urging here. 66 00:02:54,640 --> 00:02:59,200 And this leads into the second 67 00:02:57,640 --> 00:03:03,280 issue that the second class of 68 00:02:58,640 --> 00:03:03,980 customers in the New Times 69 00:02:59,340 --> 00:03:04,680 case. Also, we're in a 70 00:03:03,420 --> 00:03:12,520 situation where securities 71 00:03:04,120 --> 00:03:15,520 were never actually purchased. 72 00:03:04,820 --> 00:03:17,500 The the the so that treatment 73 00:03:17,500 --> 00:03:24,400 was not actually purchased. 74 00:03:20,560 --> 00:03:25,100 So the second issue that the 75 00:03:22,440 --> 00:03:27,900 second court endorsed or cited 76 00:03:24,540 --> 00:03:29,740 approvingly by this court in 77 00:03:25,240 --> 00:03:30,880 the net equity decision. It 78 00:03:28,040 --> 00:03:32,640 specifically cited the 79 00:03:29,880 --> 00:03:33,320 language from that decision 80 00:03:31,020 --> 00:03:35,120 that said that the accounts 81 00:03:32,780 --> 00:03:36,820 gave its mirror. What would 82 00:03:33,440 --> 00:03:37,520 have happened had the 83 00:03:35,240 --> 00:03:38,220 transactions been executed. 84 00:03:36,940 --> 00:03:42,020 Meaning it was understood that 85 00:03:37,640 --> 00:03:45,020 the securities weren't 86 00:03:38,360 --> 00:03:46,760 actually purchased. So the 87 00:03:46,760 --> 00:03:52,520 question is, is it a 88 00:03:49,020 --> 00:03:53,700 question that is not 89 00:03:51,260 --> 00:03:54,400 dispositive nor is it 90 00:03:52,660 --> 00:03:58,400 dispositive that securities 91 00:03:53,820 --> 00:04:02,200 weren't actually purchased on 92 00:03:54,520 --> 00:04:02,940 that question. That it's not 93 00:03:58,540 --> 00:04:03,640 just that the. New Times case, 94 00:04:02,340 --> 00:04:07,580 the case I was referring to 95 00:04:03,060 --> 00:04:10,480 the 2 class of customers 96 00:04:03,780 --> 00:04:11,180 credited customers who with 97 00:04:07,700 --> 00:04:13,880 respect to purchase it with 98 00:04:10,600 --> 00:04:16,620 respect to securities never 99 00:04:16,620 --> 00:04:23,520 purchased. It's fundamentally 100 00:04:19,620 --> 00:04:25,520 part of the reason I'm stuck 101 00:04:22,120 --> 00:04:27,520 on this is some of it is a 102 00:04:23,660 --> 00:04:28,520 simplicity knowing that this 103 00:04:25,660 --> 00:04:30,420 is an impossible thing to 104 00:04:27,660 --> 00:04:31,060 administer such that 105 00:04:28,660 --> 00:04:34,600 everybody's interests are 106 00:04:30,560 --> 00:04:37,540 going to be maximized. And in 107 00:04:31,200 --> 00:04:40,500 the event that it is going to 108 00:04:34,740 --> 00:04:42,680 be extraordinarily difficult 109 00:04:37,660 --> 00:04:43,380 to step into the shoes of the 110 00:04:43,380 --> 00:04:49,380 customer. And that's why I 111 00:04:44,040 --> 00:04:50,160 think it's important to be 112 00:04:46,440 --> 00:04:50,860 able to make these fine 113 00:04:49,520 --> 00:04:54,560 gradations that you want like 114 00:04:50,280 --> 00:04:55,260 this. I understand why your 115 00:04:50,980 --> 00:04:55,960 client wants this. But at some 116 00:04:54,680 --> 00:04:59,800 point, we needed to have an 117 00:04:55,380 --> 00:05:03,700 administrative system that 118 00:04:56,100 --> 00:05:07,700 works for everybody. And the 119 00:04:59,920 --> 00:05:09,700 the the decision to use the 120 00:05:03,840 --> 00:05:11,440 net equity method contemplated 121 00:05:07,840 --> 00:05:12,640 to important facts. One, it 122 00:05:12,640 --> 00:05:18,480 was a fine distinction. 123 00:05:14,540 --> 00:05:20,480 And the other was that the 124 00:05:15,380 --> 00:05:22,680 net equity method weren't 125 00:05:18,620 --> 00:05:23,480 actually transacted. Well, 126 00:05:20,620 --> 00:05:25,520 first of all, with respect to 127 00:05:22,820 --> 00:05:26,520 the notion that that we're 128 00:05:23,620 --> 00:05:27,520 proposing a fine distinction. 129 00:05:25,660 --> 00:05:30,120 What we're proposing is 130 00:05:26,660 --> 00:05:31,920 adherence to the language in 131 00:05:27,660 --> 00:05:34,560 the net equity decision itself 132 00:05:30,260 --> 00:05:35,260 on the treats it as a separate 133 00:05:32,060 --> 00:05:35,960 case. One that should be that 134 00:05:34,700 --> 00:05:39,840 may be appropriate for last 135 00:05:39,840 --> 00:05:47,580 year's net equity decision. 136 00:05:41,740 --> 00:05:47,740 And that's what we're 137 00:05:42,280 --> 00:05:51,580 proposing. It was that it was 138 00:05:47,720 --> 00:05:52,220 dictated. Well, it it was 139 00:05:47,720 --> 00:05:55,220 dictated, but it was 140 00:05:51,720 --> 00:05:56,060 fundamental to the logic of 141 00:05:52,360 --> 00:05:56,720 the decision and to the whole 142 00:05:55,360 --> 00:05:59,520 to the to the line of cases 143 00:05:56,180 --> 00:06:01,520 from which that decision came 144 00:05:56,860 --> 00:06:03,260 that don't forget that that 145 00:05:59,660 --> 00:06:03,960 when the court was deciding the 146 00:06:01,660 --> 00:06:05,660 net equity decision, it had to 147 00:06:03,400 --> 00:06:07,460 deal with the fact that 148 00:06:04,100 --> 00:06:09,200 another Ponzi scheme 7 years 149 00:06:09,200 --> 00:06:14,100 ago, the net equity decision 150 00:06:11,100 --> 00:06:15,100 was that it was a fine 151 00:06:12,740 --> 00:06:16,440 distinction. And it was 152 00:06:14,240 --> 00:06:18,440 clearly in mind that there's 153 00:06:15,240 --> 00:06:19,540 there are 2 different 154 00:06:16,580 --> 00:06:21,240 treatments that it had to 155 00:06:18,580 --> 00:06:21,920 consider one treatment when 156 00:06:19,680 --> 00:06:24,880 everything's a fraud, 157 00:06:21,380 --> 00:06:25,580 everything's fake. And this is 158 00:06:22,040 --> 00:06:29,320 going to get into the the 159 00:06:25,020 --> 00:06:33,120 sort of second part of of your 160 00:06:25,720 --> 00:06:33,800 question that I wanted to. 161 00:06:29,460 --> 00:06:37,200 This court has never approved 162 00:06:37,200 --> 00:06:39,200 the 163 00:06:37,500 --> 00:06:43,500 statement that the court 164 00:06:40,240 --> 00:06:44,180 had to make that state off. 165 00:06:41,340 --> 00:06:44,840 Right? I mean, you want some 166 00:06:43,640 --> 00:06:50,320 exceptionalism for you when 167 00:06:44,300 --> 00:06:52,320 we're talking about a massive 168 00:06:47,980 --> 00:06:53,020 fraud that infected numerous 169 00:06:50,440 --> 00:06:54,020 areas. And at some point, 170 00:06:52,440 --> 00:06:56,160 there needs to be something 171 00:06:53,140 --> 00:06:57,120 that is in the Okay. Well, 172 00:06:54,160 --> 00:07:00,160 I'll get to a minister will in 173 00:06:56,280 --> 00:07:02,160 a second. But what I do want 174 00:06:57,260 --> 00:07:04,220 to say is that this court has 175 00:07:00,320 --> 00:07:04,920 dealt with 2 Ponzi schemes and 176 00:07:02,300 --> 00:07:07,140 that in both of those 2 177 00:07:07,140 --> 00:07:11,580 precedents iscaled scam across 178 00:07:07,920 --> 00:07:34,800 their 179 00:07:10,480 --> 00:07:34,800 complaints,of asurand 180 00:07:11,720 --> 00:07:35,180 which 181 00:07:35,060 --> 00:07:35,760 that the customer authorized 182 00:07:35,760 --> 00:07:43,680 questions of law. So the first half of what I want to say is that this case is not controlled 183 00:07:43,680 --> 00:07:48,400 by the net equity decision. In fact, even Judge Keenan, when deciding whether or not 184 00:07:48,400 --> 00:07:53,000 to impose prejudgment interest, said it wasn't controlling case law. This is a different 185 00:07:53,000 --> 00:07:58,920 case. It's a unique case. And let's not forget that the net equity decision itself says no 186 00:07:58,920 --> 00:08:05,320 one size fits all and that differing facts will inevitably call, quote unquote, for different 187 00:08:05,320 --> 00:08:15,140 approaches to net equity. So we have to be case specific to your question about administrability. 188 00:08:15,140 --> 00:08:20,600 What happened in the two cases in which the court applied the net investment method was 189 00:08:20,600 --> 00:08:30,080 that it was total fraud and total fiction in the sense that the customer had no entitlement 190 00:08:30,080 --> 00:08:35,800 to profits. This was just two fraudsters who sat in a room and out of thin air said, 191 00:08:35,800 --> 00:08:40,320 this is the amount of profits I'm going to arbitrarily allocate to customers. And so 192 00:08:40,320 --> 00:08:45,320 the court said, use this extreme method of the net investment method to wipe away all 193 00:08:45,320 --> 00:08:51,200 profits only because there were no profits. Now, to the extent that when you're dealing 194 00:08:51,200 --> 00:08:54,780 with customer authorizations and directions, you have to start to make distinctions, as 195 00:08:54,780 --> 00:08:58,480 your honor is pointing to. First of all, that happens all the time. That happened in the 196 00:08:58,480 --> 00:09:04,600 Stratton-Oakmont case. That in that case, the customers had actually, that the, came 197 00:09:04,600 --> 00:09:10,920 before the trustee and said, hey, these stocks of mine were sold. I never authorized those 198 00:09:10,920 --> 00:09:15,920 stocks to be sold. And so what the trustee had to do, presumably, was interview thousands 199 00:09:15,920 --> 00:09:22,560 of customers and prove a negative, which is, hey, did you actually authorize the sale of 200 00:09:22,560 --> 00:09:26,960 these stocks or not? And the trustee ended up concluding that the sales were unauthorized 201 00:09:26,960 --> 00:09:31,640 and reversed the transactions. So the point is, making a decision about whether a customer 202 00:09:31,640 --> 00:09:36,600 authorized or didn't authorize something is not unadministrable. It's been done. But even 203 00:09:36,600 --> 00:09:42,080 if in theory we might say there's an administrability problem, we are so far away from that here. 204 00:09:42,080 --> 00:09:50,040 The counsel for the trustee in oral argument in the net equity case acknowledged that 205 00:09:50,040 --> 00:09:57,320 the, the SIPA mandates that the trustee do a complete and thorough investigation. Here. 206 00:09:57,320 --> 00:10:05,240 Tell me what the standard review is with respect to using of the net equity. Well, the district 207 00:10:05,240 --> 00:10:10,640 court found that the net investment method was superior as a matter of law. That was 208 00:10:10,640 --> 00:10:15,360 quoting language from this court and the net equity decision that the net. But didn't they 209 00:10:15,360 --> 00:10:21,040 find it was because the sage accounts did not reflect trades. So I'm trying to face 210 00:10:21,040 --> 00:10:25,520 so it is your position that this is, this is something we review new de novo because 211 00:10:25,520 --> 00:10:29,560 it's a question of law. Well, the overall question of whether or not the net investment 212 00:10:29,560 --> 00:10:35,120 method is superior to the last statement method is clearly a question of law. District court 213 00:10:35,120 --> 00:10:40,640 framed it as such. And so did the, the, this court in the net equity decision, the district 214 00:10:40,640 --> 00:10:45,880 court just quoted from that language. So yes. And the, the, the, the court, this court in 215 00:10:45,880 --> 00:10:49,760 the net equity decision said that it was going to do an independent review and that's what 216 00:10:49,760 --> 00:10:54,080 this court should do, do an independent review. Now that's not to say that there might not 217 00:10:54,080 --> 00:10:59,800 be factual questions embedded underneath. And so it may be that you, that you, in some 218 00:10:59,800 --> 00:11:04,560 case you might say, well, the question of whether there was authorization or direction 219 00:11:04,560 --> 00:11:08,360 with respect to all the transactions was a factual question, but here the district court 220 00:11:08,360 --> 00:11:14,760 applied the wrong legal standard that it imported this notion that somehow to authorize. I want 221 00:11:14,760 --> 00:11:22,880 to, I just want to be very fine on this because I think this is central. If the reason the 222 00:11:22,880 --> 00:11:30,240 district court use the net investment method was because it found that the sage accounts 223 00:11:30,240 --> 00:11:36,960 did not reflect authorized trades or were not directed by Malcolm, which you think is 224 00:11:36,960 --> 00:11:44,440 the dispositive language separating this, is that no longer a pure question of law? 225 00:11:44,440 --> 00:11:48,720 What I was about to say is I think that there's still, that there's a, that, that, that was 226 00:11:48,720 --> 00:11:54,120 a legal conclusion when the, because it was interpreting the language of the net equity 227 00:11:54,120 --> 00:11:58,920 decision, the language that we're relying on mainly that says where customers authorize 228 00:11:58,920 --> 00:12:03,960 or direct the court had a, had a take on that language and the court's take on that language 229 00:12:03,960 --> 00:12:09,360 was well, a customer only authorizes or directs within the meaning of the, of the net equity 230 00:12:09,360 --> 00:12:15,720 decision if it actually gives specific instructions as to timing and price. And that was just 231 00:12:15,720 --> 00:12:19,960 clearly wrong. First of all, it's just not what the language says. It says authorize 232 00:12:19,960 --> 00:12:25,100 or direct purchase of securities. It doesn't say purchase of securities on particular dates 233 00:12:25,100 --> 00:12:26,100 or at particular prices. 234 00:12:26,100 --> 00:12:31,900 But isn't the nature of the whole fraud here, the whole scam had to do with timing, right? 235 00:12:31,900 --> 00:12:37,220 So here I understand what you're saying, but the whole, the whole problem with this investment 236 00:12:37,220 --> 00:12:44,200 scheme had to do with the backdating and the timing of things, right? So here in this context, 237 00:12:44,200 --> 00:12:48,620 doesn't it matter whether someone said, Hey, make sure to buy me some stock in Coca-Cola 238 00:12:48,620 --> 00:12:52,080 or I want to buy on, on Tuesday morning. 239 00:12:52,080 --> 00:12:56,800 My short answer is no, it doesn't matter in this case backdating or the timing, as you 240 00:12:56,800 --> 00:13:02,420 put it, mattered in the net equity case because looking backward at historical price information 241 00:13:02,420 --> 00:13:08,840 allowed made off to designate stocks, quote unquote, from the net equity decision to engineer 242 00:13:08,840 --> 00:13:14,880 desired results. But made off here didn't designate stock, whatever stocks he chose, 243 00:13:14,880 --> 00:13:20,760 rather the appellant told made off what stocks he could buy. That's what matters here. And 244 00:13:20,760 --> 00:13:24,720 that's what the key, that's the key thing that distinguishes this case from the net 245 00:13:24,720 --> 00:13:32,080 equity case that made off fabricated account statements using backdating or any other means, 246 00:13:32,080 --> 00:13:38,100 try to make it look like he actually had engaged in the transactions or executed the transactions 247 00:13:38,100 --> 00:13:43,680 that were authorized or directed by my client. Doesn't negate the fact that my client authorized 248 00:13:43,680 --> 00:13:48,440 or directed the transactions. It's, it's, in some sense, it goes back to the legal standard 249 00:13:48,440 --> 00:13:52,920 question. It's kind of a non sequitur. The question is, did my client tell made off what 250 00:13:52,920 --> 00:13:58,320 stocks he could buy or not? And, and, and if he did, which the evidence overwhelmingly 251 00:13:58,320 --> 00:14:02,720 shows the fact that it took them a couple of weeks because they were fraudsters sitting 252 00:14:02,720 --> 00:14:06,960 in a back room and they actually hadn't purchased the securities and they would enter the date 253 00:14:06,960 --> 00:14:11,480 instead of when, if it was authorized on April 14th, they waited till May 1st and they wrote 254 00:14:11,480 --> 00:14:16,180 it in. That doesn't mean anything for purposes of the net equity analysis. It doesn't mean 255 00:14:16,180 --> 00:14:19,880 that the trades weren't authorized or directed. And it doesn't mean that the profits were 256 00:14:19,880 --> 00:14:29,240 raised. It doesn't mean anything that goes to the issues at hand. The what, what I want 257 00:14:29,240 --> 00:14:42,200 to emphasize is that the, I think that a clear way to think about this because it's obvious 258 00:14:42,200 --> 00:14:47,600 that the, that your honors are sort of troubled by the fact that there's a Ponzi scheme and 259 00:14:47,600 --> 00:14:51,440 there was so much fraud and how can we wade through it? What I wanted to just sort of 260 00:14:51,440 --> 00:14:56,240 say two things first back to the administrative ability point, but then it's a step back thing 261 00:14:56,240 --> 00:15:01,440 on the administrative ability thing. This trustee, even though it had a mandate to do 262 00:15:01,440 --> 00:15:07,280 a complete and thorough investigation, did not do the following that the, the expert, 263 00:15:07,280 --> 00:15:15,160 the trustees expert did not offer an opinion as to whether or not the sage associates account 264 00:15:15,160 --> 00:15:19,680 had consistent positive returns. Even though that was a fundamental aspect of the net equity 265 00:15:19,680 --> 00:15:24,840 decision. Fundamental aspect of that was that there was a rigged, steady and upward trajectory 266 00:15:24,840 --> 00:15:30,800 in good times and in bad. The trustees expert didn't do a simple rate of return analysis, 267 00:15:30,800 --> 00:15:35,640 even though he did it with split strike. He didn't do a volatility analysis with respect 268 00:15:35,640 --> 00:15:41,640 to trying to compare the volatility in the account to market indices. So it's really 269 00:15:41,640 --> 00:15:46,920 not, I think the right way with all respect to think about this, to say, well, it's really 270 00:15:46,920 --> 00:15:51,840 hard to administer this when they did, they didn't do their homework. And what we're talking 271 00:15:51,840 --> 00:15:56,080 about here, can I just step in? I couldn't, we're letting you go over a little bit, but 272 00:15:56,080 --> 00:16:02,520 I just, aside from questions of an administer ability, there's a timeline, just a question 273 00:16:02,520 --> 00:16:09,440 of equity and, and then the net net equity decision, part of what the court was concerned 274 00:16:09,440 --> 00:16:14,760 about was what is a fair way to determine how these disbursements are supposed to be 275 00:16:14,760 --> 00:16:19,800 made. And here, when we're talking about all of the trades are fictitious for those who 276 00:16:19,800 --> 00:16:25,440 either purportedly directed it and for those who did not. And so the idea that we're going 277 00:16:25,440 --> 00:16:35,480 to rely on which victim, none of whom had trades executed on their behalf, get more 278 00:16:35,480 --> 00:16:40,760 than the one who is purportedly directing it, that that's a basis for making distinctions 279 00:16:40,760 --> 00:16:46,040 that the principle of that, to my mind is not square with what net equity, the case 280 00:16:46,040 --> 00:16:51,760 is saying, because what part of what this is about is how do we determine how to disperse 281 00:16:51,760 --> 00:16:58,000 what is left here when you have a Ponzi scheme, when all of the trades are fake. And so this 282 00:16:58,000 --> 00:17:03,920 this method that you're suggesting suggesting for making a distinction, to my mind, it just 283 00:17:03,920 --> 00:17:09,440 has a serious to continue using the word equity problem. Okay, I'm going to give my headline 284 00:17:09,440 --> 00:17:14,040 short answer and then I want to back up a little bit. The differences, the equitable 285 00:17:14,040 --> 00:17:19,880 differences that with respect to the split strike customers, the entire thing was a fraud, 286 00:17:19,880 --> 00:17:23,960 meaning they just contracted for a strategy that turned out to be a fraud. And so to have 287 00:17:23,960 --> 00:17:28,440 said that they were entitled to profits would have been to legitimize the fraud here. We're 288 00:17:28,440 --> 00:17:34,400 not asking you to legitimize the fraud. We're asking you to honor my clients authorizations 289 00:17:34,400 --> 00:17:39,200 and directions. Those are the real things that the fake things is everything made off 290 00:17:39,200 --> 00:17:43,960 the behind the scenes. The real thing is a real thing when the reality is the person 291 00:17:43,960 --> 00:17:49,680 who gave $100 and said, let's do it. However, the person who gave $100 and said invested 292 00:17:49,680 --> 00:17:54,720 in this company, neither of those, it's all fraud. They're both giving the same amount. 293 00:17:54,720 --> 00:18:00,440 So the person who is more involved in the process deserves to get their $100 plus the 294 00:18:00,440 --> 00:18:05,560 pretend thousand dollar profit. The person who gives $100 and didn't get involved is 295 00:18:05,560 --> 00:18:07,640 not in time. They should just get their $100. 296 00:18:07,640 --> 00:18:13,640 Well, let me try to unpack and see if this resonates with you at all. That the, when 297 00:18:13,640 --> 00:18:18,500 as we split strike, the customer turns their money over to a broker and essentially says 298 00:18:18,500 --> 00:18:24,580 little more than, Hey, make me money. When that and then when the broker just takes that 299 00:18:24,580 --> 00:18:28,800 money and creates a total fiction, a total fraud, it's obvious that the customer should 300 00:18:28,800 --> 00:18:33,440 get no credit for the fiction created by the broker. I mean, why should the customer get 301 00:18:33,440 --> 00:18:38,180 credit there? That would just be to legit to legitimize the fraud. And if made up said 302 00:18:38,180 --> 00:18:43,120 you get 12% doesn't mean the customer should get 12%. You'd be saying made off wins. He 303 00:18:43,120 --> 00:18:47,800 gets to pick winners and losers as as judge Jacob said, net equity decision. 304 00:18:47,800 --> 00:18:53,200 So as the court put it in the net equity decision, you cannot establish net equity based on a 305 00:18:53,200 --> 00:18:57,440 fiction perpetrated by the fraudster. I kind of think that's what you're getting at. But 306 00:18:57,440 --> 00:19:02,520 when a customer tells a broker, here's what I want you to do. I want you to buy these 307 00:19:02,520 --> 00:19:09,880 stocks. The customer gets credit for the gains of those stocks, even if the broker doesn't 308 00:19:09,880 --> 00:19:15,480 do what he was supposed to do and doesn't buy the stocks. While you can't establish 309 00:19:15,480 --> 00:19:20,680 net equity based on a fiction, you can establish net equity. And that's what happened with 310 00:19:20,680 --> 00:19:26,080 the real security claimants based on customer authorizations and directions, expectations 311 00:19:26,080 --> 00:19:30,620 to use your word. And I'll come back to that. Even if a faithless broker doesn't execute 312 00:19:30,620 --> 00:19:37,920 the authorizations and directions that putting here's one way to think of it. This is not 313 00:19:37,920 --> 00:19:44,120 to credit what wasn't supposed to happen. This is not to credit the fraud. This is to 314 00:19:44,120 --> 00:19:52,520 give credit for what was supposed to happen. This is what legitimate expectations is at 315 00:19:52,520 --> 00:19:58,360 the heart of SIPA. And what legitimate expectations mean is that the customer generally expects, 316 00:19:58,360 --> 00:20:05,120 this is the general rule, that they are going to receive what they believe is in their account 317 00:20:05,120 --> 00:20:11,080 at the end of the day. It's all about expectations. The customer expects that they get their account 318 00:20:11,080 --> 00:20:16,480 statements. Think of my client for 26 years receiving statements in the mail that track 319 00:20:16,480 --> 00:20:20,800 his authorizations and directions. He's poring over them. And he has expectations that he 320 00:20:20,800 --> 00:20:25,680 owns what's in his account. That's the normal rule. That's why the court said that in conventional 321 00:20:25,680 --> 00:20:31,040 cases you apply the last statement method. And you don't typically wipe out all profits 322 00:20:31,040 --> 00:20:36,640 over the course of 26 years. Because the point is that a customer can have legitimate expectations 323 00:20:36,640 --> 00:20:42,160 even when it turns out the broker is a fraudster and didn't buy the stocks or didn't do something 324 00:20:42,160 --> 00:20:43,160 else. 325 00:20:43,160 --> 00:20:50,960 I'm going to ask you to wrap up. You have several minutes on rebuttal. So we'll hear 326 00:20:50,960 --> 00:20:53,960 from your adversaries now. 327 00:20:53,960 --> 00:21:21,960 Okay. Did you did you say that I should I should sit or that I should wrap up? 328 00:21:21,960 --> 00:21:27,000 Good morning. May it please the court. Shauna Brown Baker, Hostetler on behalf of Irving 329 00:21:27,000 --> 00:21:35,280 Picard, trustee. This court's net equity decision in 2011 is the foundational decision of this 330 00:21:35,280 --> 00:21:41,920 entire liquidation. The rules that that decision set forth allowed the trustee to administer 331 00:21:41,920 --> 00:21:48,960 this massive liquidation, including determining 16,000 claims filed against the estate. He 332 00:21:48,960 --> 00:21:54,120 determined the net equity of over 4,000 made off accounts and also allowed him to bring 333 00:21:54,120 --> 00:21:59,800 1000 avoidance actions to recover the fake profits that made up distributed to people 334 00:21:59,800 --> 00:22:03,680 like Mr. Sage and others before the Ponzi scheme collapsed. 335 00:22:03,680 --> 00:22:09,720 So may I ask I think there's a lot of evidentiary questions on this. But hypothetically, if 336 00:22:09,720 --> 00:22:16,680 we find that Malcolm did direct and authorize the transactions for Sage for Sage Associates, 337 00:22:16,680 --> 00:22:19,760 would there be a net equity method still be appropriate? 338 00:22:19,760 --> 00:22:23,440 It would. And obviously, you're on. I'd like to address the directions and authorizations. 339 00:22:23,440 --> 00:22:30,160 But the net equity decision tells this court how it has to look at the entire Ponzi scheme 340 00:22:30,160 --> 00:22:36,080 because the the essence of made us fraud was priced in timing, meaning you have in the 341 00:22:36,080 --> 00:22:41,920 record and Judge Keenan evaluated the credibility of the trustees witnesses at a five day bench 342 00:22:41,920 --> 00:22:46,800 trial. He looked at all of the exhibits. Miss Bon Giorno, who worked for made up for over 343 00:22:46,800 --> 00:22:52,800 30 years and work day to day on the Sage accounts, explained the fraud in great detail. She would 344 00:22:52,800 --> 00:22:57,720 at months and not when customer called or talked about their accounts at the end of 345 00:22:57,720 --> 00:23:02,840 the month, she would sit down with made up and they would figure out what stocks to purchase 346 00:23:02,840 --> 00:23:07,360 and what volume and what prices had happened during the month that's going to allow them 347 00:23:07,360 --> 00:23:14,240 to get the return that they want for the client. So what makes the this Ponzi scheme unique? 348 00:23:14,240 --> 00:23:18,520 It's not that the transactions didn't happen like in new times. It's that they could never 349 00:23:18,520 --> 00:23:24,360 have happened the way made off reported them. And I think Judge Keenan says it well on page 350 00:23:24,360 --> 00:23:30,000 60 of the special appendix, which is the reported transactions were fictitious not only because 351 00:23:30,000 --> 00:23:35,680 they did not occur, but because they could not have taken place. And the reason why I 352 00:23:35,680 --> 00:23:40,480 answer your honor's question that way is because that's true whether you or a client was in 353 00:23:40,480 --> 00:23:46,440 the buy and hold strategy like Mr. Sage or in the split strike that those facts permeate 354 00:23:46,440 --> 00:23:51,840 the entire Ponzi scheme. And it was those facts that the second circuit relied upon 355 00:23:51,840 --> 00:23:56,400 and reaching its determination that the net investment method was the only correct method 356 00:23:56,400 --> 00:24:02,320 as a matter of law because otherwise you would give credence to Mr. Maydow's machinations 357 00:24:02,320 --> 00:24:07,680 and allow people to recover fake profits at the expense of those who have not recovered 358 00:24:07,680 --> 00:24:12,720 their principal. Okay. So does that so falling from that, does that mean the difference between 359 00:24:12,720 --> 00:24:21,720 sage realty and sage associates is immaterial? So sage realty, yes, I would say it is. I 360 00:24:21,720 --> 00:24:26,240 mean, I think sage realty was an easier case in some ways because it fell directly into 361 00:24:26,240 --> 00:24:32,000 the split strike strategy. And so there was no question that the net equity decision governed 362 00:24:32,000 --> 00:24:37,520 that the net equity decision is the only one that was considered correct. I will just say 363 00:24:37,520 --> 00:24:43,120 that I think this is one of the first cases that I have had to say about that case. I 364 00:24:43,120 --> 00:24:47,480 think this is the first time that we've had a buy and hold case come to this level of 365 00:24:47,480 --> 00:24:53,400 review. I would like to know that you're not even you're not conceding that this was actually 366 00:24:53,400 --> 00:24:57,120 a buy and hold that he actually directed, you're saying, assuming for the right, but 367 00:24:57,120 --> 00:25:02,960 the liquidation. And he did 368 00:25:00,160 --> 00:25:05,000 review the liquidation in the 369 00:25:01,160 --> 00:25:07,160 early days of liquidation. He 370 00:25:03,100 --> 00:25:09,100 did review both buy and hold 371 00:25:05,140 --> 00:25:10,200 accounts as well as the 372 00:25:07,300 --> 00:25:13,100 splitstrike. And what he found 373 00:25:09,240 --> 00:25:14,140 is the splitstrikes. I'm sorry 374 00:25:10,340 --> 00:25:16,040 the buy and hold was reserved 375 00:25:13,240 --> 00:25:16,720 for made of friends, his 376 00:25:14,280 --> 00:25:18,740 family members, his employees, 377 00:25:16,180 --> 00:25:20,280 some of his longtime co 378 00:25:16,840 --> 00:25:21,080 conspirators. These are people 379 00:25:18,880 --> 00:25:23,080 who took out billions and 380 00:25:20,420 --> 00:25:24,120 billions of dollars of 381 00:25:21,220 --> 00:25:26,120 fictitious profits. And what 382 00:25:26,120 --> 00:25:30,820 he found was that the net 383 00:25:26,820 --> 00:25:31,620 investment method is the only 384 00:25:29,760 --> 00:25:33,560 one that can apply. So if you 385 00:25:30,960 --> 00:25:35,460 have no trading, you have no 386 00:25:31,760 --> 00:25:37,500 profits from anything real. 387 00:25:33,700 --> 00:25:38,200 It's just other customers 388 00:25:35,600 --> 00:25:39,400 money. And so that's why I 389 00:25:37,640 --> 00:25:41,500 think regardless of the 390 00:25:38,340 --> 00:25:42,140 directions or the 391 00:25:39,540 --> 00:25:45,540 authorizations, the net 392 00:25:41,640 --> 00:25:49,540 investment method is the only 393 00:25:42,260 --> 00:25:50,240 one that can apply. So I'd like 394 00:25:45,680 --> 00:25:55,520 to turn to the the directions 395 00:25:55,520 --> 00:26:03,420 and authorizations of Malcolm 396 00:25:56,160 --> 00:26:06,600 Sage. 397 00:26:01,520 --> 00:26:10,540 So Judge Kenan found that. And 398 00:26:06,560 --> 00:26:11,540 I quote from page 46 of the 399 00:26:06,740 --> 00:26:12,540 special appendix. The court 400 00:26:10,660 --> 00:26:13,640 finds that the transactions 401 00:26:11,660 --> 00:26:14,480 reflected in the stages, 402 00:26:12,660 --> 00:26:16,180 customer account statements 403 00:26:13,780 --> 00:26:18,180 were the product of made us 404 00:26:14,600 --> 00:26:18,880 after the fact fabrications, 405 00:26:16,300 --> 00:26:22,480 not the authorization 406 00:26:18,300 --> 00:26:23,140 directions and authorizations 407 00:26:19,000 --> 00:26:23,940 of Malcolm Sage. And I don't 408 00:26:22,620 --> 00:26:25,120 think you've heard anything 409 00:26:25,120 --> 00:26:28,760 from the court today. I think 410 00:26:25,860 --> 00:26:29,760 that's a very important 411 00:26:27,020 --> 00:26:30,520 point. And I think that's the 412 00:26:28,900 --> 00:26:32,560 only thing here today that 413 00:26:29,900 --> 00:26:33,360 says that Judge Kenan was 414 00:26:30,660 --> 00:26:36,500 wrong, let alone that he was 415 00:26:32,700 --> 00:26:37,360 clearly erroneous and reaching 416 00:26:33,500 --> 00:26:38,540 those conclusions. And just 417 00:26:36,640 --> 00:26:39,240 briefly to go through what 418 00:26:37,500 --> 00:26:42,480 that was based on. He was 419 00:26:38,660 --> 00:26:44,400 based on the testimony of a 420 00:26:39,360 --> 00:26:45,080 net bond. You're now who 421 00:26:42,600 --> 00:26:48,640 actually did the quote unquote 422 00:26:44,540 --> 00:26:49,440 trades and Mister Sage's 423 00:26:45,200 --> 00:26:51,520 accounts. She gave very 424 00:26:48,780 --> 00:26:53,480 detailed testimony. I think 425 00:26:53,480 --> 00:26:59,320 that's the most important 426 00:26:55,380 --> 00:27:00,020 thing. And I think that's what 427 00:26:57,420 --> 00:27:01,920 he relies upon and 428 00:26:59,460 --> 00:27:02,620 determining that equity. But 429 00:27:00,160 --> 00:27:03,320 he didn't just rely on the 430 00:27:02,060 --> 00:27:06,160 testimony of someone who was 431 00:27:02,760 --> 00:27:06,860 participating in the fraud. He 432 00:27:03,460 --> 00:27:09,860 also relied on the testimony 433 00:27:06,300 --> 00:27:10,960 of Bruce to been see his 434 00:27:07,000 --> 00:27:12,800 expert who we the trustee 435 00:27:10,000 --> 00:27:13,700 hired to assist the trustee 436 00:27:11,100 --> 00:27:14,400 with many endeavors, 437 00:27:12,940 --> 00:27:17,100 including establishing the 438 00:27:13,840 --> 00:27:17,800 insolvency of the debtor and 439 00:27:14,540 --> 00:27:21,680 investigating the entire fraud 440 00:27:21,680 --> 00:27:28,380 case. And so that's the 441 00:27:22,380 --> 00:27:29,080 most important thing. And I 442 00:27:26,320 --> 00:27:29,760 think that's the most important 443 00:27:28,520 --> 00:27:33,520 analysis of the witnesses and 444 00:27:29,220 --> 00:27:34,200 the documents before him. But 445 00:27:29,880 --> 00:27:38,100 even if let's say. Mister 446 00:27:33,660 --> 00:27:39,060 Sage could establish that 447 00:27:34,320 --> 00:27:40,060 Judge Kenan was somehow wrong. 448 00:27:38,220 --> 00:27:44,060 I think that we have to focus 449 00:27:39,200 --> 00:27:48,100 on what the one exception was 450 00:27:40,200 --> 00:27:48,840 because Mister Sage conceded 451 00:27:44,200 --> 00:27:49,540 that he left to made off the 452 00:27:49,540 --> 00:27:53,180 money that he had in the 453 00:27:50,240 --> 00:27:54,540 statement. And he was 454 00:27:50,900 --> 00:27:55,240 thinking about buying Disney 455 00:27:53,300 --> 00:27:57,320 on this day. He was thinking 456 00:27:54,680 --> 00:27:58,320 about because he could look 457 00:27:55,380 --> 00:27:59,020 back at the end of the month 458 00:27:57,440 --> 00:28:01,780 and say, I'm going to buy 459 00:27:58,440 --> 00:28:03,780 Disney on this day and get the 460 00:27:59,140 --> 00:28:04,780 best price that he's looking 461 00:28:01,920 --> 00:28:05,780 for. And then what happens 462 00:28:03,920 --> 00:28:07,860 next is that those fake 463 00:28:04,920 --> 00:28:08,760 profits get rolled over into 464 00:28:05,920 --> 00:28:11,720 subsequent purchases. So that 465 00:28:07,980 --> 00:28:13,460 by the time you go from 1985 466 00:28:08,900 --> 00:28:16,360 to 2008, you have fake money 467 00:28:11,860 --> 00:28:17,060 as a part of that. Last 468 00:28:17,060 --> 00:28:38,340 western county. 469 00:28:32,320 --> 00:28:39,300 If I can, just briefly 470 00:28:34,280 --> 00:28:42,520 discussed New Times and 471 00:28:38,480 --> 00:28:42,740 Straten, the 2 cases that were 472 00:28:39,440 --> 00:28:45,180 I'm relied upon by my 473 00:28:45,180 --> 00:28:49,180 the case, the case was 474 00:28:45,880 --> 00:28:49,880 reported to be a fraud case. 475 00:28:47,880 --> 00:28:53,820 And that was labeled with new 476 00:28:49,320 --> 00:28:54,520 times, one and new times too. 477 00:28:50,020 --> 00:28:57,520 And I don't this court has to 478 00:28:53,960 --> 00:28:58,560 redo that. But the difference 479 00:28:54,660 --> 00:29:00,700 between let's assume there's 480 00:28:57,700 --> 00:29:02,700 some similarities between the 481 00:28:58,700 --> 00:29:03,400 real securities that made up 482 00:29:00,820 --> 00:29:05,600 purported to use in his fraud 483 00:29:02,820 --> 00:29:06,500 and the new times, real 484 00:29:03,540 --> 00:29:08,200 securities claimants. But the 485 00:29:05,740 --> 00:29:10,940 difference in that case was 486 00:29:06,640 --> 00:29:11,900 the amounts that were shown on 487 00:29:08,340 --> 00:29:13,540 the statement, they weren't 488 00:29:11,080 --> 00:29:14,240 this. It wasn't the product of 489 00:29:14,240 --> 00:29:18,240 the fraud. It was the 490 00:29:14,940 --> 00:29:20,240 product of the fraud. And 491 00:29:16,440 --> 00:29:21,580 that's why I think that 492 00:29:18,380 --> 00:29:23,580 Mr. Stratton, which is the 493 00:29:20,380 --> 00:29:25,620 case that this court relied 494 00:29:21,720 --> 00:29:29,620 upon and that that Mister 495 00:29:23,720 --> 00:29:30,320 Sage relies on. Stratton also 496 00:29:25,760 --> 00:29:33,360 doesn't help Mister Sage 497 00:29:29,760 --> 00:29:33,960 Stratton is about a perch. 498 00:29:30,460 --> 00:29:37,560 There was a purchase in 499 00:29:33,500 --> 00:29:38,260 Stratton. And I think that 500 00:29:34,100 --> 00:29:40,440 fact really distinguishes on 501 00:29:37,700 --> 00:29:41,100 that case. So Mister Sage 502 00:29:38,400 --> 00:29:41,800 can't fit into new times 503 00:29:41,800 --> 00:29:45,640 because he's not a 504 00:29:42,480 --> 00:29:47,080 customer. He's not a 505 00:29:43,080 --> 00:29:47,920 customer. He's not a customer 506 00:29:45,780 --> 00:29:49,720 that can actually make 507 00:29:47,220 --> 00:29:50,820 actual purchases of 508 00:29:48,040 --> 00:29:51,680 securities. And he can't fit 509 00:29:49,840 --> 00:29:52,320 into the net equity decision 510 00:29:50,940 --> 00:29:55,720 because just like the 511 00:29:51,820 --> 00:29:57,720 split-strike customers, it was 512 00:29:52,460 --> 00:29:59,760 the product of. Historical 513 00:29:55,860 --> 00:30:00,460 backdated prices that were 514 00:29:57,860 --> 00:30:06,560 rolled over into subsequent 515 00:29:59,900 --> 00:30:07,600 purchases that ended in his 516 00:30:00,600 --> 00:30:08,600 last statement. 517 00:30:08,600 --> 00:30:14,000 And I think that's why I 518 00:30:09,300 --> 00:30:14,740 think that's why I think 519 00:30:10,200 --> 00:30:15,300 that's why I think that's why 520 00:30:14,140 --> 00:30:15,940 the standard net equity 521 00:30:14,880 --> 00:30:17,940 should be a superior method 522 00:30:15,440 --> 00:30:18,940 for measurement. I think that 523 00:30:16,080 --> 00:30:19,720 comes from that equity foot 524 00:30:18,080 --> 00:30:21,920 note 7. It does. The 525 00:30:19,080 --> 00:30:22,720 interesting thing about foot 526 00:30:19,840 --> 00:30:23,420 note 7 is it's actually all 527 00:30:22,040 --> 00:30:24,120 about discretion for the 528 00:30:22,840 --> 00:30:25,920 trustee. And it says, look, 529 00:30:23,540 --> 00:30:27,920 we don't need to worry about 530 00:30:24,240 --> 00:30:29,120 that here because here it's 531 00:30:26,040 --> 00:30:29,820 clearly superior. But the 532 00:30:28,060 --> 00:30:32,220 standard net equity seems to 533 00:30:29,260 --> 00:30:35,960 give us isn't clearly 534 00:30:29,960 --> 00:30:36,660 superior. But I think it 535 00:30:32,360 --> 00:30:37,300 says not clearly inferior. 536 00:30:37,300 --> 00:30:40,300 And I think that's why I 537 00:30:37,960 --> 00:30:41,300 think that's why I think 538 00:30:38,600 --> 00:30:42,200 that's why I think that's why 539 00:30:40,440 --> 00:30:44,200 I think that's why I think 540 00:30:41,440 --> 00:30:46,200 that language from the 541 00:30:42,340 --> 00:30:47,200 decision really addresses the 542 00:30:44,340 --> 00:30:48,200 fact that there's no one size 543 00:30:46,340 --> 00:30:51,080 fits all rule as we can see 544 00:30:47,340 --> 00:30:51,840 from New Times and strat and 545 00:30:48,340 --> 00:30:53,480 even the made up case. And so 546 00:30:51,200 --> 00:30:54,180 I think the trustee he he 547 00:30:51,980 --> 00:30:54,880 finds the books and records as 548 00:30:53,620 --> 00:30:58,640 he takes the books and 549 00:30:54,320 --> 00:30:59,320 records as he finds them. And 550 00:30:55,020 --> 00:31:03,160 yes, you know, address the 551 00:30:58,780 --> 00:31:03,860 fact that he's facing each 552 00:30:59,460 --> 00:31:04,760 case. And I would point when 553 00:31:03,280 --> 00:31:05,420 you're establishing your net 554 00:31:05,420 --> 00:31:09,060 equity, you're not going to 555 00:31:06,100 --> 00:31:10,300 have a record of the 556 00:31:06,900 --> 00:31:11,140 record. You're going to have 557 00:31:09,200 --> 00:31:13,200 a record of the record of the 558 00:31:10,440 --> 00:31:13,940 trustee. That's in the 559 00:31:11,260 --> 00:31:15,100 statute. And I think that 560 00:31:13,340 --> 00:31:16,280 reflects the fact that a 561 00:31:14,080 --> 00:31:18,240 trustee might not have all the 562 00:31:15,240 --> 00:31:19,180 records. Some of those records 563 00:31:16,400 --> 00:31:19,940 might be unreliable. But he 564 00:31:18,380 --> 00:31:22,640 has to sort of look at all of 565 00:31:19,300 --> 00:31:23,380 the records and do the most 566 00:31:20,080 --> 00:31:25,220 fair thing for every customer 567 00:31:22,780 --> 00:31:27,220 because the point of a simple 568 00:31:23,520 --> 00:31:28,220 liquidation is that all 569 00:31:25,340 --> 00:31:29,380 customers share equally. And 570 00:31:27,340 --> 00:31:30,060 that means they share in the 571 00:31:28,360 --> 00:31:33,260 recoveries equally and they 572 00:31:29,520 --> 00:31:34,260 have to share in the pain 573 00:31:34,260 --> 00:31:40,380 that they have to share in the 574 00:31:36,640 --> 00:31:41,100 pain of the customer. But 575 00:31:38,400 --> 00:31:43,080 there are thousands of people 576 00:31:40,500 --> 00:31:44,980 who are in a similar position 577 00:31:41,240 --> 00:31:45,680 and the trustee feels that he 578 00:31:43,200 --> 00:31:52,280 must stand shoulder to shoulder 579 00:31:45,100 --> 00:31:53,180 with everybody. He's not 580 00:31:45,820 --> 00:31:55,120 unique in this case. There's 581 00:31:52,420 --> 00:31:58,220 2 points. I see my time is 582 00:31:53,320 --> 00:31:59,220 running out. There's 2 points 583 00:31:55,260 --> 00:32:01,300 I want to address. I just want 584 00:31:58,360 --> 00:32:03,260 to bring to the court's 585 00:32:03,260 --> 00:32:08,760 attention that the trustee 586 00:32:05,160 --> 00:32:09,640 did not do that calculation. 587 00:32:07,360 --> 00:32:12,040 He did not deposit any 588 00:32:08,900 --> 00:32:13,700 additional dollars into that 589 00:32:09,760 --> 00:32:15,900 account. He withdrew $28 590 00:32:12,160 --> 00:32:16,640 million over the course of the 591 00:32:13,840 --> 00:32:20,140 account, 10 million of which 592 00:32:16,040 --> 00:32:21,140 was withdrawn in April, 2008. 593 00:32:16,780 --> 00:32:24,140 And the second thing I'd like 594 00:32:20,280 --> 00:32:24,880 to address about the rate of 595 00:32:21,280 --> 00:32:28,120 return analysis and my 596 00:32:24,280 --> 00:32:29,120 adversary saying that the 597 00:32:25,020 --> 00:32:31,120 trustee did not do that 598 00:32:28,240 --> 00:32:31,920 calculation. I would note that 599 00:32:31,920 --> 00:32:35,980 the trustee did not deposit 600 00:32:33,620 --> 00:32:36,620 any additional dollars into 601 00:32:34,640 --> 00:32:39,820 that account. And that's why 602 00:32:36,120 --> 00:32:53,820 the discovery had closed. 603 00:32:36,760 --> 00:32:54,520 Thank you. 604 00:32:53,960 --> 00:32:55,200 It was the court. Nicholas 605 00:32:54,660 --> 00:32:55,900 Hallenbeck on behalf of the 606 00:32:55,340 --> 00:32:57,940 intervener, the security's 607 00:32:56,040 --> 00:32:58,940 investor protection. I would 608 00:32:58,060 --> 00:32:59,640 like to make 2 points about 609 00:32:59,640 --> 00:33:03,520 round out trustee 610 00:33:00,360 --> 00:33:04,000 information and how financial 611 00:33:01,120 --> 00:33:05,960 Darkness countryfeld 612 00:33:03,660 --> 00:33:06,780 qualitative earthquake 613 00:33:04,120 --> 00:33:08,620 reference is a customer's 614 00:33:06,120 --> 00:33:09,560 legitimate expectations. 615 00:33:06,920 --> 00:33:10,360 The Legislative history to the 616 00:33:08,760 --> 00:33:13,460 1978 retain to set the method 617 00:33:09,700 --> 00:33:16,600 of satisfying a valid and 618 00:33:16,600 --> 00:33:24,500 to be 619 00:33:18,340 --> 00:33:21,140 utilizedarse a 620 00:33:20,640 --> 00:33:33,520 the ice. 621 00:33:20,740 --> 00:33:33,480 specific temperature than 622 00:33:24,700 --> 00:33:34,600 Made. 623 00:33:33,620 --> 00:33:36,660 Can we now? 624 00:33:33,740 --> 00:33:38,420 The latest that history 625 00:33:34,740 --> 00:33:38,620 doğanper the calculation of 626 00:33:36,780 --> 00:33:41,720 inequity and second series 627 00:33:38,520 --> 00:33:42,600 500 rules that are cited and 628 00:33:38,720 --> 00:33:45,000 I covid Tamdey New 629 00:33:41,860 --> 00:33:45,860 Times cases. They pertain to 630 00:33:42,760 --> 00:33:46,520 a outcome 631 00:33:46,520 --> 00:33:54,000 that customer ash 약간 632 00:33:49,020 --> 00:34:10,600 business directly to 633 00:33:49,440 --> 00:34:12,100 OUT Sek fractions 634 00:33:49,540 --> 00:33:49,800 BERGSTAB THE 635 00:33:54,140 --> 00:33:56,040 is the 636 00:34:09,240 --> 00:34:11,420 Before 1978, for those 637 00:34:10,540 --> 00:34:12,540 state did not have 638 00:34:10,720 --> 00:34:12,020 if if this customer property 639 00:34:12,540 --> 00:34:16,320 couple months ago 5 stand 640 00:34:14,120 --> 00:34:18,380 before the 641 00:34:15,120 --> 00:34:19,280 Whereas as the couple. 642 00:34:15,860 --> 00:34:20,480 Inundate permit permitted the 643 00:34:18,480 --> 00:34:22,200 Swift trustee for the first 644 00:34:19,420 --> 00:34:23,920 time to go out into the 645 00:34:20,660 --> 00:34:24,600 marketplace and assuming a 646 00:34:22,360 --> 00:34:26,580 fair and orderly market, he 647 00:34:24,020 --> 00:34:29,360 could purchase securities and 648 00:34:24,720 --> 00:34:31,360 then satisfy the claim with 649 00:34:26,700 --> 00:34:32,700 the actual securities for, 650 00:34:29,500 --> 00:34:33,500 they were and the Statak has 651 00:34:31,640 --> 00:34:34,560 the Senate reports 652 00:34:32,840 --> 00:34:37,400 specifically say that that was 653 00:34:33,640 --> 00:34:38,000 to satisfy the customer's 654 00:34:34,700 --> 00:34:40,580 legitimate expectations by 655 00:34:37,540 --> 00:34:41,980 returning the customer 656 00:34:41,980 --> 00:34:51,500 the 657 00:34:48,600 --> 00:34:55,100 주� 658 00:34:53,260 --> 00:34:58,640 . 659 00:35:07,180 --> 00:35:09,920 but 660 00:35:09,920 --> 00:35:14,560 that the customer is not 661 00:35:10,620 --> 00:35:15,920 satisfied with the 662 00:35:11,420 --> 00:35:16,660 application. For example, an 663 00:35:14,700 --> 00:35:18,700 order is placed on a Monday 664 00:35:16,060 --> 00:35:19,800 and before that transaction 665 00:35:16,800 --> 00:35:21,800 can settle later that week, 666 00:35:18,820 --> 00:35:22,440 the broker dealer fails. At 667 00:35:19,940 --> 00:35:23,040 that point, there's a 668 00:35:21,940 --> 00:35:24,800 legitimate question about 669 00:35:22,560 --> 00:35:25,540 whether or not that customer 670 00:35:23,160 --> 00:35:26,240 should have a claim for cash 671 00:35:24,940 --> 00:35:26,940 or claim for securities. And 672 00:35:25,660 --> 00:35:32,880 the specific 500 series 500 673 00:35:26,360 --> 00:35:36,880 rules address that specific 674 00:35:27,060 --> 00:35:38,080 question. And then second. 675 00:35:38,080 --> 00:35:45,080 The application would 676 00:35:38,780 --> 00:35:45,720 interfere with the trustee's 677 00:35:42,380 --> 00:35:48,220 ability to avoid any securities 678 00:35:45,220 --> 00:35:48,920 transactions as fraudulent. So 679 00:35:45,860 --> 00:35:49,660 summarize the legislative 680 00:35:48,360 --> 00:35:51,860 history from the 1978 amendment 681 00:35:49,060 --> 00:35:53,060 and civic rules do not support 682 00:35:49,800 --> 00:35:53,760 the do not support the 683 00:35:52,000 --> 00:35:54,460 opponent's argument that 684 00:35:53,200 --> 00:35:56,000 they're entitled to keep the 685 00:35:53,900 --> 00:35:58,060 fictitious profits of the 686 00:35:54,600 --> 00:36:00,000 Ponzi scheme. District court 687 00:35:56,140 --> 00:36:00,700 held made up created fact, 688 00:35:58,200 --> 00:36:03,640 fake backdated trades with 689 00:36:00,140 --> 00:36:05,280 manipulated prices to cover up 690 00:36:00,840 --> 00:36:05,940 his scheme, which involves 691 00:36:05,940 --> 00:36:30,500 叔 A 692 00:36:20,940 --> 00:36:32,040 512 women trading would have 693 00:36:22,560 --> 00:36:31,720 the absurd 694 00:36:30,620 --> 00:36:33,260 effect of treating fictitious 695 00:36:31,120 --> 00:36:33,860 and arbitrarily signed paper 696 00:36:32,060 --> 00:36:34,800 profits is real and we give 697 00:36:32,560 --> 00:36:35,400 legal effects on made-off 698 00:36:35,400 --> 00:36:37,740 to the Slack and and time 699 00:36:37,300 --> 00:36:41,100 resources to your 700 00:36:37,860 --> 00:36:41,800 partners to help keep to have 701 00:36:39,740 --> 00:36:49,300 a net equity claim or to keep 702 00:36:41,240 --> 00:36:51,640 that fictitious profits of 703 00:36:41,940 --> 00:36:51,820 response. Thank you. 704 00:36:51,620 --> 00:36:52,020 Mr. 705 00:36:52,020 --> 00:36:59,220 No onto 706 00:36:53,920 --> 00:37:01,120 trying to do a lot that first 707 00:36:58,560 --> 00:37:02,760 you'll notice that counsel for 708 00:36:59,360 --> 00:37:03,800 the trustee that a lot of time 709 00:37:01,260 --> 00:37:04,520 talking about how the fraud 710 00:37:04,520 --> 00:37:10,840 of years. But what this reinforces for me is that what we're dealing with here is it's the trustee 711 00:37:10,840 --> 00:37:18,980 trying to put a square peg into a round hole. That this is not the same as the other case. It just 712 00:37:18,980 --> 00:37:26,120 isn't. So let me give you an example. She said that the transactions could never have happened, 713 00:37:26,120 --> 00:37:31,640 okay? Because that's a buzzword that comes up from the fake securities claimants. Those were 714 00:37:31,640 --> 00:37:38,360 made up securities so they didn't exist. Or from the notion that the split strike scheme was 715 00:37:38,360 --> 00:37:43,920 impossible because it was the volume exceeded what happened in the markets. But here, just think 716 00:37:43,920 --> 00:37:49,800 about it. What my client said is, I want you to buy Disney. What do you mean that that couldn't 717 00:37:49,800 --> 00:37:53,720 have happened? It could have happened. He could have bought Disney. It's that simple. It's the 718 00:37:53,720 --> 00:37:58,840 square peg into a round hole problem. Okay, but that's a finding of fact though, right? And that 719 00:37:58,840 --> 00:38:03,440 is something that the standard is pretty high for us to overturn, right? The district court 720 00:38:03,440 --> 00:38:08,880 concluded that they were all fictitious. And to borrow the words of your colleague on the other 721 00:38:08,880 --> 00:38:16,840 side, that it was merely taking money from one client and shifting it to another. Well, what 722 00:38:16,840 --> 00:38:23,720 look fictitious fictitious could mean two things. Fictitious could mean the trades never happened. 723 00:38:23,720 --> 00:38:29,320 That's not contested by us, but as we were talking about before, that's not dispositive. 724 00:38:29,320 --> 00:38:40,760 It's not just that the net equity court relied on or cited approvingly to a instance in which 725 00:38:40,760 --> 00:38:44,720 securities weren't purchased. It's just think about that decision. If the decision were, 726 00:38:44,720 --> 00:38:49,640 we apply the net investment method automatically whenever securities are in purchase, that could 727 00:38:49,640 --> 00:38:55,800 have been a one paragraph decision, right? It wasn't that the court had all this language about 728 00:38:55,800 --> 00:39:01,320 no one size fits all. And it talked about, it was a cardinal fact. It was the first fact cited in 729 00:39:01,320 --> 00:39:05,680 the statement of the case that split strike customers relinquish complete investment authority. 730 00:39:05,680 --> 00:39:10,720 And then they included this language about what happens if a customer authorizes or directs. They 731 00:39:10,720 --> 00:39:17,920 were wrestling with two different fact patterns. And so it's just wrong to say that the rule under 732 00:39:17,920 --> 00:39:22,240 SIPA is that if there's no purchases, then that investment method applied. The court didn't say 733 00:39:22,240 --> 00:39:29,320 that. They cited from page 46, the finding, and it goes to your point about a factual finding. 734 00:39:29,320 --> 00:39:35,320 In that very, if you look at that specific quote unquote finding by the court, part of what it 735 00:39:35,320 --> 00:39:43,280 relies on is my client's admission that he left discretion as to timing and price to made off. 736 00:39:43,280 --> 00:39:49,520 So it's clear that the court was making what I described as kind of the non sequitur, which is, 737 00:39:49,520 --> 00:39:56,720 I don't think a customer authorizes or directs a purchase if it turns out that three weeks later, 738 00:39:56,720 --> 00:40:04,280 somebody enters it into a computer. That's still, that doesn't, as I said before, that doesn't negate 739 00:40:04,280 --> 00:40:08,800 the fact that it was an authorized or directed trade. We have to get to the question of, does it 740 00:40:08,800 --> 00:40:14,560 mean anything if it was entered three weeks late? And this is where we're into the administrability 741 00:40:14,560 --> 00:40:20,200 problem and we're into burden of proof, which I'll get to in a second, which is so counsel for the 742 00:40:20,200 --> 00:40:25,320 trustees said, well, price timing is the whole thing. That price and timing only matters if it 743 00:40:25,320 --> 00:40:32,640 facilitates the fraud. In this case, there is no evidence that profits were rigged to reflect a 744 00:40:32,640 --> 00:40:38,920 steady and upward trajectory like in the net equity case to the contrary. And that Bonior no 745 00:40:38,920 --> 00:40:44,400 made office assistant acknowledged that there were losses in five separate years in the account, 746 00:40:44,400 --> 00:40:51,800 square peg round hole. They're just citing things that were true of the split strike fraud and 747 00:40:51,800 --> 00:40:58,840 thinking that they can just put it over into this case, but it doesn't, it doesn't fit deference. 748 00:40:58,840 --> 00:41:07,760 The, this one, I think is a fairly easy one to address. The district court did not skate that 749 00:41:07,760 --> 00:41:15,160 it was deferring to the trustee or to SIPC's view, nor has SIPC or the trustee argued in their briefing 750 00:41:15,160 --> 00:41:20,480 to this court that they're entitled to deference. As such, the deference question hasn't been briefed 751 00:41:20,480 --> 00:41:25,280 nor has it ever been decided by the second circuit as you were alluding to. Indeed, by my count, 752 00:41:25,280 --> 00:41:32,000 this court has expressly refused to decide the deference question for separate times. I can give 753 00:41:32,000 --> 00:41:36,360 you the cases if you want. But council, if you're going to come to us and tell us the question is, 754 00:41:36,360 --> 00:41:41,440 is this method clearly superior? I'm trying to point out that that's where that comes from. 755 00:41:41,440 --> 00:41:47,760 Doesn't necessarily support the idea that superior is the, is the test, right? That's footnote seven. 756 00:41:47,760 --> 00:41:52,080 I assume you're not getting that the word superior from somewhere else. No, no. What? Well, footnote 757 00:41:52,080 --> 00:42:00,280 seven says that even if we were to give some deference to the to the trustee that we it still 758 00:42:00,280 --> 00:42:05,920 would never allow us to choose a clearly inferior method. That's the even if, but that's not what 759 00:42:05,920 --> 00:42:10,640 the court decided. The court didn't say the standard was clear. That has to be clearly superior. The 760 00:42:10,640 --> 00:42:15,680 standard is what the court found and what the district court found, which is which is superior. 761 00:42:15,680 --> 00:42:22,520 It was an independent review and you should do an independent review too. The on terms of burden 762 00:42:22,520 --> 00:42:27,360 of proof, I would suggest to you that that really you should think about it the opposite way. First 763 00:42:27,360 --> 00:42:32,480 of all, half of this is an avoidance action and it's an important half. It's a half in which the 764 00:42:32,480 --> 00:42:39,640 trustee 15 years after the fact by which I mean 15 years after the transactions in question after 765 00:42:39,640 --> 00:42:46,960 after the end of the made off scheme is trying to claw back nearly 17 million dollars. So first of 766 00:42:46,960 --> 00:42:51,480 all, they have a technical burden of proof in the avoidance action, but they have a burden in other 767 00:42:51,480 --> 00:42:56,440 senses. They have the ability. They have the requirement to do a complete and thorough 768 00:42:56,440 --> 00:43:01,480 investigation. We talked about that. That's a burden that they have. And they're also seeking 769 00:43:01,480 --> 00:43:09,240 to apply a net equity methodology that's supposed to be used rarely in extraordinary circumstances 770 00:43:09,240 --> 00:43:14,600 and they're seeking to apply it here in circumstances that are fundamentally different from any 771 00:43:14,600 --> 00:43:20,320 circumstance in which this court has ever applied it and to and in doing so to wipe out any and all 772 00:43:20,320 --> 00:43:27,200 profits of my client. That's a burden too. So rather than deferring to the trustee, you should 773 00:43:27,200 --> 00:43:33,400 be asking them to prove why 17 million dollars should be taken away from my client and his family. 774 00:43:33,400 --> 00:43:41,000 Let's talk about now. I have two last things to say. I'll do it quickly that in terms of the 22 775 00:43:41,000 --> 00:43:46,560 million dollars, I don't know why that was mentioned except to perhaps suggest that somehow 776 00:43:46,560 --> 00:43:52,240 there's something inequitable about the fact that my client put in 300,000 and ended up with 22 777 00:43:52,240 --> 00:43:57,640 million. You don't need to be a rocket scientist to know or you don't need to be a market scientist 778 00:43:57,640 --> 00:44:02,200 to know how many times somebody said if I had just bought Disney, if I just bought Yahoo 20 years 779 00:44:02,200 --> 00:44:08,200 ago, I'd be a gazillionaire. You can Google it. I did. If you put $10,000 into the market in 1980, 780 00:44:08,200 --> 00:44:14,600 you know what it would be worth today? Sorry, if you put it into the Dow Jones 500 in 1980, 781 00:44:14,600 --> 00:44:21,960 it would be worth $760,000. Okay, so this notion that somehow, wow, this is a crazy number is wrong. 782 00:44:21,960 --> 00:44:29,160 And here's what I want to end with. What kind of an Alice in Wonderland world are we in when Council 783 00:44:29,160 --> 00:44:36,120 for SIPPIC stood up in the net equity oral argument and said the customer should get whatever his 784 00:44:36,120 --> 00:44:41,480 account statement shows that reflects market reality. And then in a SIPPIC action, in this case, 785 00:44:41,480 --> 00:44:48,240 a customer, my client, tried to show what was in his account statement aligned with market reality, 786 00:44:48,240 --> 00:44:55,000 that there were losses over periods of time as the evidence shows and wanted to unpack that. And the 787 00:44:55,000 --> 00:45:03,880 trustee for SIPPIC, the Securities Investor Protection Corporation, no less, says, no, 788 00:45:03,880 --> 00:45:10,680 you can't do that. My client tried to offer simple charts that showed the performance of the account. 789 00:45:10,680 --> 00:45:15,240 And the trustee said, no, no, you're not an expert. It's unreliable. But then perversely, 790 00:45:15,240 --> 00:45:20,800 it didn't ask its own expert to calculate the rate of return of the Sage Associates account for even 791 00:45:20,800 --> 00:45:27,160 a single year. Why did the trustee oppose putting before the judge the facts of the account's 792 00:45:27,160 --> 00:45:31,960 performance? Presumably because they didn't like what they saw, which is that my client's charts 793 00:45:31,960 --> 00:45:39,000 showed that in 126 out of 300 months that they count actually lost equity. A world of difference 794 00:45:39,000 --> 00:45:51,000 from the split strike strategy. Yeah, I think we understand your thank you. Thank you. All of you.