in re madoff securities - dec. 8 2014 opinion.pdf

8/10/2019 in re Madoff Securities - Dec. 8 2014 opinion.pdf

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122557bk(L)

Inre:BernardL.MadoffInvestmentSecuritiesLLC

In the

United States Court of AppealsFor the Second Circuit________

AugustTerm,2013

Nos.122557bk(L),122497bk(con),122500bk(con),

122616bk(con),123422bk(con),123440bk(con),

123582bk(con),123585bk(con)

________

INRE:BERNARDL.MADOFFINVESTMENTSECURITIESLLC,

Debtor.

________

IRVINGH.PICARD,TrusteefortheLiquidationofBernardL.

MadoffInvestmentSecuritiesLLC,

PlaintiffAppellant,

SECURITIESINVESTORPROTECTIONCORPORATION,StatutoryIntervenorpursuanttoSecuritiesInvestorProtectionAct,15U.S.C.78eee(d),

IntervenorAppellant,

v.

IDAFISHMANREVOCABLETRUST,PAULS.SHURMAN,inhiscapacityas

cotrusteeoftheIdaFishmanRevocableTrust,WILLIAMSHURMAN,in

hiscapacityascotrusteeoftheIdaFishmanRevocableTrustandas

Executorof

the

estate

of

Ida

Fishman,DefendantsAppellees.

________


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2 No.122557bk(L)

AppealfromtheUnitedStatesDistrictCourt

fortheSouthernDistrictofNewYork.

Nos.11bk7603,12mc0115JedS.Rakoff,Judge.________

Argued:March5,2014

Decided:December8,2014

________

Before:PARKER,LYNCH,andDRONEY,CircuitJudges.

________

AppealfromjudgmentsoftheUnitedStatesDistrictCourtfor

theSouthernDistrictofNewYork (Rakoff,J.). IrvingH.Picard,as

trustee fordebtorBernardL.MadoffSecuritiesLLC,sued toavoid

fictitious profits paidby thedebtor tohundredsofcustomersover

the life of the Ponzi scheme operatedby Madoff. The defendant

customers moved to dismiss certain of these avoidance claims

pursuant to 11 U.S.C. 546(e), which shields from recovery

securitiesrelated payments made by a stockbroker. The district

court

agreed

that

546(e)

barred

the

claims,

dismissed

them,

andcertifiedthedismissalasafinaljudgment. Thetrusteeappealed.

Affirmed.

________

DAVIDJ. SHEEHAN (OrenJ.Warshavsky,TracyL.

Cole, Seanna R. Brown; Howard L. Simon,

Windels Marx Lane & Mittendorf LLP; Matthew

B.Lunn,YoungConawayStargatt&TaylorLLP,onthebrief),BakerHostetlerLLP,NewYork,NY,

for PlaintiffAppellant IrvingH. Picard, Trusteefor


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3 No.122557bk(L)

the Liquidation of Bernard L. Madoff Investment

SecuritiesLLC.

JOSEPHINEWANG,GeneralCounsel(KevinH.Bell,

LaurenT.Attard,on thebrief),Securities Investor

Protection Corporation, Washington, D.C., for

IntervenorAppellant Securities Investor Protection

Corporation, Statutory Intervenor pursuant to

Securities Investor Protection Act, 15 U.S.C.

78eee(d).

RICHARD

LEVY,

JR.

(David

C.

Rose,

on

the

brief),Pryor Cashman LLP, New York, NY, for

DefendantsAppelleesKaraFishbeinGoldman,Steven

Goldman,etal.

P.GREGORYSCHWED(WalterH.Curchack,Daniel

B. Besikof, Michael Barnett, on the brief), Loeb &

LoebLLP,NewYork,NY,forDefendantsAppellees

JonathanM.Aufzien,LisaAufzien,etal.

HELENDAVISCHAITMAN,Becker&Poliakoff,LLP,

New York, NY, for DefendantsAppellees David

Abel,JamesGreiff,etal.

Deborah A. Skakel, Shaya M. Berger, Dickstein

Shapiro LLP, New York, NY, for Defendant

AppelleePetCareRx,Inc.

CaroleNeville,DentonsUSLLP,NewYork,NY,

forDefendants

Appellees

Harold

J.

Hein,

Kelman

PartnersLimitedPartnership,etal.

JenniferL.Young,MatthewA.Kupillas,Millberg

LLP, New York, NY; Parvin K. Aminolroaya,


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4 No.122557bk(L)

SeegerWeissLLP,NewYork,NY,forDefendants

AppelleesGeraldBlumenthal,HaroldA.Thau,etal.

David Parker, Matthew J. Gold, Kleinberg,

Kaplan,Wolff&Cohen,P.C.,NewYork,NY,for

DefendantsAppellees Kenneth Hubbard, Lawrence

Elins,etal.

Parvin K. Aminolroaya, SeegerWeiss LLP, New

York,NYforDefendantsAppelleesDavidJ.Bershad,

BershadInvestmentGroupLP,etal.

Richard A. Kirby, Laura L. Clinton, Martha

RodriguezLopez, K&L Gates LLP, Washington

D.C.,forDefendantsAppelleesChesedCongregations

ofAmerica,LindaBerger,etal.

Philip Bentley, Elise S. Frejka, Kramer Levin

Naftalis & Frankel LLP, New York, NY, for

DefendantsAppellees 10961100 River Road

AssociatesLLC,FredA.DaibesLLC,etal.

MarcyResslerHarris,JenniferM.Opheim,Mark

D. Richardson, Schulte Roth & Zabel LLP, New

York, NY,forDefendantsAppelleesThomasH.Lee,

HHIInvestmentTrust#2,etal.

WilliamP.Weintraub,GregoryW.Fox,Stutman,

Treister & Glatt, PC, New York, NY, for

DefendantsAppelleesJeffreyHinte,RobertNystrom,

etal.

Paul Steven Singerman, Ilyse M. Homer, Isaac

Marcushamer,BergerSingermanLLP,forAmicus

CuriaeNationalAssociationofBankruptcyTrustees.


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Philip D. Anker, Alan E. Schoenfeld, Wilmer

Cutler PickeringHale and Dorr LLP, NewYork,

NY ; Craig Goldblatt, Danielle Spinelli,Shivaprasad Nagaraj, Allison HesterHaddad,

Wilmer Cutler Pickering Hale and Dorr LLP,

Washington, D.C., for Amicus Curiae Securities

IndustryandFinancialMarketsAssociation.

ThomasJ.Moloney,DavidE.Brodsky,Lawrence

B. Friedman, Carmine D. Boccuzzi,Jr., Breon S.

Peace, Charles J. Keeley, Shira A. B. Kaufman,

ClearyGottliebSteen&HamiltonLLP,NewYork,NY, for Amici Curiae HSBC Bank plc, HSBC

Holdingsplc,etal.

Marco E.Schnabl,SusanL. Saltzstein,JeremyA.

Berman, Skadden, Arps, Slate, Meagher & Flom

LLP, New York, NY,forAmicusCuriaeUniCredit

S.p.A.

Franklin

B.

Velie,

Jonathan

G.

Kortmansky,MitchellC.Stein,Sullivan&WorcesterLLP,New

York,NY,forAmicusCuriaeUniCreditBankAustria

AG.

MichaelFeldberg,Allen&OveryLLP,forAmicus

CuriaeABNAmroBankN.V.(presentlyknownasthe

RoyalBankofScotlandN.V.).

JosephCioffi,JamesR.Serritella,Davis&Gilbert

LLP,NewYork,NY,forAmici

Curiae

Natixis

S.A.,

NatixisFinancialProductsLLC,etal.


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Fran M. Jacobs, Duane Morris LLP, for Amicus

CuriaeEastStarSICAV.

MarshallR.King,Gibson,Dunn&CrutcherLLP,

NewYork,NY,forAmiciCuriaeUBSAGandUBS

(Luxembourg)S.A.

MarcJ. Gottridge, Andrew M. Behrman, Hogan

LovellsUSLLP,New York,NY,forAmiciCuriae

BarclaysBank(Suisse)S.A.,BarclaysBankS.A.,and

BarclaysPrivateBank&TrustLimited.

ThomasB.Kinzler,DanielSchimmel,KelleyDrye

& Warren LLP, New York, NY,forAmiciCuriae

CaceisBankFranceandCaceisBankLuxembourg.

Jodi Kleinick, Barry Sher, Mor Wetzler, Paul

Hastings LLP,forAmici Curiae FIM Limited and

FIMAdvisorsLLP.

Eric Fishman, Kerry A. Brennan, Brandon

Johnson, Pillsbury Winthrop Shaw Pittman LLP,New York, NY,forAmicus Curiae Falcon Private

BankLtd.

RichardL.Spinogatti,ProskauerRoseLLP,New

York, NY,forAmici Curiae Grosvenor Investment

Management Ltd., Grosvenor Private Reserve Fund

Limited,etal.

William

J.

Sushon,

Shiva

Eftekhari,

OMelveny

&MyersLLP,NewYork,NY,forAmiciCuriaeCredit

SuisseAG,CreditSuisseAG,NassauBranch,etal.


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DavidJ. Onorato,Jessica R. Simonoff, Susan A.

Higginsshra, Freshfields Bruckhaus Deringer US

LLP, New York, NY, forAmicus

Curiae

Tensyr

Limited.

BrianH.Polovoy,ChristopherR.Fenton,Andrew

Z. Lipson, Shearman & Sterling LLP,forAmicus

CuriaeNomuraInternationalplc.

John Westerman, Mickee Hennessy, Westerman

Ball Ederer Miller & Sharfstein, LLP, Uniondale,

NY,

for

Amici

Curiae

DOS

BFS

Family

PartnershipII,L.P.andDonaldandBetteSteinFamilyTrust.

________

BARRINGTOND.PARKER,CircuitJudge:

Bernard L. Madoff orchestrated a massive Ponzi scheme

through the investment advisory unit of Bernard L. Madoff

InvestmentSecuritiesLLC (BLMIS). After theschemecollapsed,

Irving H. Picard (the Trustee) was appointed trustee for BLMISpursuanttotheSecuritiesInvestorProtectionAct,15U.S.C.78aaa

et seq. (SIPA). UnderSIPA,a trustee isempowered torecover

(orclawback)moneypaidoutbythedebtor,aslongasthemoney

would have been customer property had the payment not

occurred,andthetransferscouldbeavoidedundertheBankruptcy

Code. Id.78fff2(c)(3).

Section546(e)oftheBankruptcyCode,inturn,establishesan

importantexception

to

atrustees

clawback

powers.

See

11

U.S.C.

546(e). Section 546(e) provides generally that certain securities

related payments, such as transfers made by a stockbroker in


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8 No.122557bk(L)

connection with a securities contract, or settlement payment[s]

cannotbeavoidedinbankruptcy.

Invokinghisclawbackpowers,theTrusteesuedhundredsofBLMIScustomerswhowithdrewmorefromtheiraccountsthanthey

had investedand, as a result, profited (whether knowingly or not)

fromMadoffsscheme. TheTrusteecontendsthat,ifBLMIShadnot

preferentially paid these customers, the money would havebeen

customer property available to be distributed ratably to all

customers,includingthosewho,overtime,hadwithdrawnlessthan

theyhadinvested.

Several defendants moved to dismiss the actions on the

ground that the payments received by BLMIS customers were

securitiesrelated payments that cannotbe avoided under 546(e).

The dispositive issue presented by this appeal is whether the

payments that BLMIS made to its customers are the type of

securitiesrelated payments that are shielded by 546(e) from

clawback.

The United States District Court for the Southern District of

NewYork(Rakoff,J.)concludedthatthepaymentswereshieldedby 546(e) and dismissed the relevant claims under Federal Rule of

CivilProcedure12(b)(6). Weagreeandthereforeweaffirm.

BACKGROUND

BecausethisappealisfromdismissalsunderRule12(b)(6),we

assume the truth of all well pleaded facts in the underlying

complaints and draw all reasonable inferences in favor of the

Trustee. SeeGibbons

v.

Malone,703F.3d595,599(2dCir.2013).1

1AccordingtotheTrustee,thehundredsofcomplaintsinthiscasearesubstantiallyidentical

withrespecttotheissuesraisedinthisappeal.TrusteesBr.9n.4.Asaresult,whenwerefer

totheTrusteesallegations,wecitethecomplaintinPicardv.Greiff,Adv.Pro.No.104357


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I

BLMIS

purported

to

execute

a

split

strike

conversionstrategy for customers of its investment advisory unit. This

strategy, had it actually been executed, would have consisted of

timing the market to purchase abasket of stocks on the S&P 100

Index, and then hedging those purchases with related options

contracts. SeeSIPCv.BernardL.MadoffInv.Secs.LLC(InreBernardL.

Madoff Inv. Secs. LLC), 424 B.R. 122, 12930 (Bankr. S.D.N.Y. 2010)

(SIPCv.BLMIS).

In reality, however, BLMISs investment advisory business

conducted no actual securities or options trading onbehalf of itscustomers. Instead, BLMIS deposited customer investments into a

single commingled checking account and, for years, fabricated

customerstatementstoshowfictitioussecuritiestradingactivityand

returns ranging between 10 and 17 percent annually. When

customerssoughttowithdrawmoneyfromtheiraccounts,including

withdrawals of the fictitious profits that BLMIS had attributed to

them, BLMIS sent them cash from the commingled checking

account. TheTrusteeseekstoclawbackfundsfromcustomerswho,

overtime,wereabletotakeoutmoremoneythantheyhadinvestedwithBLMIS.

II

In December 2008, the Madoff scheme was exposed and

liquidation proceedings began in the district court. As a SIPA

trustee, Picard was obligated to collect and set aside a fund of

customer property specifically earmarked to repay BLMIS

customersratablyinproportiontoeachcustomersnetequity.See

15U.S.C.78lll(4),78fff2(c);seealsoInreBernardL.MadoffInv.Secs.

LLC,654F.3d229,233(2dCir.2011)(InreBLMIS). Where,ashere,

thecustomerpropertyfundisnotsufficienttopaycustomersinfull,

(Bankr.S.D.N.Y.Nov.30,2010),J.A.594623.


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SIPAempowersatrusteetoclawbackanytransferredfundswhich,

exceptforsuchtransfer[s],wouldhavebeencustomerproperty.15

U.S.C. 78fff2(c)(3). But a trustee can only claw back thosetransferred funds if and to the extent that [they are] voidable or

voidundertheprovisionsoftheBankruptcyCode. Id.

The Trustee invokes two different theories under the

BankruptcyCodetoavoidtransfersoffictitiousprofitstocustomers.

The Trustees first theory is that certain transfers are voidable as

fraudulent transfers under 11 U.S.C. 548(a)(1)(A) and (B).

Section548(a)(1)(A)appliestotransfersmadewithactual intentto

hinder, delay, or defraud creditors (often referred to as actual

fraud). Section 548(a)(1)(B) applies to transfers made without a

reasonably equivalent value in exchange for such transfer under

certain circumstances. This provision is aimed at constructive

fraud, and does not require proof of fraudulent intent.

Importantly, a trustee can invoke these provisions to recover

paymentsonlyifthepaymentsweremade...within2yearsbefore

thedateofthefilingofthepetition.Id.548(a)(1).

Because544(b)oftheBankruptcyCodepermitsatrusteeto

avoid any transfers that an unsecured creditor could avoid under

applicablestatelaw,theTrusteessecondtheoryisthatthetransfers

maybeclawedbackpursuanttoNewYorksfraudulentconveyance

law. SeeN.Y.Debt.&Cred.L.27376. Thesestatelawprovisions

allow a creditor to avoid a debtors improper transfer of property,

including many of the same kinds of actually and constructively

fraudulent transferscoveredby548(a)(1)(A)and (B). Butunlike

theBankruptcyCode,NewYorksfraudulentconveyancelawhasa

sixyearstatuteoflimitations. SeeN.Y.C.P.L.R.213.

Many

clawback

defendants

moved

to

dismiss

the

Trusteesclaimsasbarredby546(e)oftheBankruptcyCode,whichprevents

a bankruptcy trustee from avoiding certain securitiesrelated

payments made by a stockbroker, including payments made in


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connection with a securities contract and settlement payments.

Section 546(e) is a verybroadlyworded safeharbor provision that

was enacted to minimiz[e] the displacement caused in thecommodities and securities markets in the event of a major

bankruptcyaffectingthoseindustries.EnronCreditorsRecoveryCorp.

v.Alfa,S.A.B.deC.V.(InreEnronCreditorsRecoveryCorp.),651F.3d

329, 334 (2d Cir. 2011) (quoting H. R. Rep. No. 97420, at 2 (1982),

reprintedin1982U.S.C.C.A.N.583,583). Thetheoryunderlyingthis

section isthat,[i]fa firm isrequiredtorepayamountsreceived in

settled securities transactions, it could have insufficient capital or

liquidity to meet its current securities trading obligations, placing

other market participants and the securities markets themselves at

risk. Id. Because 546(e) is expressly inapplicable to claims of

actualfraudbroughtunder548(a)(1)(A),theclawbackdefendants

invoked546(e)todismissonlytheconstructivefraudclaimsunder

548(a)(1)(B)andallNewYorkstatelawclaims.

Theclawbackdefendantsfirstlitigatedtheapplicabilityof

546(e) in twocasesbefore thebankruptcycourt. Thebankruptcy

court(Lifland,Bankr.J.)declinedtoreachtheissue, concludingthat

the question of whether 546(e) applies to the transfers at issue

should notbe determined at the pleading stage of the litigation.

Picardv.Merkin,440B.R.243,26667(Bankr.S.D.N.Y.2010);Picardv.

Madoff,458B.R.87,11516(Bankr.S.D.N.Y.2011).

Following thebankruptcycourtsdecisions, thedistrictcourt

withdrewthebankruptcyreferenceinoneclawbackactiontheKatz

case. After reexamining the issue,Judge Rakoff held that 546(e)

appliedbecause BLMIS was a stockbroker, the account documents

executedby thedefendantcustomersweresecuritiescontracts,and

the

various

payments

BLMIS

made

to

those

customers

were

inconnectionwithsecuritiescontracts,orweresettlementpayments.

Accordingly, Judge Rakoff dismissed all of the clawback claims,

exceptclaimsforactualfraudinvoking548(a)(1)(A). Picardv.Katz,


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13 No.122557bk(L)

may not avoid a transfer that is a . . . settlement

payment,asdefinedinsection...741ofthistitle,made

by[a]...stockbroker...,orthatisatransfermadeby[a] . . . stockbroker . . . in connection with a securities

contract,asdefined insection741(7), . . .exceptunder

section548(a)(1)(A)ofthistitle.

11U.S.C.546(e). ItisnotdisputedthatBLMISwasastockbroker

for the purposes of 546(e). Consequently, this appeal turns on

whether the transfers either were made in connection with a

securitiescontractor weresettlementpayment[s]. Id.

The Trustee argues that 546(e) should not applybecause

BLMISneverinitiated,executed,completed,orsettledthesecurities

transactions contemplated by the customer agreements. He also

contends that the transfers were not made in connection with a

securities contract or settlement payment[s] as those terms are

definedin741. Finally,theTrusteemaintainsthatpermittingthe

application of 546(e) in this case wouldbe tantamount to giving

legaleffecttoMadoffsfraud. SeeInreBLMIS,654F.3d229,235(2d

Cir.

2011).

For

the

following

reasons,

we

reject

these

arguments,which flow from the premise that 546(e) would only apply if

Madoff had actually completed the securities transactions he

purported toeffectuate. Instead,weconcludethat546(e) shields

these transfers from avoidance because they were made in

connection with a securities contract, and were also settlement

payment[s].

I

Section 741(7) of the Bankruptcy Code, to which 546(e)refers, defines securities contract with extraordinarybreadth to

include:


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(i)acontractforthepurchase,saleorloanofasecurity

. . .or . . .option topurchaseorsellanysuchsecurity

...;[or]

...

(vii) any other agreement or transaction that is similar

to an agreement or transaction referred to in this

subparagraph....[or]

...

(x)amasteragreement thatprovides foranagreement

ortransactionreferredtoinclause(i)[or] . . .(vii) ...,

except that such master agreement shallbe considered

tobe a securities contract under this paragraph only

with respect to each agreement or transaction under

suchmasteragreementthat isreferredto in[clauses(i)

through(ix)];or

(xi)anysecurityagreementorarrangement . . .related

to any agreement or transaction referred to in this

subparagraph, including any guarantee or

reimbursementobligationbyortoastockbroker....

11U.S.C.741(7)(A)(i),(vii),(x),(xi).

Thus, the term securities contract expansively includes contracts

forthepurchaseorsaleofsecurities,aswellasanyagreementsthat

aresimilarorrelatedtocontractsforthepurchaseorsaleofsecurities.

Id. This concept isbroadened even fartherbecause 546(e) also

protectsatransfer

that

is

in

connection

with

asecurities

contract.

WhileneithertheBankruptcyCodenorSIPAdefinespurchase

orsale,theSecuritiesExchangeActof1934ofwhichSIPAisapart

defines the terms to include any contract tobuy, purchase, or


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otherwiseacquire...[or]tosellorotherwisedisposeofasecurity.

15 U.S.C. 78c(a)(13)(14) (emphasis added). For the reasons that

follow, we conclude that BLMIS and its customers entered intoagreementsthatsatisfythebroaddefinitionofsecuritiescontracts

under741(7)(A).

The clawback defendants argue that a securities contract

wascreatedby threeof thedocuments thatBLMIScustomerswere

required to execute when opening their accounts. In the first, a

Customer Agreement, each customer authorized BLMIS to

open[] or maintain[] one or more accounts for hisbenefit.J.A.

1257. In a second document, a Trading Authorization, eachcustomerappointedBLMIStobethecustomersagentandattorney

in fact to buy, sell and trade in stocks, bonds, and any other

securitiesinaccordancewith[BLMISs]termsandconditionsforthe

[customers] account. J.A. 1264. And in a third document, an

OptionAgreement,eachcustomerauthorizedBLMIStoengagein

options trading for the customers account. J.A. 126162. The

defendants contend that these three account opening documents

(together, the Account Documents) authorized BLMIS to engage

in securities transactions onbehalf of its customers, although theydid not expressly require BLMIS to conduct anysuch transactions,

andconsequentlyestablishedasecuritiescontract.

We agree. On their face, the Account Documents are

agreementsbywhichBLMISwillacquireordisposeofsecurities

onbehalfofitscustomers. TheCustomerAgreementestablishedthe

brokercustomer relationship, and the Trading Authorization

authorizedBLMIS to trade insecurities for thecustomersaccount.

A214749, A2144. These documents also specify the terms bywhichBLMISwillacquireanddisposeofsecuritiesforthecustomer.

WereitnotfortheAccountDocuments,therewouldbenobasisfor

a customer to make deposits or request withdrawals. Thus, the


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transfersatissueoriginatedwith,andcouldnothavebeenpossible

but for, the relationship created by the Account Documents.

Accordingly, we conclude that they fall within the statutesbroaddefinitionofsecuritiescontract. See741(7)(A)(i).

The function contemplated for the Account Documents also

satisfies the definition of securities contract in 741(7)(A)(x),

whichincludesamasteragreementthatprovidesforanagreement

or transaction referred to in clause (i) [i.e., a contract for the

purchase, sale, or loan of a security]). As the Trustee

acknowledges in hisbrief, master agreement is a term of art in

thesecuritiesindustrymeaningacontractestablishingthemutualundertakingsbetween two counterparties that anticipate executing

future securities transactions with each other. . . . Trustee Br. 43

(citingPaulC.Harding,MasteringtheISDAMasterAgreements(1992

and2002)1927(2ded.2004)). Takentogether,thisispreciselywhat

theAccountDocumentscontemplateandaccomplish. TheTrustees

own complaints further support this conclusion. He alleges that

Madoffpromised[his]clientsthattheirfundswouldbeinvestedina

basket of common stocks within the S&P 100 Index, and hedged

with corresponding options contracts. J.A. 601 21 (emphasisadded). Additionally, because the Account Documents obligate

BLMIS to reimburse its customers upon a request for withdrawal,

theyalsofitthedefinitionofsecuritiescontract in741(7)(A)(xi),

whichincludes,againquiteexpansively,anysecurityagreementor

arrangement related toanyagreementor transaction referred to in

this subparagraph, including any guarantee or reimbursement

obligationbyortoastockbroker.

Yet another indication that Congress intended 546(e) tosweep broadly is supplied by the text of 741(7)(A)(vii) which

expandsthedefinitionofsecuritiescontracttoincludeanyother

agreement or transaction that is similar to a contract for the


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17 No.122557bk(L)

purchase, sale or loan of a security[.] Few words in the English

language are as expansive as any and similar. SeeDeravin v.

Kerik, 335 F.3d 195,204 (2d Cir. 2003) ([R]ead naturally, the wordanyhasanexpansivemeaning,and...solongasCongressdid

not add any language limiting thebreadth of that word, the term

anymustbegivenliteraleffect.(quotingUnitedStatesv.Gonzales,

520U.S.1,5 (1997)). Inordinaryusage, thewordsimilarmeans

having characteristics in common, or alike in substance or

essentials. Websters3dNewIntlDictionary2120(1993). Inlight

of these definitions, we conclude that the relationship between

BLMIS and its customers establishedby the Account Documents

involved agreement[s] that are similar to contracts for the

purchase,saleor loanofasecurity . . . .11U.S.C.741(7)(A)(i),

(vii).

The Trustee advances several arguments why, in his view,

these agreements do not constitute a securities contract and the

transfersatissueshouldnotbeshieldedfromavoidance. Noneare

persuasive. First, the Trustee argues that 546(e) does not apply

because BLMIS never initiated, executed, completed or settled the

securitiestransactionsitpromisedtoengagein. TrusteesBr.2535.Citingourdecision inEnron,theTrusteecontendsthatthepurpose

of 546(e) is to minimiz[e] the displacement caused in the

commodities and securities markets in the event of a major

bankruptcyaffectingthoseindustries. Id.at27(quotingEnron,651

F.3d at 334). Because there are no securities transactions to

unwind, the Trustee argues that no such disruption would occur,

andcorrespondingly,546(e)isinapplicable. TrusteesBr.25.

Thisargumentmisses thepoint. ItdoesnotengagewiththelanguageCongresschose for 741(7)and546(e). Because those

provisionsdo not contain a purchaseorsale requirement,whether


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19 No.122557bk(L)

thebusinessofeffectingsecurities transactions,haveeveryright to

avail themselves of all the protections afforded to the clients of

stockbrokers,includingtheprotectionofferedby546(e).

Second, the Trustee argues that the Account Documents are

notsecuritiescontractsbecausetheydonotspecificallyidentifyany

security,issuer,quantity,price,orothertermsnecessarytodescribe

a security transaction.4 See Trustee Br. 38. This argument

constructsarequirementthatthelawdoesnotcontain. TheTrading

Authorizationidentifiesaspecificcategoryofpublicsecurities(S&P

100stocks)tobetraded.A164621. Nothinginourreadingof

741(7)(A)

indicates

that

any

greater

specificity,

much

less

thedegree of detail called for by the Trustee, is required. To the

contrary, if Congress intended to mandate securities contracts to

identify transactions with the precision the Trustee claims is

required, Congress would hardly have included the reference to

masteragreementsinsubsection(x)oradoptedthebroadsimilar

to catchall in subsection (vii) or the any . . . arrangement . . .

relatedtoanyagreement...languageinsubsection(xi). SeePenn.

DeptofPub.Welfarev.Davenport,495U.S.552,562(1990).

Third,theTrusteearguesthattheAccountDocumentsmerely

authorize BLMIS to conduct securities transactions onbehalf of its

customers,butneverexpresslyobligateBLMIStocarryoutanysuch

transactions. TrusteesBr.3839. Accordingly,theTrusteecontends

that even if customers reasonably expected that BLMIS would

conductsecurities transactionson theirbehalf, thiswouldestablish

an obligation sounding in quasicontract at most,but would not

constitutea truecontractualobligation. Id.at39. Alternatively, the

Trustee argues that the Account Documents establish an agency

4TheSecuritiesInvestorProtectionCorporation(SIPC),alsoanappellant inthiscase,

assumedarguendoforthepurposesofitsbriefthattheAccountDocumentsaresecurities

contracts.SeeSIPCBr.2,14.


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relationship between BLMIS and its customers, similar to that

between a real estatebroker and a homebuyer, and are no more

contracts for the purchase and sale of a security than a real estatebrokerage agreement is a contract for the purchase or sale of a

house. Id.at42.

TheTrusteemightbecorrectthattherecordreflectsnowritten

contract for the purchase or sale of a specific security between

BLMIS and its customers. Further, the Trustee is right that the

Account Documents functionby authorizing BLMIS to act as an

agent for the customer in unspecified expected future securities

transactions.

The

Trustee

is

also

correct

that,

standing

alone,

theAccountDocumentswouldnoteffectuatethepurchaseorsaleofany

particularsecurity.

But,aswehaveseen, thestatutorydefinitionofasecurities

contractisnotlimitedinthewaytheTrusteewouldhaveusreadit,

and to the contrary, encompasses the relationship createdby the

Account Documents. As discussed above, the definition includes

any other agreement . . . that is similar to a contract for the

purchase,sale

or

loan

of

asecurity.

11

U.S.C.

741(7)(A)(i),

(vii)(emphases added). An agreement is a manifestation of mutual

assent on the part of two or more persons, and it has in some

respects a wider meaning than contract, bargain or promise.

Restatement (Second) of Contracts 3 (1979), 3 cmt. a. The

Account Documents established that BLMIS and its customers

manifest[ed] their mutual assent that BLMIS would conduct

securities transactions on the customersbehalf pursuing a specific

investmentstrategy. See id.3. Thisis,inourview,anagreement

sufficiently similar to a contract for the purchase or sale of asecuritytofallwithin thecatchallprovisionof741(7)(A)(vii). Of

course, BLMIS secretly intended to violate the agreementby using

the deposits to fund the ongoing Ponzi scheme. But this is of no


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21 No.122557bk(L)

moment, because [a]n agreement is a manifestation of mutual

assent, and [t]he conduct of a party may manifest assent even

thoughhedoesnotinfactassent.Id.3,19(3)(emphasisadded).

We similarly have little difficulty concluding that the

paymentsBLMIS made to itscustomersweremadeinconnection

with thesecuritiescontracts identifiedabove. In thecontextof

546(e),atransferisinconnectionwithasecuritiescontract if it is

related to or associated with the securities contract. See

Websters3dNewIntlDictionary481(1993)(definingconnection

as relationship or association in thought); cf. Shaw v. DeltaAir

Lines,Inc.,

463

U.S.

85,

97

(1983)

(interpreting

relates

to

to

mean

a

connection with or reference to). Here, BLMIS promised its

customers that itwould transactsecurities,andBLMISscustomers

deposited money relying on that promise. This agreement

constitutes a securities contract as defined in the statute and the

customers subsequent withdrawals from their accounts were

thereforerelatedto,andassociatedwith,thissecuritiescontract.

SIPC argues that Ponzi scheme payments,by definition, are

notin

connection

with

asecurities

contract.

SIPCs

Br.

16.

SIPCcontends that in order for the payments to havebeen made in

connection with a securities contract, there must necessarily have

been some relation or connection between the payment and the

contract. Id.at2728. AccordingtoSIPC,althoughthepaymentsof

fictitious profits were purported to havebeen made in connection

withtheagreements,theywerenotinfactmadeinconnectionwith

theagreementsbecausetheagreementswereeitherirrelevantorthe

paymentswerenotauthorizedbytheagreements. Id.at2830.

We are not persuaded. Section 546(e) sets a lowbar for the

requiredrelationshipbetweenthesecuritiescontractandthetransfer

sought to be avoided. Congress could have raised the bar by

requiringthatthetransferbemadepursuantto,orinaccordance


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22 No.122557bk(L)

withthetermsof,orasrequiredby,thesecuritiescontract,butit

didnot. Instead,Congressmerelyrequiredthatthetransferhavea

connectiontothesecuritiescontract,whichthesepaymentsdo.

CertainlySIPCandtheTrusteearecorrectthatthesetransfers

were also made in connection with a Ponzi scheme and, as a

result,werefraudulent.See id.at29. Indeed,BLMISsconductwas

inflagrantbreachoftheagreementsitmadewithitscustomers. But

thefactthatapaymentwasmadeinconnectionwithaPonzischeme

doesnotmeanthatiswasnotatthesametimemadeinconnection

with a (breached) securities contract. After all, a transfer canbe

connectedto,

and

can

be

made

in

relation

to,

multiple

documents

or

purposessimultaneously.

II

We also conclude that the transfers constituted settlement

payments, which provides another basis to shield the transfers

from avoidance under 546(e). As described above, 546(e)

provides that a trustee may not avoid a transfer that is a . . .

settlement payment, as defined in . . . this title, madeby [a] . . .

stockbroker. Section 741(8) defines settlement payment as apreliminary settlement payment, a partial settlement payment, an

interim settlement payment, a settlement payment on account, a

final settlement payment, or any other similar payment commonly

usedinthesecuritiestrade.

The Trustee again contends that these transfers did not

constitutesettlementpayment[s]becauseBLMISneverengagedin

actual securities trading. But we have held that the statutory

definitionshouldbebroadlyconstrued toapply tothe transferofcashorsecuritiesmadetocomplete[a]securitiestransaction.Enron,

651F.3dat334 (citationsomitted). That iswhat theBLMISclients

received. Each time a customer requested a withdrawal from


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23 No.122557bk(L)

BLMIS, he or she intended that BLMIS dispose of securities and

remitpaymenttothecustomer.SeeN.Y.U.C.C.8501(b)(1)&cmt.2

(brokers written crediting of securities to a customers accountcreates an enforceable securities entitlement). The statutory

definition andEnron compel the conclusion that, for example, if I

instructmybrokertosellmysharesofABCCorporationandremit

thecash,thatpaymentisasettlementevenifthebrokermayhave

failed to execute the trade and sent me cash stolen from another

client. As the district court correctly concluded, because the

customer granted BLMIS discretion to liquidate securities in their

accounts to the extent necessary to implement their sell orders or

withdrawal requests,each transfer in respectofasuchanorderor

requestconstitutedasettlementpayment.

III

Finally, we disagree with the Trustees contention that

affirmingthedistrictcourtsdecisionwouldbeinconsistentwithour

decisioninInreBLMIS,654F.3d229(2dCir.2011). There,wefaced

the question of how to calculate each BLMIS customers net

equity,as

that

term

is

defined

in

SIPA.

Id.

at

233.

Wesaid

that

itwouldbeabsurdtocalculatecustomersnetequityusingBLMISs

fictitiousaccountstatements,becausethatwouldhavethe...effect

of treating fictitious and arbitrarily assigned paper profits as real

and would give legal effect to Madoffs machinations. Id. at 235.

According to the Trustee, this case is similar. The Trustee argues

that, to allow customers to retain the fictitious profits Madoff

arbitrarilybestowed on them amounts to giving legal effect to his

fraud. TrusteesBr.5155.

This argument, albeit compelling, is ultimately not

convincing. Inourearlierdecision,weinterpretednetequityina

mannerthatwouldharmonizeitwiththeSIPAstatutoryframework

as a whole. See In re BLMIS, 654 F.3d at 237. Section 546(e),


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24 No.122557bk(L)

however, ispartoftheBankruptcyCode,notSIPA,andwasnot in

issue in In re BLMIS. This is importantbecause, in enacting the

Bankruptcy Code, Congress struck careful balances between theneedforanequitableresultforthedebtoranditscreditors,andthe

needforfinality. SeeInreCenturyBrassProds.,Inc.,22F.3d37,40(2d

Cir.1994). Forexample,abankruptcytrusteecanrecoverfraudulent

transfersunder548(a)(1)onlywhenthetransferstookplacewithin

two years of the petition date. And avoidance claims must be

brought two years after the entry of the order for relief at the

latest. 11U.S.C.546(a). Thesestatutesoflimitationsreflectthat,at

a certain point, the need for finality is paramount even in light of

countervailingequityconsiderations. Similarly,byenacting546(e),

Congressprovidedthat,foraverybroadrangeof securitiesrelated

transfers, the interest in finality is sufficiently important that they

cannotbe avoidedby abankruptcy trustee at all, except as actual

fraudulenttransfersunder548(a)(1)(A). Weareobligedtorespect

the balance Congress struck among these complex competing

considerations.

CONCLUSION

ThejudgmentofthedistrictcourtisAFFIRMED.