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U.S. Code as of:
01/19/04
Section 78eee. Protection of customers
(a) Determination of need of protection
(1) Notice to SIPC
If the Commission or any self-regulatory organization is aware
of facts which lead it to believe that any broker or dealer
subject to its regulation is in or is approaching financial
difficulty, it shall immediately notify SIPC, and, if such
notification is by a self-regulatory organization, the
Commission.
(2) Action by self-regulatory organization
If a self-regulatory organization has given notice to SIPC
pursuant to subsection (a)(1) of this section with respect to a
broker or dealer, and such broker or dealer undertakes to
liquidate or reduce its business either pursuant to the direction
of a self-regulatory organization or voluntarily, such
self-regulatory organization may render such assistance or
oversight to such broker or dealer as it considers appropriate to
protect the interests of customers of such broker or dealer. The
assistance or oversight by a self-regulatory organization shall
not be deemed the assumption or adoption by such self-regulatory
organization of any obligation or liability to customers, other
creditors, shareholders, or partners of the broker or dealer, and
shall not prevent or act as a bar to any action by SIPC.
(3) Action by SIPC
If SIPC determines that -
(A) any member of SIPC (including any person who was a member
within one hundred eighty days prior to such determination) has
failed or is in danger of failing to meet its obligations to
customers; and
(B) one or more of the conditions specified in subsection
(b)(1) of this section exist with respect to such member,
SIPC may, upon notice to such member, file an application for a
protective decree with any court of competent jurisdiction
specified in section 78u(e) or 78aa, except that no such
application shall be filed with respect to a member the only
customers of which are persons whose claims could not be
satisfied by SIPC advances pursuant to section 78fff-3.
(4) Effect of other pending actions
An application with respect to a member of SIPC filed with a
court under paragraph (3) -
(A) may, with the consent of the Commission, be combined with
any action brought by the Commission, including an action by
the Commission for a temporary receiver pending an appointment
of a trustee under subsection (b)(3) of this section; and
(B) may be filed notwithstanding the pendency in the same or
any other court of any bankruptcy, mortgage foreclosure, or
equity receivership proceeding or any proceeding to reorganize,
conserve, or liquidate such member or its property, or any
proceeding to enforce a lien against property of such member.
(b) Court action
(1) Issuance of protective decree
Upon receipt of an application by SIPC under subsection (a)(3)
of this section, the court shall forthwith issue a protective
decree if the debtor consents thereto, if the debtor fails to
contest such application, or if the court finds that such debtor
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(A) is insolvent within the meaning of section 101 of title
11, or is unable to meet its obligations as they mature;
(B) is the subject of a proceeding pending in any court or
before any agency of the United States or any State in which a
receiver, trustee, or liquidator for such debtor has been
appointed;
(C) is not in compliance with applicable requirements under
the 1934 Act [15 U.S.C. 78a et seq.] or rules of the Commission
or any self-regulatory organization with respect to financial
responsibility or hypothecation of customers' securities; or
(D) is unable to make such computations as may be necessary
to establish compliance with such financial responsibility or
hypothecation rules.
Unless the debtor consents to the issuance of a protective
decree, the application shall be heard three business days after
the date on which it is filed, or at such other time as the court
shall determine, taking into consideration the urgency which the
circumstances require.
(2) Jurisdiction and powers of court
(A) Exclusive jurisdiction
Upon the filing of an application with a court for a
protective decree with respect to a debtor, such court -
(i) shall have exclusive jurisdiction of such debtor and
its property wherever located (including property located
outside the territorial limits of such court and property
held by any other person as security for a debt or subject to
a lien);
(ii) shall have exclusive jurisdiction of any suit against
the trustee with respect to a liquidation proceeding; and
(iii) except as inconsistent with the provisions of this
chapter, shall have the jurisdiction, powers, and duties
conferred upon a court of the United States having
jurisdiction over cases under title 11, together with such
other jurisdiction, powers, and duties as are prescribed by
this chapter.
(B) Stay of pending actions
Pending the issuance of a protective decree under paragraph
(1), the court with which an application has been filed -
(i) shall stay any pending bankruptcy, mortgage
foreclosure, equity receivership, or other proceeding to
reorganize, conserve, or liquidate the debtor or its property
and any other suit against any receiver, conservator, or
trustee of the debtor or its property, and shall continue
such stay upon appointment of a trustee pursuant to paragraph
(3);
(ii) may stay any proceeding to enforce a lien against
property of the debtor or any other suit against the debtor,
including a suit by stockholders of the debtor which
interferes with prosecution by the trustee of claims against
former directors, officers, or employees of the debtor, and
may continue such stay upon appointment of a trustee pursuant
to paragraph (3);
(iii) may stay enforcement of, and upon appointment of a
trustee pursuant to paragraph (3), may continue the stay for
such period of time as may be appropriate, but shall not
abrogate any right of setoff, except to the extent such right
may be affected under section 553 of title 11, and shall not
abrogate the right to enforce a valid, nonpreferential lien
or pledge against the property of the debtor; and
(iv) may appoint a temporary receiver.
(3) Appointment of trustee and attorney
If the court issues a protective decree under paragraph (1),
such court shall forthwith appoint, as trustee for the
liquidation of the business of the debtor and as attorney for the
trustee, such persons as SIPC, in its sole discretion, specifies.
The persons appointed as trustee and as attorney for the trustee
may be associated with the same firm. SIPC may, in its sole
discretion, specify itself or one of its employees as trustee in
any case in which SIPC has determined that the liabilities of the
debtor to unsecured general creditors and to subordinated lenders
appear to aggregate less than $750,000 and that there appear to
be fewer than five hundred customers of such debtor. No person
may be appointed to serve as trustee or attorney for the trustee
if such person is not disinterested within the meaning of
paragraph (6), except that for any specified purpose other than
to represent a trustee in conducting a liquidation proceeding,
the trustee may, with the approval of SIPC and the court, employ
an attorney who is not disinterested. A trustee appointed under
this paragraph shall qualify by filing a bond in the manner
prescribed by section 322 of title 11, except that neither SIPC
nor any employee of SIPC shall be required to file a bond when
appointed as trustee.
(4) Removal to bankruptcy court
Upon the issuance of a protective decree and appointment of a
trustee, or a trustee and counsel, under this section, the court
shall forthwith order the removal of the entire liquidation
proceeding to the court of the United States in the same judicial
district having jurisdiction over cases under title 11. The
latter court shall thereupon have all of the jurisdiction,
powers, and duties conferred by this chapter upon the court to
which application for the issuance of the protective decree was
made.
(5) Compensation for services and reimbursement of expenses
(A) Allowances in general
The court shall grant reasonable compensation for services
rendered and reimbursement for proper costs and expenses
incurred (hereinafter in this paragraph referred to as
"allowances") by a trustee, and by the attorney for such a
trustee, in connection with a liquidation proceeding. No
allowances (other than reimbursement for proper costs and
expenses incurred) shall be granted to SIPC or any employee of
SIPC for serving as trustee. Allowances may be granted on an
interim basis during the course of the liquidation proceeding
at such times and in such amounts as the court considers
appropriate.
(B) Application for allowances
Any person seeking allowances shall file with the court an
application which complies in form and content with the
provisions of title 11 governing applications for allowances
under such title. A copy of such application shall be served
upon SIPC when filed. The court shall fix a time for a hearing
on such application, and notice of such hearing shall be given
to the applicant, the trustee, the debtor, the creditors, SIPC,
and such other persons as the court may designate, except that
notice need not be given to customers whose claims have been or
will be satisfied in full or to creditors who cannot reasonably
be expected to receive any distribution during the course of
the liquidation proceeding.
(C) Recommendations of SIPC and awarding of allowances
Whenever an application for allowances is filed pursuant to
subparagraph (B), SIPC shall file its recommendation with
respect to such allowances with the court prior to the hearing
on such application and shall, if it so requests, be allowed a
reasonable time after such hearing within which to file a
further recommendation. In any case in which such allowances
are to be paid by SIPC without reasonable expectation of
recoupment thereof as provided in this chapter and there is no
difference between the amounts requested and the amounts
recommended by SIPC, the court shall award the amounts
recommended by SIPC. In determining the amount of allowances in
all other cases, the court shall give due consideration to the
nature, extent, and value of the services rendered, and shall
place considerable reliance on the recommendation of SIPC.
(D) Applicable restrictions
The restrictions on sharing of compensation set forth in
section 504 of title 11 shall apply to allowances.
(E) Charge against estate
Allowances granted by the court, including interim
allowances, shall be charged against the general estate of the
debtor as a cost and expense of administration. If the general
estate is insufficient to pay allowances in whole or in part,
SIPC shall advance such funds as are necessary for such
payment.
(6) Disinterestedness
(A) Standards
For purposes of paragraph (3), a person shall not be deemed
disinterested if -
(i) such person is a creditor (including a customer),
stockholder, or partner of the debtor;
(ii) such person is or was an underwriter of any of the
outstanding securities of the debtor or within five years
prior to the filing date was the underwriter of any
securities of the debtor;
(iii) such person is, or was within two years prior to the
filing date, a director, partner, officer, or employee of the
debtor or such an underwriter, or an attorney for the debtor
or such an underwriter; or
(iv) it appears that such person has, by reason of any
other direct or indirect relationship to, connection with, or
interest in the debtor or such an underwriter, or for any
other reason, an interest materially adverse to the interests
of any class of creditors (including customers) or
stockholders,
except that SIPC shall in all cases be deemed disinterested,
and an employee of SIPC shall be deemed disinterested if such
employee would, except for his association with SIPC, meet the
standards set forth in this subparagraph.
(B) Hearing
The court shall fix a time for a hearing on
disinterestedness, to be held promptly after the appointment of
a trustee. Notice of such hearing shall be mailed at least ten
days prior thereto to each person who, from the books and
records of the debtor, appears to have been a customer of the
debtor with an open account within the past twelve months, to
the address of such person as it appears from the books and
records of the debtor, and to the creditors and stockholders of
the debtor, to SIPC, and to such other persons as the court may
designate. The court may, in its discretion, also require that
notice be given by publication in such newspaper or newspapers
of general circulation as it may designate. At such hearing, at
any adjournment thereof, or upon application, the court shall
hear objections to the retention in office of a trustee or
attorney for a trustee on the grounds that such person is not
disinterested.
(c) SEC participation in proceedings
The Commission may, on its own motion, file notice of its
appearance in any proceeding under this chapter and may thereafter
participate as a party.
(d) SIPC participation
SIPC shall be deemed to be a party in interest as to all matters
arising in a liquidation proceeding, with the right to be heard on
all such matters, and shall be deemed to have intervened with
respect to all such matters with the same force and effect as if a
petition for such purpose had been allowed by the court.
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