Davis Polk & Wardwell LLP 450 Lexington Avenue New York, New ...

PRELIMINARY STATEMENT
Pursuant to this Court’s Order Scheduling Adjudication of “Net Equity” Issue,
dated September 16, 2009, Sterling Equities Associates and certain of its affiliates (the
“Customers”) 1 respectfully submit this memorandum of law and the accompanying
declaration in opposition to the motion of Irving H. Picard (“Trustee”), trustee for the
substantively consolidated liquidation of Bernard L. Madoff Investment Securities LLC
(“BLMIS”) and Bernard L. Madoff (“Madoff”), for an order approving the Trustee’s
proposed calculation of “net equity” claims.
This case is governed by the plain language of the Securities Investor Protection
Act, 15 U.S.C. § 78aaa, et seq. (“SIPA”). SIPA includes an express definition of “net
equity.” 15 U.S.C. § 78lll(11). “Net equity” claims are satisfied from customer property,
15 U.S.C. § 78fff-2(c)(1)(A), and from a fund that the Securities Investor Protection
Corporation (“SIPC”) maintains for that purpose (the “SIPC Fund”). 15 U.S.C. § 78fff-3.
The Trustee and SIPC ask the Court to replace SIPA’s statutory mandate with a
“cash-in/cash-out” approach that is based on personal views of fairness and
impermissible theories of avoidance. It is beyond the province of the Court, however, to
depart from the plain language of the statute to provide for what the Trustee and SIPC
“might think . . . is the preferred result.” Lamie v. United States Tr., 540 U.S. 526, 542
(2004).
at n.1.
1 As listed in the Declaration of Arthur Friedman dated November 11, 2009 (“Friedman Decl.”),