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Securities and Exchange Commission v. Aberdeen Securities Co.

decided as amended november 24 1975.: November 13, 1975.

SECURITIES AND EXCHANGE COMMISSION, 500 NORTH CAPITOL STREET WASHINGTON, D.C. 20548, PLAINTIFF, SECURITIES INVESTOR PROTECTION CORP., APPLICANT
v.
ABERDEEN SECURITIES CO., INC., ROBERT LEE RAPP, FRANK KESSELMAN, 2502 SILVERSIDE ROAD, WILMINGTON, DEL. 19180, SECURITIES INVESTOR PROTECTION CORPORATION, APPLICANT, AND CLAUDE P. HUDSON, TRUSTEE FOR ABERDEEN SECURITIES CO., INC., APPELLANTS IN NO. 75-1074, SECURITIES INVESTOR PROTECTION CORPORATION ("SIPC") AND CLAUDE P. HUDSON, TRUSTEE OF ABERDEEN SECURITIES CO., INC., ("DEBTOR"), APPELLANTS IN NO. 75-1075, CLAIMANTS SHELDON RAIZES, MARILYN RAIZES, ET AL., AND JEROME E. BOGUTZ, ESQ., APPELLANTS IN NO. 75-1076



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE (D.C. Civil No. 4424)

Van Dusen, Adams and Hunter, Circuit Judges.

Author: Van Dusen

Opinion OF THE COURT

VAN DUSEN, Circuit Judge.

These appeals challenge an October 3, 1974, district court order awarding counsel fees of $3,250.00 and costs of $377.07 to be paid to Jerome E. Bogutz, Esq. (Bogutz) by the trustee for Aberdeen Securities Co., Inc. (Aberdeen), which is in liquidation under the Securities Investor Protection Act of 1970 (SIPA), 15 U.S.C. § 78aaa et seq.*fn1 We reverse and remand for reconsideration by the district court of the claim for attorney's fees in light of this opinion.

This is the second appeal to come before this court from the above liquidation proceeding. See Securities & Exch. Com'n v. Aberdeen Securities Co., Inc., 480 F.2d 1121 (3d Cir. 1973), where the Raizes claim was remanded to the district court "for appropriate findings in order to determine if there was, on the filing date, a legally sufficient claim . . . ."*fn2

The SIPA was passed by Congress to provide protection to investors if the broker-dealer with whom they are doing business should encounter financial difficulties.*fn3 The protection provided is similar to that provided bank depositors by the FDIC.*fn4

The Act establishes the Securities Investor Protection Corporation (SIPC), which is a non-profit, membership corporation and is not an agency or establishment of the United States Government. Brokers, dealers, and persons who are members of a national securities exchange are the members of the corporation. In the event of the insolvency of a member, a court of competent jurisdiction would appoint a person specified by SIPC to act as trustee to liquidate the business of the debtor. 15 U.S.C. § 78eee(b)(3). SIPC would advance to the trustee such sums from a fund created by assessments on the members as would be necessary to provide prompt payment of claims of the debtor's customers, up to $50,000. for each customer, of which no more than $20,000. could represent a reimbursement of cash.

In its 1974 opinion (see note 1), the district court held that Attorney Bogutz was entitled to payment of the abovementioned $3,627.07 in fees and costs, to be assessed against the estate. The reasoning of the district court, concurred in by Bogutz, raises a difficult question of statutory interpretation of the SIPA. Section 6(c)(1) of the Act, 15 U.S.C. § 78fff(c)(1) states:

"Except as inconsistent with the provisions of this chapter and except that in no event shall a plan of reorganization be formulated, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under, the provisions of chapter X . . . of the Bankruptcy Act . . . ."

Attorney Bogutz asserts, and the district court held, that this section makes § 243 of Chapter X of the Bankruptcy Act, 11 U.S.C. § 643, applicable to SIPA proceedings. Section 243 provides:

"The judge may allow reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred by creditors and stockholders, and the attorneys for any of them, in connection with submission by them of suggestions for a plan . . . or in connection with the administration of the estate. In fixing any such allowances, the judge shall give consideration only to the services . . . which were beneficial in the administration of the estate . . . ."

We note that § 6(c)(1) does not in express terms incorporate the provisions of Chapter X not inconsistent with the Act, but merely states that the SIPA "liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under, the provisions of chapter X . . . ."*fn5 (emphasis supplied). As an aid in determining the significance of this distinction, we look to the legislative history. The most exhaustive discussion of the purposes of § 6(c)(1) to be found in the legislative history is the statement of Senator Bennett, at 116 Cong. Rec. 40905 (December 10, 1970):

"The actual liquidation procedure will be conducted in accordance with, and as though it were being conducted under the provisions of chapter 10 of the Bankruptcy Act, which allows business reorganizations, provided, however, that no plan of reorganization shall be filed. . . . These liquidation procedures have been carefully designed to allow flexibility, to meet the special needs in liquidation of broker/dealers to ...


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