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In re Lloyd Securities

February 6, 1996

IN RE: LLOYD SECURITIES, INC., DEBTOR ARTHUR ALPERSTEIN, GLORIA BENTZ, GLORIANNE BENTZ, HERMAN BERKOWITZ, LORRAINE BERKOWITZ, JAMES DEAMER, EMPIRICAL ENTERPRISES, INC., KENNETH FELZER, RUTH HOFFMAN, LLOYD HUMPHREY, RICHARD KATZ, LINDA KATZ, HARRIET KIRSCH, JOHN KOCHERSPERGER, ALICE MCCABE, JOSEPH MCGUCKIN, PHYLLIS NEWCOMER, TIMOTHY NYLAND, JAMES NYLAND, VERNETTA NYLAND, LARRY ROTHSTEIN, FAYE ROTHSTEIN, DWAYNE SIMPSON, KATHRYN SIMPSON, ALAN SMITH, ESTATE OF RUSSELL SNYDER, MICHAEL SOROKER, BARBARA SOROKER, AND BAZELON & LESS, *fn* APPELLANTS


ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil Action Nos. 94-01391 and 94-01416)

Before: MANSMANN, SCIRICA and NYGAARD, Circuit Judges

NYGAARD, Circuit Judge.

Argued September 13, 1995

Filed February 6, 1996)

OPINION OF THE COURT

The customers of a failed securities dealer, Lloyd Securities, Inc., and their attorneys sought fees from the res created by the dealer's liquidation under the Securities Investor Protection Act ("SIPA"). The district court denied the motion and the customers and attorneys appeal. We will affirm.

I.

The facts of this case are well-stated in the opinions of the district and bankruptcy courts. See In re Lloyd Securities, Inc., 183 B.R. 386 (E.D. Pa. 1995); In re Lloyd Securities, Inc., 163 B.R. 242 (Bankr. E.D. Pa. 1994). We will assume the reader is familiar with those opinions and present only a summary.

A.

The Securities and Exchange Commission sued Lloyd Securities and several related entities. The SEC alleged that Lloyd and its principals engaged in a scheme to defraud investors in violation of the securities laws. The court granted the requested relief and appointed a receiver. Shortly thereafter, customers of Lloyd Securities brought a class action against Lloyd Securities, its principals and other parties that had participated in the customers' securities transactions. This came to be known as the Deamer case.

The Securities Investor Protection Corporation ("SIPC") filed an application in the SEC action for a protective decree, turning the receivership into a liquidation. The liquidation proceeding was then referred to the bankruptcy court. The customers assert as a basis for their recovery that they were instrumental in causing the SIPC to seek the liquidation of Lloyd Securities, although this is disputed.

The trustee filed a number of chapter 11 cases on behalf of Lloyd's principals and entities related to Lloyd Securities. These cases were all administered jointly and were known as the IBEX cases. The customers then moved to have the IBEX cases administered jointly with the SIPA liquidation itself in order to save administrative costs. Although the trustee and the SIPC opposed the motion, the bankruptcy court indicated its intention to grant it and the cases were ultimately administered together.

The trustee instructed Lloyd's customers to submit their net equity claims by April 1991; yet, by May 1992 payment had been made on only five of them, leaving approximately 85 outstanding. This led the customers to file a motion to compel the trustee to rule on their claims. The district court never actually decided this motion, but by September 1992, the trustee had ruled on most of the claims.

The trustee also filed adversary proceedings against Newbridge Securities, Inc. and several banks. In response to those defendants' allegations that the trustee lacked standing to bring the claims, the customers intervened and participated actively in ...


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