In re Adler, Coleman Clearing Corp.

• Decision Date: 02 January 1997
• Docket Number: Bankruptcy No. 95 B 08203 (JLG).
• Citation: 204 BR 99
• Parties: In re ADLER, COLEMAN CLEARING CORP., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

204 B.R. 99 (1997)

In re ADLER, COLEMAN CLEARING CORP., Debtor.

Bankruptcy No. 95 B 08203 (JLG).

United States Bankruptcy Court, S.D. New York.

January 2, 1997.

COPYRIGHT MATERIAL OMITTED

Cleary, Gottlieb, Steen & Hamilton, New York City, for the Trustee.

Paul, Hastings, Janofsky & Walker LLP, New York City, for Keith and Susan Jensen.

Haftel & Silverman, P.C., New York City, for Michael and Roselva Marie Yost.

Laird R. Kelly, Demarest, New Jersey, Pro Se.

John Quackenbush, Wellington, Florida, Pro Se.

Kenneth J. Caputo, Associate General Counsel, Washington, DC, for SIPC.

DECISION ON MOTION FOR ORDER UPHOLDING TRUSTEE'S DETERMINATIONS DENYING CLAIMS OF CERTAIN CUSTOMERS WHO FILED CLAIMS AFTER STATUTORY BAR DATE AND EXPUNGING OBJECTIONS WITH RESPECT TO THOSE DETERMINATIONS

JAMES L. GARRITY, Jr., Bankruptcy Judge.

Edwin B. Mishkin, SIPA Trustee (the "Trustee") for the liquidation of Adler Coleman Clearing Corp. ("Adler Coleman" or the "debtor"), moves for an order upholding his determination that certain claims filed after September 22, 1995 (the "Bar Date") are not valid claims against the debtor because they are untimely under the relevant provisions of the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa-lll, as amended ("SIPA"), and expunging the claimants' objections to his determinations. We grant the motion.

Facts

On February 27, 1995, the Honorable Loretta A. Preska, United States District Judge for the Southern District of New York, entered an order pursuant to SIPA § 78eee(b) finding, among other things, that debtor's customers required the protections afforded by SIPA. Judge Preska appointed the Trustee to liquidate debtor's business and removed the liquidation proceeding to this court.

Adler Coleman was a member of the Securities Investors Protection Corporation ("SIPC") and a broker-dealer registered with the Securities and Exchange Commission ("SEC"). It principally acted as a clearing firm on a disclosed basis for approximately 42 introducing firms. Hanover Sterling & Co., Ltd. ("Hanover"), also an SIPC member and registered broker-dealer, was one of the introducing firms whose trades were cleared by debtor. It ceased operating on February 24, 1995 and like debtor is being liquidated under SIPA.

Over 66,000 active customer accounts whose trades cleared through the debtor were frozen as of February 27, 1995 and debtor's customers could not trade in their accounts. Between March 18, 1995 and April 26, 1995, the Trustee transferred all but approximately 1,500 accounts to third party broker-dealers. Hanover introduced the majority of those 1,500 accounts. To date, the Trustee retains approximately 370 customer accounts containing assets for which customer claims were filed.

Pursuant to SIPA § 78fff-2(a)(1) and our March 10, 1995 order, the Trustee mailed notice of the commencement of this liquidation proceeding (the "Notice"), together with a Customer Claim Form and a brochure entitled "How SIPC Protects You" (collectively, the "Claim Package") to Adler Coleman's customers. He published the Notice in the national and local editions of THE WALL STREET JOURNAL and THE NEW YORK TIMES on March 22, 1995. Among other things, in accordance with SIPA § 78fff-2(a)(3), the Notice fixed a Bar Date of September 22, 1995; i.e. 6 months after the March 22, 1995 Notice. In relevant part, the Notice states:

COMMENCEMENT OF LIQUIDATION PROCEEDING

NOTICE IS HEREBY GIVEN that on February 27, 1995, the Honorable Loretta A. Preska, Judge of the United States District Court for the Southern District of New York, entered an Order granting the application of the Securities Investor Protection Corporation for issuance of a Protective Decree adjudicating that the customers of Adler, Coleman Clearing Corp. (the "Debtor"), are in need of the protection afforded by the Securities Investor Protection Act of 1970 ("SIPA"). Edwin H. Mishkin, Esq. was appointed Trustee for the liquidation of the business of the Debtor, and Cleary, Gottlieb, Steen & Hamilton was appointed as counsel to the Trustee.

Customers of the Debtor who wish to avail themselves of the protection afforded to them under SIPA are required to file their claims with the Trustee within sixty (60) days after the date of this Notice. Even customers whose accounts have been transferred to a different clearing broker must file a claim in order to assure the availability of the protection afforded under SIPA. Such claims should be filed with the Trustee at P.O. Box 1093, Wall Street Station New York, New York XXXXX-XXXX. Customer claims will be deemed filed only when received by the Trustee.

Forms for the filing of customers\' claims are being mailed to customers of the Debtor as their name and addresses appear on the Debtor\'s books and records. Customers who do not receive such forms within seven (7) days from the date of this Notice may obtain them by writing to the Trustee at the address shown above.

Claims by broker-dealers, either as customers or for the completion of open contractual commitments, must be filed with the Trustee at the above address within thirty (30) days after the date of this Notice. Broker-dealer claims will be deemed to be filed only when received by the Trustee. Claim forms may be obtained by writing to the Trustee at the address shown above.

All other creditors of the Debtor must file formal proofs of claim with the Trustee at the address shown above within six (6) months after the date of this Notice. All such claims will be deemed filed only when received by the Trustee.

No claim of any kind will be allowed unless filed within (6) months after the date of the Notice.

In part, the Customer Claim Form states as follows:

it is strongly recommended that your claim be filed by certified mail, return receipt requested. Your return receipt will be the only document you will receive that shows your claim has been received by the Trustee.

The Instructions for Completing Customer Claim Form, which were part of that form, state in relevant part that:

the law governing this proceeding absolutely bars the allowance of any claim, including a customer claim, not actually received by the Trustee on or before September 22, 1995. Neither the Trustee nor SIPC has authority to grant extensions of time for filing of claims, regardless of the reason. If your claims is received even one day late, it will be disallowed.

The time limitations governing the filing of customer claims in a SIPA liquidation are set forth in SIPA § 78fff-2. That section provides in relevant part as follows:

No claim of a customer or other creditor of the debtor which is received by the trustee after the expiration of the six-month period beginning on the date of publication of notice . . . shall be allowed, except that the court may, upon application within such period and for cause shown, grant a reasonable, fixed extension of time for the filing of a claim by the United States, by a State or political subdivision thereof, or by an infant or incompetent person without a guardian.

15 U.S.C. § 78fff-2(a)(3). In accordance therewith, the Trustee denied any claims he received after September 22, 1995 as being time barred. Several claimants objected to that determination. We adjourned the hearing on the motion respecting certain claimants pending the completion of settlement discussions between the parties. At the close of the hearing we upheld the Trustee's determinations concerning claimants who failed to appear at the hearing. As relevant herein, the remaining objections fall into three categories: (i) claimants who allege that their claims were not timely filed because their property was transferred to another broker-dealer; (ii) claimants who allege to have received inadequate notice of the liquidation proceeding; and (iii) claimants who allegedly filed a claim with the Trustee prior to September 22, 1995. We address each of these below.

Discussion

Claimants Who Allege That Their Claims Were Not Timely Filed Because Their Property Was Transferred to Another Broker-Dealer

Laird and Susan Kelly

Laird and Susan Kelly admit to receiving a Claim Package in February or March 1995. They filed a claim after the Bar Date on or after December 21, 1995. Mr. Kelly explains the relevant circumstances as follows. While there was a debit in his Adler Coleman trading account, Kelly made a substantial withdrawal from the account. At that time, there was enough cash in a money market account accessible by Adler Coleman to settle the debit in the trading account. Adler Coleman failed to settle the debit and transferred the account — which contained securities and the debit — to the U.S. Clearing House. U.S. Clearing House asked Kelly to satisfy the debit, which he did by sending a check. However, by the time the check arrived, U.S. Clearing House had transferred the account back to the Trustee, as it was permitted to do. Kelly explains that he did not file a claim because he believed that the debit in the transferred account had been settled.

Section 78fff-2(a)(3) is an absolute bar to late filed claims. In re Government Securities Corp., 95 B.R. 829, 832 (S.D.Fla. 1988); Miller v. Austin (In re John Muir & Co.), 72 B.R. 893, 895-97 (S.D.N.Y.1987). Our discretion to extend the six month period is limited to requests made within that period by specified parties and for cause specified in the statute. SEC v. J. Shapiro Co., 414 F.Supp. 679, 680, 682-83 (D.Minn. 1975). The statute permits no equitable relief. Camp v. Morey (In re Government Securities Corp.), 107 B.R. 1012, 1022 (S.D.Fla.1989) ("SIPA time limits for filing claims are mandatory and may not be extended by the exercise of some equity power"); In re Weis Securities, Inc., No. 73 Civ. 2332, 1975 WL 379, *2 (S.D.N.Y. Mar. 27, 1975) (SIPA time limits are mandatory and may not be extended by the "exercise of some equity power").

The Notice specifically advised claimants like the Kellys to file claims even...