{"id":5325,"date":"2012-07-21T00:00:00","date_gmt":"2012-07-21T05:00:00","guid":{"rendered":"https:\/\/institutionalinvestorsecuritiesblog.blawgcloud.com\/2012\/07\/no_sipa_coverage_for_soft_doll"},"modified":"2022-04-28T13:28:04","modified_gmt":"2022-04-28T18:28:04","slug":"no-sipa-coverage-for-soft-doll","status":"publish","type":"post","link":"https:\/\/www.investorlawyers.com\/blog\/no-sipa-coverage-for-soft-doll\/","title":{"rendered":"No SIPA Coverage for Soft Dollar Credits, Says Bankruptcy Court"},"content":{"rendered":"<p>The U.S. Bankruptcy Court for the Southern District of New York has decided that claims stemming from soft dollar credits aren\u2019t qualified to avail of Securities Investor Protection Act. According to Judge James Peck, this is the first time a court has had to determine whether soft dollar claims qualify as customer claims under SIPA.<\/p>\n<p>The motion was filed by James Giddens, the Lehman Brothers Inc. trustee, who sought to affirm the denial of <a href=\"https:\/\/www.securities-fraud-attorneys.com\/\">securities claims <\/a>made by dozens of hedge funds and money managers seeking to get back soft dollar credits in their accounts with Lehman. Soft dollars are commission credits that can be used for buying research and brokers services that fall under the Securities Exchange Act of 1934\u2019s Section 28(e)\u2019s \u201csafe harbor\u201d parameters. (Generally, a soft dollar arrangement includes an understanding or agreement through which a discretionary money manager obtains research or other services from a broker-dealer. This is done in return for brokerage commission from transactions involving the accounts of discretionary clients.) While Giddens decided that these claims did not have SIPA protection and were \u201cgeneral unsecured claims,\u201d a number of claimants disagreed.<\/p>\n<p>The bankruptcy court, however, sided with Giddens. The court said that not only are soft dollar credits not securities and can only be used for the purposes identified under the Securities Exchange Act of 1934\u2019s Section 28(e), but also, soft dollar accounts are \u201cexclusively\u201d available to \u201cbrokerage and research services\u201d that a broker provides and cannot go toward the purchase of securities. Therefore, said Judge James Peck, Soft Dollar Claimants\u2019 claims involving their Soft Dollar Accounts can\u2019t be dealt with as if they were customer claims made under SIPA.<\/p>\n<p>The bankruptcy court disagreed with claimants\u2019 argument that because the credits could be used for research that would direct the clients in their purchase of securities there was a \u201csufficient connection\u201d between a securities purchase and the soft dollars. The claimants had argued that this type of link made them customers under SIPA\u2019s meaning. The court said no, finding that under the statute, the definition of a customer is meant to be \u201cnarrowly construed\u201d and credits that can only go toward market research expenses are not tangential or direct enough to fulfill SIPA\u2019s definition of what is a customer.<\/p>\n<p>The court also disagreed with the claimants\u2019 argument that the credits, which are proceeds of securities that have been sold or converted, should be considered customer property under SIPA. The court said that soft dollar credits are associated not with securities trade proceeds but with broker-dealer commissions. Peck also said that considering their character and source, the \u201ccredits are not customer property.\u201d The court said that the claims were \u201creally breach of contract claims\u201d falling under the unsecured claims umbrella.<\/p>\n<p><strong><br \/>\nMore Blog Posts:<\/strong><\/p>\n<p><a href=\"https:\/\/www.investorlawyers.com\/blog\/2012\/07\/montana_supreme_court_says_fin\">Montana Supreme Court Says Lower Court&#8217;s Finding that Tenancy-in-Common Investment Is Not A Securities Was In Error<\/a>, Stockbroker Fraud Blog, July 20, 2012<\/p>\n<p> <a href=\"https:\/\/www.investorlawyers.com\/blog\/no-sipa-coverage-for-soft-doll\/#more-5325\" class=\"more-link\">Continue Reading \u203a<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The U.S. Bankruptcy Court for the Southern District of New York has decided that claims stemming from soft dollar credits aren\u2019t qualified to avail of Securities Investor Protection Act. According to Judge James Peck, this is the first time a court has had to determine whether soft dollar claims qualify as customer claims under SIPA. [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[3740],"tags":[2543,2575],"class_list":["post-5325","post","type-post","status-publish","format-standard","hentry","category-miscellaneous","tag-sipa","tag-soft-credit-dollars"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>No SIPA Coverage for Soft Dollar Credits, Says Bankruptcy Court &#8212; Investor Lawyers Blog &#8212; July 21, 2012<\/title>\n<meta name=\"description\" content=\"The U.S. Bankruptcy Court for the Southern District of New York has decided that claims stemming from soft dollar credits aren\u2019t qualified to avail of &#8212; July 21, 2012\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.investorlawyers.com\/blog\/no-sipa-coverage-for-soft-doll\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"No SIPA Coverage for Soft Dollar Credits, Says Bankruptcy Court &#8212; 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