Narrow Interpretation Of 'Customer' Under SIPA Is Affirmed By The Second Circuit

The Second Circuit's affirmation of the narrow interpretation of customer under SIPA is likely to have a broad impact on the remaining Madoff cases before Judge Rakoff in the Southern District of New York, as well as the various SIPA cases currently working their way through courts across the United States.

On February 22, 2013, the United States Court of Appeals for the Second Circuit in In re Bernard L. Madoff Investment Securities LLC held that certain individuals who had invested indirectly in Bernard L. Madoff Investment Securities LLC ("BLMIS") through certain limited partnerships (the "Investors") were not "customers" of BLMIS under the Securities Investor Protection Act ("SIPA"). The significance of this decision is that because the Investors are not customers of BLMIS, they will not be eligible to have their investment losses compensated up to the $500,000 cap authorized by the Securities Investor Protection...