On September 27 and 28, 2013, approximately 115 members and guests of the National Association of Federal Equity Receivers (“NAFER”) gathered in Chicago for the organization’s second annual conference and two-day study group. Twenty states were represented at the conference with the delegates from California in the lead in terms of numbers. Five states (CA, IL, TX, UT, and NY) made up 80% of the attendees. In terms of educational mix, the comment was made during the conference that it seemed like a 90/10 conference – 90% substance and education and 10% party and play.

From the perspective of lawyers, accountants, and receivers who regularly attend such events, the NAFER conference was a bit of a “who’s-who.” The list of special guests at this event was noteworthy and included:

The esteemed Irving Picard, Trustee for the Madoff Estate (who has recovered about $9.5 billion – yes, that’s a “b” – and it is only “so far”).
The Honorable David O. Carter, US District Judge from the Central District of California, Santa Ana Division, who has appointed a few dozen receivers during his tenure on the bench and offered strong views on the relationship between the appointing judge and his or her receiver.
The Honorable Steven Rhodes, US Bankruptcy Judge from the Southern District of Michigan (Detroit) – Judge Rhodes was recently selected to take charge of the potentially precedent-setting Detroit Chapter 9 bankruptcy case.
The Honorable Janet S. Baer, United States Bankruptcy Judge from the Northern District of Illinois (Chicago) who, as a recent appointee to the bench, brought a lot of practical experience plus a judge’s perspective to the event.
The Honorable Sean Lane, United States Bankruptcy Judge from the Southern District of New York (Manhattan) – among current notable cases, Judge Lane is handling the American Airlines bankruptcy case.

There were also a number of representatives of US Regulatory agencies present. These included Tom Melton, Securities and Exchange Commission (“SEC”), Enforcement Division (Salt Lake City); Angela Dodd, SEC Chicago Regional Office; Diane Romaniuk, Commodities Futures Trading Commission (Chicago); Steve Levine, SEC (Chicago); and Alistaire Bambach, SEC (New York). Alistaire has the distinction of having worked on nearly all of the major Ponzi scheme cases in the past decade, including but not limited to Enron, Worldcom, Adelphia, Lehman, Madoff and MF Global. The regulator contingent was impressive and brought significant experience and insight to the issues before the assembly.

The educational component of the conference featured five panels plus a mock trial. The panels tackled such gnarly issues as In Pari Delicto (does the Receiver stand in the shoes of the wrongdoer and is therefore precluded from suing, i.e., aiders and abettors?); what does a receiver do when bankruptcy is filed; how to deal with different classes of defrauded victims; and tax issues facing a federal equity receiver. In the mock trial produced by Kathy Phelps, Judge Rhodes presided over an impressive cast of characters, including defrauded investor Dr. Duped played by Irving Picard. The mock trial was packed with humor and sticky legal issues in the pursuit of receiver claims against a financial institution, and it proved to be an effective wrap-up for the formal panels and educational component.

The highlight of the seminar was without a doubt the keynote address delivered by Irving Picard, the trustee appointed in the Bernard L. Madoff Investment Securities, LLC case. Mr. Picard provided insight into the case and interesting anecdotes arising from his administration of the largest Ponzi scheme case ever. Consider this: The Madoff case is being handled in bankruptcy court. Mr. Picard is the trustee. However, there is no chapter associated with the proceeding (no 7, 11, 13, etc.). Further Mr. Picard was neither picked by, nor reports to, the Office of the US Trustee. Mr. Picard’s compensation and the compensation of all professionals is not subject to 11 U.S.C. § 326 and § 330, but is discounted and paid hourly from outside the estate by the Securities Investor Protection Corporation (“SIPC”). Finally, in this unusual list of characteristics, the creditor prioritization in the Madoff case is: investor customers first and trade creditors second. Where does this set of unusual characteristics come from? The Securities Investor Protection Act (SIPA), which was enacted by Congress for the primary purpose of protecting customers from losses caused by the insolvency or financial instability of broker-dealers. SIPC appoints a trustee in such a case, which creates the circumstances outlined herein.

Mr. Picard’s results in the five year old case are impressive with about a 60% recovery rate so far. He stated that his goal or bogie is about $18 billion (depending on how the investors’ dollars are counted). The market for purchasing claims is speculating that Mr. Picard will achieve an even higher percentage of recovery going forward.

In addition to a stimulating (and even mind-expanding) speech over lunch, Mr. Picard was an active participant in the conference attending most sessions and demonstrating his sense of humor (and willingness to joke around) as the duped investor, a proctologist, in the wrap-up mock trial.

An important element of the success of this year’s conference was, of course, the sponsors. EastWest Bank, Braun, Clifton Larson Allen, FIT Marketing, Moglia Advisors, Reed Smith, the Seymour Group, MFS Trust Works, Robb Evans & Associates, Mosier & Company, Inc., Conrad O’Brien, and Winkler & DuPont all of whom collectively made the event possible.

NAFER President Steve Donell, a Federal Equity Receiver with headquarters in Southern California, reported that he was pleased with the conference in all aspects – content, conviviality, and complexity. Steve and the committee are already laying plans for next year’s effort – the third such annual meeting. For all of those interested in Federal Regulatory Receivership, this is a must attend conference based on the track record of the first two.

* Robert P. Mosier is a federal equity receiver and was the Conference Chair for the September 2013 NAFER conference. He is also a Southern California receiver and trustee and principal of Mosier & Company, Inc., a firm that has specialized in managing and turning around troubled companies for more than 25 years.