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SECURITIES INVESTOR PROTECTION CORP. v. CHARISMA S

December 18, 1972

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff,
v.
CHARISMA SECURITIES CORPORATION, Defendant


Pollack, District Judge.


The opinion of the court was delivered by: POLLACK

POLLACK, District Judge.

This is an application for an interim fee allowance to the Trustee and counsel for the Trustee serving in the liquidation of the broker-dealer business of Charisma Securities Corp. (Charisma) pursuant to the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa-78 lll ("1970 Act"). The amount sought totals $8,075. The Trustee has devoted 35 hours to his activities and he values this time at not less than $100 per hour. His counsel have devoted 31 hours of a partner's time for which they request not less than $90 per hour and 115 hours of associates' time valued at not less than $45 per hour. These rates are said to be fair and reasonable under "present day economics in the practice of law in New York City."

 For the reasons which follow, the applications are denied without prejudice to the right of the applicants to present requests for allowances of compensation upon the practical completion of the administration of the estate involved.

 I.

 Upon the application of the Securities Investor Protection Corporation ("SIPC"), a non profit corporation created by the 1970 Act, this Court determined that the customers of Charisma were in need of the protection afforded by the 1970 Act and, on March 9, 1972, on the suggestion of SIPC, appointed Edward L. Gasperini, Esq., and Messrs. Gasperini, Koch and Savage, being persons specified by SIPC pursuant to § 5(b)(3) of the 1970 Act, 15 U.S.C. § 78eee(b)(3), as Trustee and attorneys for the Trustee, respectively. The SIPC application seeking their appointment stated that SIPC had been advised that the Trustee and his firm as counsel to the Trustee would make a joint fee request and that there would be participation within the firm in that fee -- a procedure SIPC considered appropriate.

 On May 5, 1972, this Court found the Trustee to be qualified and disinterested and his appointment was confirmed without opposition.

 Since his appointment the Trustee has filed three Interim Reports (April 11, 1972; June 14, 1972; October 31, 1972), the last of which was accompanied by the instant Interim Fee Application. The progress they show in the liquidation of Charisma is the following.

 In his first Interim Report the Trustee stated that he had engaged a firm of certified public accountants to make an inventory of the assets and to contact customers and creditors of Charisma. The records of the firm in the possession of the SEC had been stolen from the offices of the SEC some months earlier. However, counsel and accountants identified approximately 800 names of persons and companies, some of whom might have been or were customers of Charisma. These persons were notified of the trusteeship and were sent a claim form and notice of hearing of any objections to the trustee's appointment. Pursuant to a Court Order directing all banks holding funds in the name of Charisma to pay such funds to the Trustee, $13.41 was recovered. Also located was some old office furniture, subsequently appraised at $92.50, being held by Charisma's landlord as security for unpaid rent. To date, these are the only assets of Charisma which the Trustee has been able to locate and secure.

 In his second Interim Report the Trustee recited that his accountants had reported that Charisma had been involved in certain underwritings and counsel was directed to inquire into the status of these ventures. Also, that 59 customer forms had been returned to him, 26 of which reflected no claim against Charisma. The remaining 33 reflected various claims which were turned over to his accountants for evaluation. The Trustee reported the discovery of certain books and records of Charisma and identified therefrom the names of 45 possible creditors to whom creditor forms were mailed.

 On October 31, 1972, the Trustee presented his third Interim Report together with the instant application for interim allowances for both himself and his counsel. This report recounts that the accountants had submitted their recommendations for the disposition of the customer claims filed prior to June 1, 1972. Acting thereon, the Trustee submitted and obtained a Court Order, with the approval of SIPC, providing for cash payments to customers of Charisma specified by the accountants, in the aggregate amount of $21,065.62. Funds to pay these customers were obtained from and advanced by SIPC under the 1970 Act. Section 6(f)(1) of the 1970 Act, 15 U.S.C. § 78fff(f)(1). The customers involved were notified of the availability of these funds for their claims and general releases were sent to them for execution. The accountants examined the remaining customer claims (apparently 13 in number) and reached the preliminary conclusion that all but four could be objected to. This Interim Report also makes mention that a brokerage account with a considerable balance had been located for Stephen Lee Adlman, the former chief officer of Charisma, on the basis of which the accountants were asked to prepare any available data that might indicate that Charisma's funds or securities had been taken by Adlman.

 The net of the situation to date is this. After six months of the trusteeship, assets located and recovered by the Trustee total $105.91. The payment by SIPC of 20 customer claims aggregating $21,065.62 has been authorized by the Court. Seven claims aggregating $8,030 are pending before the Trustee as to which the accountants are awaiting further documentation. Also pending are two claims asserted in the amount of $26,150 as to which all necessary documentation has been received; however, because of their complexity, further analysis by the accountants is required thereof. Of the few remaining claims filed prior to June 1, 1972, the trustee's accountants recommend that he object to six claims aggregating $10,422.50. No report has yet been prepared by the accountants to cover the unspecified number of claims filed by customers after June 1, 1972, although one is promised. The Trustee claims that to date he had been unable to locate or trace the assets which Charisma should have had. In this vein, he has investigated the possibility of suit against the former chief officer of Charisma for misappropriation of funds and securities.

 II.

 The 1970 Act had its genesis in the concern over the loss of public confidence in the brokerage industry due to its inability adequately to protect investors if the broker-dealer with whom they are doing business encounters financial troubles. In these circumstances public customers had sometimes encountered difficulty in obtaining their cash balances or securities from the broker-dealers. The legislation provided for the establishment of a fund to be used to make it possible for a public customer, in the event of the financial insolvency of his broker, to recover that to which he is entitled, with a limitation of $50,000 for each customer on the amounts to be provided by the fund. The existence of this fund was intended to reinforce the confidence that investors have in the United States securities markets and to strengthen the financial responsibilities of broker-dealers. H.R.Rep. No. 91-1613, 91st Cong., 2d Sess. 1-4 (1970).

 Created by this legislation was the Securities Investor Protection Corporation (SIPC), a non profit, membership corporation, whose members consist of all registered brokers and dealers and members of national securities exchanges, with the exception of those whose exclusive business is distribution of shares of mutual funds or variable annuities. The function of SIPC is to administer this fund and take steps to protect the customers of any member in need thereof. If SIPC determines that any of its members has failed or is in danger thereof and a condition exists of insolvency or failure to comply with financial responsibility or hypothecation rules relative to customers' securities, then SIPC applies to the Court for an adjudication that the customers of such member are in need of the protections provided for by this legislation. If the debtor consents to ...


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