Madoff Trustee Wins Ruling Easing Suits Against Financial Institutions
Oct. 30 –The trustee liquidating Bernard Madoff’s investment company to repay victims won a court ruling easing his ability to sue customers of feeder funds that profited from the con man’s $17 billion Ponzi scheme (Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff Sec.), 2013 BL 300425, S.D.N.Y., No. 1:12-mc-00115-JSR, 10/29/13).
The trustee, Irving Picard, doesn’t need specific rulings against the funds in order to go after banks to which the funds transferred their Madoff cash, according to U.S. District Judge Jed Rakoff in New York. Picard also didn’t miss a two-year deadline to file such lawsuits, Rakoff said.
The decision, initially made in December in a two-page ruling, was clarified Oct. 29 by Rakoff in an order obtained today by Bloomberg News.
Affiliates of Citigroup Inc., Credit Agricole SA , Barclays Plc and Bank of America Corp.’s Merrill Lynch were among financial institutions that sought the dismissal of dozens of Picard’s lawsuits. The dispute was one of several sent to Rakoff from bankruptcy court for clarification. His ruling returns the cases to bankruptcy court for further proceedings.
Picard is suing the banks for being subsequent recipients of money stolen from Madoff customers. In a typical situation, the banks received money from customers and invested the funds with feeder funds that in turn invested with Madoff.
Often unable to identify the banks’ ultimate customers, Picard sued the banks under a provision in bankruptcy law known as Bankruptcy Code Section 550(a), which says, in substance, that a subsequent recipient like the banks must pay money back if Madoff’s initial payment to the feeder fund was a fraudulent transfer.
Rakoff Oct. 29 distributed his opinion to parties in the case, explaining why Picard can sue the subsequent recipients although he never obtained a fraudulent transfer judgment against Fairfield Sentry Ltd. and Kingate Global Fund Ltd., the customers that received the initial transfers.
The subsequent recipients contended that the language in Section 550(a) barred lawsuits against them because Picard only settled with the two feeder funds and didn’t obtain a fraudulent transfer judgment.
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