Lautenberg Foundation Appeals Ruling in Bid to Continue Suit of Madoff Kin

The charitable foundation of U.S. Senator Frank Lautenberg and his children appealed a judge’s ruling that postponed their $9 million lawsuit against the brother of imprisoned conman Bernard L. Madoff.

Lautenberg’s son and daughter joined the foundation in seeking to recover losses from Peter Madoff, claiming that as chief compliance officer at Bernard L. Madoff Investment Securities LLC, he was culpable for the Ponzi scheme run by his brother.

In their appeal filed in U.S. District Court in Manhattan today, the Lautenbergs asked a judge to consider “whether the bankruptcy court erred in concluding that appellants’ action against Peter Madoff violated the automatic stay,” or halt of lawsuits under bankruptcy law.

They also challenged a ruling that they “seek to recover potential estate assets that belong exclusively to the trustee.”

Separately, trustee Irving Picard today filed his own list of issues to be included in the appeal, including “whether the bankruptcy court correctly found that it had jurisdiction over the appellants.”

U.S. Bankruptcy Judge Burton Lifland ruled last month that the Lautenbergs and nine other Madoff clients who filed lawsuits must wait until Picard concludes two suits seeking $244 million from Madoff family members. All 10 who sued also asked Picard for recoveries from the Madoff estate.

Lawsuits Halted

The ruling in Manhattan halted the lawsuit by the New Jersey Democrat’s foundation in federal court in Newark, New Jersey, as well as nine other lawsuits against Madoff family members. The other plaintiffs include the pension plans for Fairfield, Connecticut, and Emilio Chavez Jr., who is an inmate in a Texas prison, according to the complaint.

Picard filed his own complaints against Peter Madoff; his daughter, Shana; Bernard’s wife, Ruth; and their sons, Andrew and Mark. Mark Madoff committed suicide on Dec. 11, the two-year anniversary of his father’s arrest.

Bernard Madoff, who pleaded guilty to fraud charges, is serving 150 years in prison for the largest Ponzi scheme in U.S. history. Investors lost about $20 billion in principal, Picard has said. Authorities have collected almost $10 billion for victims.

‘Sole Jurisdiction’

Lifland ruled that the bankruptcy court has “sole jurisdiction over the administration and distribution of estate assets to customers and creditors.” By staying the other lawsuits, Lifland halted the pretrial collection of evidence in those cases.

“The notion that third-party claimants’ lawsuits should be driving the discovery on Andrew and Mark Madoff’s alleged complicity in the Ponzi scheme -- ahead of the trustee’s discovery -- speaks volumes of the impropriety of these actions at this time,” Lifland wrote.

The case is Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The appeal is In re Bernard L. Madoff, 11-cv-02135, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Voreacos in New York at dvoreacos@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net

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