Mets Ruling Would Give Madoff Family $82 Million, Trustee Says

Bernard L. Madoff’s family would keep about $82 million of “other investors’ money” under a ruling that limited a bankruptcy trustee to claiming from the owners of the New York Mets only two years of withdrawals from the Ponzi scheme, according to a court filing.

The confidence man’s family took out $141 million in the six years before Madoff’s firm went bankrupt in 2008, of which less than $59 million was taken in the two years before the bankruptcy, trustee Irving Picard said in a filing. Many other investors are trying to hang onto “stolen” money from fictitious trading that belongs to customers who took losses in the fraud, he said.

Picard wrote about the Madoff family in court papers filed after U.S. District Judge Jed Rakoff told him to explain why another investor, James Greiff, shouldn’t keep money he says he took “in good faith” from the Ponzi scheme. Rakoff’s Madoff caseload includes Picard’s suits against the Mets owners and Greiff.

The trustee’s argument “is good for two reasons,” said Nancy Rapoport, a bankruptcy-law professor at the University of Nevada, Las Vegas, in an e-mail. “It puts the amount of money at risk front-and-center, and it explains how easy it would be for people to hide behind fake securities transactions to circumvent bankruptcy law.”

Attempted Suicide

Ruth Madoff, the con man’s wife, told CBS News she and Bernard were so distraught by his crimes that they attempted suicide together by taking the sedative Ambien, according to CBS. Their son Mark killed himself last year.

Rakoff, in his order to Picard, said, “These arguments implicate the questions about how to integrate the securities and bankruptcy laws.” Under securities law, some withdrawals from a brokerage may be protected from clawbacks, he has said.

Arguing that securities trades shouldn’t be protected from clawbacks, Picard cited his case against Peter Madoff, the con man’s brother. It exemplifies the “outrageous securities transactions” that feature in cases he has brought to reclaim fictitious profits, he said.

“Peter Madoff maintained at least two BLMIS accounts, for which he invested $32,146 -- including a grand total of only $14 after December 1995 -- yet he redeemed $16,252,004,” Picard said.

Charles Spada, a lawyer for Peter Madoff, didn’t immediately respond to an e-mail seeking comment on Picard’s remarks.

‘Purported Gain’

In one account, Peter Madoff generated a “purported gain” of almost $9 million based on a fictitious trade in Microsoft Corp. stock “despite having no money or securities invested,” Picard said. Madoff family members were “insiders” of the Madoff firm who held key positions, he has said.

If Rakoff’s two-year ruling applied to J. Ezra Merkin, described by Picard as “a sophisticated investment manager who was a close business and social associate of Madoff,” he would keep around $180 million of the more than $500 million the trustee is trying to claw back.

In an amended complaint filed in 2009, Picard said Merkin and his funds took $495 million out of the Madoff firm in the six years before its collapse, of which $314 million was withdrawn in the last two years.

A district judge reviewing Picard’s suit to claw back $34 million from Merkin’s bankrupt funds, Kimba Wood, affirmed his theories.

‘Innocent Investor’

Picard told Rakoff that Greiff had incorrectly accused him of being inequitable.

“Hiding behind the veil of ‘innocent investor,’ Greiff aims to keep money he now knows was stolen from other customers,” Picard told the judge.

“This is a public disgrace,” Helen Chaitman, a lawyer for Greiff, said in an e-mail. “Picard owes a fiduciary duty to Mr. Greiff under the Securities Investor Protection Act. Yet, he attacks an innocent victim.”

The case is Picard v. Greiff, 11-cv-03775, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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