Madoff Sons Barred From Appeal in $198 Million Suit

(Corrects judge’s name in fourth paragraph of story published Dec. 22.)

Bernard Madoff’s sons can’t appeal a bankruptcy judge’s decision to permit a $198 million claim against them to go forward, a federal judge in Manhattan said.

U.S. District Judge William Pauley today declined to hear an appeal of the September decision in favor of Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, in his claim against several Madoff family members including Andrew Madoff and the estate of Mark Madoff, who committed suicide in December 2010.

In the suit, filed in 2009, Picard claimed Madoff’s family used the firm as their “family piggy bank” and should be forced to turn over the money to victims of Madoff’s Ponzi scheme. He sued Mark and Andrew Madoff as well as Bernard Madoff’s brother Peter Madoff and his niece, Shana Madoff Swanson. All the defendants held senior positions at the Madoff firm.

Picard claimed that the defendants failed to stop Madoff’s fraud, instead choosing to profit from it. In the September ruling, U.S. Bankruptcy Judge Burton Lifland ruled that Picard could pursue most of his claims against the Madoffs and gave him the opportunity to amend his complaint.

Madoff, 73, who pleaded guilty to charges of masterminding the biggest Ponzi scheme in history, is serving a 150-year term in a federal prison in North Carolina.

Amanda Remus, a spokeswoman for Picard, declined to comment on today’s ruling. Martin Flumenbaum, who represents Andrew Madoff and Mark Madoff’s estate, didn’t immediately return a voice-mail message.

The case is: Picard v. Estate of Mark Madoff, 11-Misc.-379, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.