Madoff Trustee Can’t Recoup Investments, Defendants Say
The liquidator of Bernard Madoff’s firm is barred by state and federal laws from taking back money invested with a brokerage, almost 300 defendants told U.S. District Judge Jed S. Rakoff in court papers.
Madoff’s customers are entitled to interest, damages and opportunity costs in addition to their principal, and can keep deposits made in the two years before the con man’s Ponzi scheme collapsed, according to the joint brief filed in federal court in Manhattan. Rakoff has allowed the trustee, Irving Picard, to try to claw back fake profits received by investors during the two-year period.
The defendants range from ABN Amro Bank NV and Nomura Holdings Inc. affiliates to the trustee liquidating former Madoff investor Ezra Merkin’s hedge funds and accountant Frank Avellino. In trying to take more than two years of Ponzi profits from brokerage customers, Picard “improperly reads” the bankruptcy code, they said in asking the judge to dismiss the trustee’s lawsuits.
“The trustee’s proposed method has no doctrinal or legal support, produces unfair and absurd results, and should be rejected,” they said in yesterday’s filing.
Rakoff previously told the defendants not to repeat any arguments he had made and decided in an earlier case dealing with brokerage customers’ rights, involving investor James Greiff. Rakoff ruled in that case that a brokerage customer’s account statements don’t protect against all clawbacks. The judge also said that Picard can only recoup two years of fake profits, not the six years he sought.
Rakoff’s takeover of hundreds of Picard lawsuits demanding billions of dollars has undercut U.S. Bankruptcy Judge Burton Lifland’s power to reverse some fraudulent transfers and limited Picard’s ability to collect money to pay investors in Madoff’s $57 billion Ponzi scheme, the largest in U.S. history. Rakoff and U.S. District Judge Colleen McMahon together knocked out $90 billion of Picard’s claims against banks including JPMorgan Chase & Co. and HSBC Holdings Plc. (HSBA)
Picard has filed more than 1,000 lawsuits while charging $273 million for his firm’s Madoff work. Madoff is serving a 150-year prison sentence.
The Rakoff docket for Picard’s suits is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC 12-mc-0115, U.S. District Court, Southern District of New York (Manhattan). The Greiff case is Picard v. Greiff, 11-cv-03775, U.S. District Court, Southern District of New York (Manhattan.)
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