Madoff Sons’ Spouses Tell Court They Can’t Be Sued for Fraud

The liquidator of Bernard L. Madoff’s brokerage can’t sue spouses of the confidence man’s sons for fraud, Stephanie Mack and Deborah Madoff said in court papers, citing a law that says a fraudulent enterprise can’t accuse others of fraud.

The Madoff trustee tried to demand money from them using an exception that applies only to corporate fiduciaries who control a company, and they had “absolutely no role” at the brokerage, weren’t fiduciaries and had no control over its activities, they said in a brief filed to U.S. District Judge Jed S. Rakoff in Manhattan. Rakoff, who is reviewing hundreds of the Madoff trustee’s lawsuits to recoup money for customers, had told the spouses to address the trustee’s use of the so-called insider exception to the in pari delicto law governing suits by the trustee of a fraudulent company.

Madoff trustee Irving Picard in 2009 first sued the Madoff family for $198 million, alleging they used the firm as a “family piggy bank.” U.S. Bankruptcy Judge Burton Lifland later gave him permission to add the Madoff sons’ former wives as defendants, saying they could be sued for unjust enrichment. They took the case to Rakoff for review.

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

To contact the editor responsible for this story: Charles Carter at ccarter12@bloomberg.net

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Bernie Madoff

Jin Lee/Bloomberg

Bernard Madoff, founder of Bernard L. Madoff Investment Securities LLC, leaves federal court in New York.

Bernard Madoff, founder of Bernard L. Madoff Investment Securities LLC, leaves federal court in New York. Photographer: Jin Lee/Bloomberg