Senator Lautenberg Suit Against Peter Madoff Barred Again

U.S. Senator Frank Lautenberg’s charitable foundation can’t continue a $9 million lawsuit against Bernard Madoff’s brother Peter, an appeals court ruled.

Affirming lower-court decisions, the U.S. Court of Appeals in New York said “there would ensue a chaotic rush to the courthouse” by parties seeking assets that by law belong to the Madoff estate, if such private suits weren’t stopped.

“We conclude that the preliminary injunction serves the legitimate purpose of preserving the debtor’s estate for the creditors and funneling claims to one proceeding in the bankruptcy court,” the appeals panel said today in its ruling. “The third-party actions would have an immediate adverse economic consequence for the debtor’s estate.”

Lautenberg, a five-term Democrat from New Jersey, was joined by his son and daughter in seeking to recover losses from the Ponzi operator’s brother, claiming that as chief compliance officer at Bernard L. Madoff Investment Securities LLC, he was culpable for the scheme run by the con man. They appealed a second time after a district court and a bankruptcy judge stopped their suit.

U.S. Bankruptcy Judge Burton Lifland ruled two years ago that the Lautenbergs and other Madoff clients who filed lawsuits must wait until the Madoff estate’s liquidator, Irving Picard, concludes two suits then seeking $244 million from Madoff family members.

Oldest Member

Lautenberg, who, at 89, is the chamber’s oldest member, said this month he won’t seek re-election in 2014. While New Jersey voters approved of Lautenberg’s job performance, 71 percent said his age made it too difficult for him to do the work of a U.S. senator, according to a Jan. 23 poll released by Quinnipiac University.

“While I may not be seeking re-election, there is plenty of work to do before the end of this term,” Lautenberg said in a statement announcing the move. “This is not the end of anything, but rather the beginning of a two-year mission to pass new gun safety laws, protect children from toxic chemicals and create more opportunities for working families in New Jersey.”

Picard has usually prevailed in his attempts to block competing litigation by private parties, claiming that only he as trustee has a right to sue alleged Madoff conspirators. Some state law enforcers including New York Attorney General Eric Schneiderman continue to challenge him by asserting rival powers.

In December, Peter Madoff, after pleading guilty to aiding the fraud while claiming he didn’t know his older brother was running a vast, decades-long Ponzi scheme, was sentenced to 10 years in prison. Earlier this month, he agreed to pay about $90.4 million to Picard.

Bernard Madoff, arrested in 2008, is serving 150 years in prison for the largest Ponzi scheme in U.S. history.

Peter Madoff, 67, is at the federal prison located in Estill, South Carolina, about 50 miles north of Savannah, Georgia. He is scheduled to be released around October 2021.

The Lautenberg appeal is In re Bernard L. Madoff, 11-5421, U.S. Court of Appeals for the Second Circuit (New York).

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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