The Securities Investor Protection Corp. opposed a bid by the owners of the New York Mets baseball team to dismiss a $1 billion lawsuit by the trustee liquidating Bernard L. Madoff’s firm, in a court filing today.
In a brief filed to address questions raised by the judge at a hearing July 1, the SIPC said the Securities Investor Protection Act doesn’t change the bankruptcy law requirement that money transferred out of a Ponzi scheme may be recovered unless the investor withdrew it “in good faith.”
Irving Picard, the trustee in the Madoff case, claims Fred Wilpon and Saul Katz and their firm, Sterling Equities, ignored red flags warning of possible fraud and therefore didn’t withdraw money in good faith. He is seeking to recover $300 million in so-called fictitious profit and $700 million in principal invested with the con man, SIPC said in the brief, filed in Manhattan federal court.
“These are garden variety avoidable bankruptcy transfers” that are “stolen customer property,” it said in the filing.
Picard sued the Mets owners in bankruptcy court in December. Rakoff agreed earlier this month to review the case.
Katz and Wilpon have argued that they aren’t liable to return either the profit or the principal. According to Picard, the Sterling partners, their families and related entities held about 300 accounts with Madoff, making them one of the biggest beneficiaries of the fraud.
The SIPC, which hired Picard, is a government-chartered agency that charges fees to brokerages.
Madoff, 73, pleaded guilty to orchestrating the biggest Ponzi scheme in history and is serving a 150-year sentence in a North Carolina federal prison.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).