The trustee liquidating Bernard Madoff’s investment company to repay victims won a court ruling boosting his lawsuits against customers of feeder funds, including banks, from which he’s seeking more than $8 billion.
The ruling, issued in December and clarified in an extended order yesterday by U.S. District Judge Jed Rakoff in New York, affects fund customers that allegedly received “subsequent transfers” from funds that invested in the con man’s $17 billion Ponzi scheme.
The trustee, Irving Picard, doesn’t need specific rulings against the funds before he can sue their customers, Rakoff ruled. Picard also didn’t miss a two-year deadline to file such lawsuits, the judge said.
“This is a significant development in the liquidation proceedings,” Amanda Remus, a spokeswoman for Picard, said in an e-mail today. The affected lawsuits “seek to recover customer property transferred by an initial recipient to a third party who now possesses those funds.”
The decision, initially made in a two-page ruling, was clarified yesterday by Rakoff in an order distributed to the parties and obtained today by Bloomberg News.
Picard’s lawsuits against former Madoff customers and other entities that allegedly benefited from the fraud seek a total of more than $100 billion. When Madoff admitted to running a fraud and was arrested on Dec. 11, 2008, thousands of customers lost $17 billion in principal and about $47 billion more in fake profit they believed was held in their accounts.
Affiliates of Citigroup Inc., Credit Agricole SA, Barclays Plc and Bank of America Corp.’s Merrill Lynch were among financial institutions that sought the dismissal of dozens of Picard’s suits over claims he hadn’t won rulings against the funds. The dispute was one of several sent to Rakoff from bankruptcy court for clarification. Yesterday’s ruling returns the cases to bankruptcy court for further proceedings.
The ruling was related to Picard’s lawsuits against two funds that invested in Madoff’s company, Fairfield Sentry Ltd. and Kingate Global Fund Ltd., which received the initial transfers.
Picard is suing the banks for being subsequent recipients of money stolen from Madoff customers. Picard was often unable to identify the banks’ ultimate customers, so sued the banks under a provision in bankruptcy law known as Section 550(a). It says in substance that a subsequent recipient must pay money back if Madoff’s initial payment to a feeder fund was a fraudulent transfer.
The subsequent recipients contended that the language in Section 550(a) barred lawsuits against them because Picard only settled with the two feeder funds and didn’t obtain a so-called fraudulent transfer judgment.
The issues before Rakoff in the Madoff case are In re Bernard L. Madoff Investment Securities LLC, 12-mc-00115, U.S. District Court, Southern District of New York (Manhattan).