Has the Madoff Trustee Gone Too Far?

Irving Picard has collected $7.6 billion for victims of Bernard Madoff’s Ponzi scheme, and he’s aiming much higher. As the trustee liquidating Madoff’s firm, Picard has filed more than 1,000 lawsuits that he calculates would bring in $100 billion—far more than the $19 billion that he estimates disappeared. Yet some of his claims rest on charges of fraud and racketeering that banks and investors say are beyond the scope of typical bankruptcy cases, and they want judges to bar Picard from pursuing them. Now there are signs judges may agree. Picard’s bank suits are “very aggressive,” says bankruptcy lawyer Harvey Miller, who is not involved in any Madoff case. His claims “are in a gray area of the law.”

Many of the suits are based on the theory that banks and investors had a duty to investigate what Madoff was doing. Instead, Picard says, they ignored signs of possible fraud such as the con man’s “three-person accounting firm” in a “strip mall” and unusually steady results. While Picard’s strategy could lead to big payouts, the danger is that if judges reject his approach, he will get less from banks and investors in court and may be left with less leverage in any future negotiations.