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Entries in clawback (12)

Monday
Nov172014

Madoff Recoveries Top $10 Billion After $497 Million Settlement

The court-appointed trustee tasked with recovering assets for victims of Bernard Madoff's massive Ponzi scheme announced a $497 million settlement with two Cayman Islands hedge funds that brings the total amount recovered to approximately $10.3 billion.  Irving Picard, the bankruptcy trustee for Madoff's now-defunct broker-dealer, filed a Motion to Approve Settlement (the "Motion") with Herald Fund SPC and Primeo Fund (the "Funds"), two "feeder" funds that had funnelled investor funds to Madoff.  With the settlement, Picard has now recovered approximately 59% of the estimated $17.5 billion in losses attributable to Madoff's fraud; with the inclusion of funds paid to victims from Madoff's membership in the Securities Investor Protection Corporation, all investors with losses of $925,000 or less have been fully paid back.

The Funds maintained various accounts with Madoff's firm, investing both directly and through other funds that also had exposure to Madoff.  In the six years preceding the collapse of Madoff's scheme, the Funds withdrew more than $700 million in invested principal from Madoff's firm.  Picard filed lawsuits against Herald and Primeo in July 2009, and subsequently filed an amended complaint on December 5, 2010.  As a protective measure, Picard also filed a proceeding against Primeo in the Cayman Islands.

Under New York law, transfers within six years of the filing of a bankruptcy petition may be recovered as proceeds of a fraudulent transfer.  Because Madoff admitted to running a Ponzi scheme, these transfers are considered to be made with the actual intent to hinder, delay, or defraud.

While settlement negotiations had been ongoing for several years, the Motion implied that a Cayman court's 2013 placement of Herald into official liquidation - which replaced the fund's board of directors with a court-ordered slate - may have been the turning point.  Picard entered into mediation with the Funds earlier this year, and recently reached an agreement.

The agreement calls for Herald to pay approximately $467 million to Picard, which includes a $100 million credit relating to an investment in Herald by JP Morgan that Herald had long maintained should be factored into any amount it purportedly owed.  In addition, Primeo would pay approximately $29 million, which brings the total settlement by the funds to approximately $497 million.

The settlement also includes the allowance of a customer claim filed by Herald of approximately $1.64 billion, which Picard indicated represents Herald's net equity of $1.172 billion and the $467 million paid into the estate as part of the settlement.  Notably, this claim amount would likely place Herald as among one of the largest investors in Madoff's scheme.  As part of the settlement, Picard will make a "catch-up" distribution to Herald, since it was not allowed to receive distributions made to victims over the past few years due to the pending litigation, representing 46.059% of its allowed losses of $755,320,133 - of which Herald will use a portion to contribute its settlement amount with Picard.

Interestingly, while Herald filed a claim with Madoff's bankruptcy estate claiming scheme-related losses, Primeo did not.  While the Motion for Approval of Settlement does not disclose the amount of Primeo's losses, it does disclose that all transfers made by Primeo during the six-year period preceding the bankruptcy filing were withdrawals of principal.  Thus, it is entirely possible that Primeo's failure to file a proof of claim may have prevented it from recovering a significant portion of its losses, as Herald was able to do.

A hearing is scheduled for December 17, 2014 to present the settlement for court approval.

A copy of the Motion is below:

Madoff Settlement

Saturday
Nov102012

First Batch of Zeek Subpoenas Arrive; Victims Solicited For New 'Pay-To-Object' Venture

As promised last week, the court-appointed receiver tasked with recovering assets for the victims of the $600 million ZeekRewards Ponzi scheme (the "scheme") has begun sending out a first batch of 1,200 subpoenas to 'affiliates' that profited from the scheme.  The detailed subpoenas seek a variety of information ostensibly related to the location and/or use of scheme profits.  Meanwhile, the de facto voice of those leading the efforts to oppose the receiver, who earlier predicted that "there likely will be no clawbacks" and later characterized the subpoenas as "fishing for information", is now "offering" Zeek victims legal representation to object to the subpoenas...for a "simple and reasonable flat fee of $300."

Clawbacks and Subpoenas

In an update to victims last week, Kenneth Bell, the court-appointed receiver, indicated that he intended to vigorously pursue those who "profited most from from ZeekRewards."  According to Mr. Bell, more than 100,000 User ID's were fortunate enough to profit from their investment with Zeek, which purportedly amounts to "hundreds of millions of dollars."  Following that announcement, approximately 1,200 subpoenas were sent to those 'net winners' seeking a variety of information concerning their dealings with the scheme.  The subpoena was accompanied by a brief letter from Mr. Bell specifying an amount sought, as well as his not-so-subtle statement that he was

"committed to pursue the full court process necessary to obtain personal court judgments against "winning" participants and recover all money owed to the Receivership estate."

At the end of the letter, Mr. Bell indicated that he was open to discussing the return of any false profits without the institution of litigation, and provided contact details for those interested.

The subpoena is quite sweeping in nature, and requests numerous documents in twenty-six (26) different document requests.  A closer look suggests that the subpoena targets are not only Zeek investors, but also business partners, employees, and third-parties.  For instance, request 4 seeks documents related to any work or assistance provided as an employee, independent contractor, vendor, or agent of Rex Venture Group ("RVG"), which is the parent company of Zeek that was charged by the SEC.  Additionally, request 5 seeks documents related to any employment agreement or other contract with RVG, as well as any salary or compensation received.  

Not surprisingly, the majority of the subpoena requests concern the receipt and use of funds received from RVG or any of the related Zeek entities.  This includes copies of banking and financial statements, as well as documentation evidencing the purchase of assets with those funds such as boats, airplanes, real estate, household furnishings, jewelry, and any other assets exceeding $1,500 in value.  Because money is a fungible commodity, the deposit of "tainted" funds from the scheme into an individual's bank account theoretically taints the entire amount of funds in that account, and any subsequent use of funds up to the amount transferred in potentially "taints" the ownership rights in that asset.  

As is common in Ponzi scheme litigation, a receiver/bankruptcy trustee may seek possession of a high-ticket item without going through the litigation process if he is confident that the item was purchased with tainted proceeds from the scheme.  While that notion certainly has its critics, these actions are taken in the name of equity, and are designed to prevent clawback targets from shielding assets beyond the reach of potential creditors.  The scope and detailed nature of the subpoenas are no doubt implicitly designed to encourage settlement and avoid tedious (and expensive) litigation.  

Victims Solicited for 'Pay-to-Object' Arrangement

The group that has openly opposed the SEC and the receiver's mission has also interjected itself into the subpoena issue.  That group, Fun Club USA, earlier obtained approval to intervene in the SEC civil case as an interested party and appears to operate in tandem with another group, Zteambiz.  An individual associated with the two groups, Robert Craddock, who himself previously acknowledged being the target of a SEC subpoena relating to his relationship with RVG and Zeek, has provided ongoing updates to Zeek victims that are openly critical of the Receiver's duties.  

In a November 3, 2012 update, Craddock characterized the subpoenas as an effort to "fish[] for information" and "in my opinion, scare tactics."  Expanding on that assessment, Craddock stated that

Next, I have been instructed by the attorneys fighting for us to inform you that any request you have received to voluntarily turn over any monies earned is just that a request. You are not bound to turn over any money.  Why, you may ask and that is simple there has not been any judge ordering you to do so and the likelihood of that happening is slim to none.

Several days later, victims received an update stating that a Charlotte, NC law firm would handle subpoena objections for a flat fee of $300.  This came as a surprise to some who were part of the group that had initially responded to a Zteambiz request to raise funds to retain legal representation to "allow us to hire one of the best if not the best firm in the country to protect us." This effort was apparently quite successful, for a chart on Zteambiz (since removed) indicated that over 6,000 victims had contributed at least $120,000.  Besides the Notice of Appearance filed on behalf of "Fun Club USA," there has been no update or accounting for those funds.

However, a closer look at the engagement agreement to obtain legal representation for the "simple and reasonable flat fee of $300" raises several issues which should be considered by victims and could result in the incurrence of thousands of dollars in subsequent legal fees.  Specifically, the agreement makes clear (in bold print) that the $300 fee only covers the preparation of an initial objection to the subpoena. However, the filing of an objection to the subpoena is likely the beginning, rather than end, of involvement with the Receiver.  Under federal rules of civil procedure, the receiver may then set the matter for a hearing and/or serve an additional filing known as a "Motion to compel" which takes issue with the objections and allows the receiver to seek attorney's fees and further relief if the asserted objections are deemed by a Judge to be frivolous or designed to frustrate the receiver's purpose. Additionally, the next likely step after the subpoena, assuming the issues are not resolved, is the institution of litigation against clawback targets.

The retainer agreement is seemingly aware of this, and states that in the event the aforementioned events do happen, the "simple and reasonable flat fee of $300" does not cover representation in those instances.  Instead, the client would be responsible for the attorney's services at standard hourly billing rates ranging from $200 to $375.  Additionally, potential clients are informed that the fees generated may be shared with the same law firm that currently represents Fun Club USA.  

Craddock has also provided a link to the Objection filed on his behalf, which consists of nearly nine pages of general and specific objections to nearly every subpoena request.  Appearing to not provide any responsive documents, the Objection instead provides that, because Craddock had previously complied with requests from the SEC for documents, that Mr. Bell may contact the SEC for those documents.  

Thursday
Oct062011

Madoff Trustee Seeks Over $200 Million in Latest Round of Clawback Lawsuits

The trustee overseeing the liquidation of Bernard Madoff's defunct brokerage firm continued his quest to recover funds from investors of Madoff's largest feeder fund, filing five lawsuits seeking over $200 million from five entities.  Irving Picard, the court-appointed trustee, is seeking over $1 billion from entities who invested with Madoff through Fairfield Sentry.  Picard reached a settlement with Fairfield Sentry earlier this year that allowed him to pursue clawback claims against Fairfield customers.  Fairfield received over $3 billion during its relationship with Madoff, $1.6 billion of which was subsequently transferred to Fairfield customers.  Picard has now filed suits seeking over $1 billion of the $1.6 billion allegedly transferred from Fairfield to investors.  

Today's suits seek the return of funds from ABN AMRO Bank, Bank Luxembourg, Lighthouse Investment Partners, Nomura International PLC, and KBC Investments Limited.  In total, the latest round of suits seeks nearly $220 million consisting of the following amounts from each entity:

  • ABN AMRO Bank - $25,469,129
  • Bank Luxembourg - $50,082,651
  • Lighthouse Investment Partners - $11,165,251
  • Nomura International PLC - $21,449,920
  • KBC Investments Limited - $110,000,000     

These clawback actions derive their authority from various federal and state laws.  Under Sections 550 and 551 of the Bankruptcy Code and various sections of the New York Debtor & Creditor Law, initial and subsequent transfers from a debtor within the six-year time period preceding the filing of a bankruptcy petition are subject to avoidance.  

Copies of each complaint can be found here:  ABN AMRO, Bank Luxembourg, Lighthouse Investment Partners, Nomura, and KBC.

Related Ponzitracker coverage:

Madoff Trustee Seeks $189 Million in Clawback Suits

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Madoff Trustee Files Five More Clawback Lawsuits Against Feeder Fund Investors Seeking Nearly $100 Million

Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm

Friday
Sep232011

Madoff Trustee Seeks $189 Million in Clawback Suits

The trustee overseeing the liquidation of Bernard Madoff's failed Ponzi scheme filed another set of lawsuits seeking to "claw back" nearly $180 million from four entities that invested with Madoff through investment accounts with 'feeder fund' Fairfield Sentry.  Fairfield Sentry was the largest of the so-called 'feeder funds' that funneled billions of dollars into Madoff's scheme.  Irving Picard, the court-appointed trustee, earlier this year reached a settlement with Fairfield Sentry that allows Picard to pursue clawback actions against Fairfield Sentry investors.  According to Picard, Fairfield Sentry received approximately $3 billion in avoidable transfers from Madoff during the six years preceding the collapse of the scheme.

Picard is seeking the return of nearly $190 million from Atlantic Security Bank ("ASB"), Trincaster Corporation ("Trincaster"), Bureau of Labor Insurance ("BLI"), and Naidot & Co ("Naidot").  With the exception of New Jersey-based Naidot, the remaining three companies are foreign companies, with ASB based in Panama, Trincaster in Switzerland, and BLI in China.  A list of the amounts sought from each entity is provided below:

  • Atlantic Security Bank - $120,168,691
  • Trincaster Corporation - $13, 311,800
  • Bureau of Labor Insurance - $42,123,406
  • Naidot & Co. - $13,654,907

These clawback actions derive their authority from various federal and state laws.  Under Sections 550 and 551 of the Bankruptcy Code and various sections of the New York Debtor & Creditor Law, initial and subsequent transfers from a debtor within the six-year time period preceding the filing of a bankruptcy petition are subject to avoidance.  

Including the four suits filed today, Picard has now filed clawback lawsuits seeking nearly $1 billion from Fairfiield Sentry customers, including lawsuits against the investment arm of Abu Dhabi (LINK) and the National Bank of Kuwait.

The Complaints against each entity are here: Atlantic Security, Bureau of Labor Insurance, Naidot, and Trincaster

Related Ponzitracker coverage:

Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Madoff Trustee Files Five More Clawback Lawsuits Against Feeder Fund Investors Seeking Nearly $100 Million

Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm

Friday
Sep022011

Madoff Trustee Fires Next Salvo of Clawback Lawsuits

Irving Picard, the court-appointed trustee tasked with marshalling assets for defrauded victims of Bernard Madoff's massive Ponzi scheme, filed the next round of clawback lawsuits stemming from his previous settlement with the largest Madoff feeder fund, Fairfield Sentry.  Picard filed six more lawsuits Thursday, seeking an additional $219 million from entities he claimed were subsequent transferees of Fairfield Sentry, which is alleged to have received over $3 billion in "fraudulent transfers" from Madoff subject to avoidance under federal and New York law.

The latest institutions targeted join a growing list of lawsuits related to Picard's previous settlement with Fairfield Sentry, under which Picard secured the right to pursue customers of Fairfield who had withdrawn partial or total amounts of their investment with Madoff.  Since August 1, Picard has sued at least thirteen institutions that invested through Fairfield for nearly $600 million, including the investment arm of Abu Dhabi.  The current lawsuit brings the total to nearly $800 million, and targets six entities:

  • Barclays PLC - $67.4 million
  • Sumitomo Mitsui Trust Holdings Inc. - $54.3 million
  • Korea Exchange Bank - $33.6 million
  • Cathay Life Insurance Co. - $41.7 million
  • Banque Privee Espirito Santo SA - $11.4 million 
  • Banca Carige SpA - $10.5 million

A copy of the Barclays Complaint is here.

A copy of the Sumitomo Blank is here.

A copy of the Korea National Bank Complaint is here.

A copy of the Cathay Complaint is here.

A copy of the Banque Privee Complaint is here.

A copy of the Banca Carige Complaint is here.