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Entries in clawback (12)


Banco Bilbao Seeks Dismissal of Madoff Trustee's Clawback Suit Citing Extraterritoriality Concerns

A Spanish banking institution sought the dismissal of a "clawback" lawsuit filed by the trustee for Bernard Madoff's failed Ponzi scheme, claiming that United States bankruptcy law is silent as to its extraterritorial reach and thus ineffective in Picard's quest to recover funds for the benefit of Madoff's defrauded investors.  Banco Bilbao Vizcaya Argentaria ("BBVA"), a multinational Spanish banking group, was sued by Irving Picard, the court-appointed trustee, in December in which Picard sought the return of approximately $45 million withdrawn through BBVA's investment with Madoff "feeder fund" Fairfield Sentry Limited.  In addition to the claim that the Bankruptcy Code was silent on its extraterritoriality, BBVA also claimed that Picard's Complaint should be dismissed because (1) the Complaint failed to state a claim upon which relief could be granted, and (2) Picard's failure to avoid the initial transfer between Madoff and Fairfield Sentry precluded any avoidance between Madoff and BBVA as a subsequent transferee.

Contrary to Picard's assertion that BBVA should return the $45 million it received from Madoff through "public information, as well as considerable non-public information, which raised red flags of possible fraudulent activities at BLMIS," BBVA claimed that it had in fact been another of Madoff's victims.  In fact, claimed BBVA, it had "invested $311 million in Fairfield Sentry, and, as of December 2008, still had more than $774 million invested in all feeder funds." This entire amount was lost due to the deception of the "feeder funds," claimed BBVA, which maintained it remained without knowledge as to any indication of Madoff's fraud.  

BBVA raises several interesting novel issues that have largely remained unaddressed in Picard's bevy of ongoing litigation.  The first is the contention that, without the avoidance of the initial transfer between Madoff and Fairfield Sentry, the avoidance of any subsequent transfer is precluded by both the statutory language of section 550 of the Bankruptcy Code and legislative history.  According to BBVA, Section 550(a) permits the Trustee to recover property or its value from a subsequent transferee only “to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title.”  BBVA recognizes that Picard will likely raise the issue of his previous settlement with Fairfield Sentry "and argue that the initial transfers are as good as avoided."  Yet, in weighing the language of Picard's settlement and accompanying declarations, BBVA posits that the transfers from Madoff to Fairfield not only remained unavoided, but were never avoidable. 

Next, BBVA claims that the presumption against extraterritorial application of United States laws bars the Trustee's claim to recover transfers made to BBVA.  Elaborating, BBVA claims that

[g]iven the foreign based nature of both the initial investment and the redemption, the Trustee cannot state a cause of action against BBVA unless he can make an affirmative showing that Section 550(a) has extraterritorial effect. He cannot do so. The language of Section 550(a) gives no clear indication of an extraterritorial application, and, therefore, the statute has none.    

In support of this, BBVA invokes the recent Supreme Court decision in Morrison v. National Australia Bank130 S. Ct. 2869 (2010).  In Morrison, the Court rejected years of caselaw concerning the extraterritorial application of US securities fraud legislation, stating that "[w]hen a statute gives no clear indication of an extraterritorial  application, it has none."  While Morrison dealt with the Securities and Exchange Act of 1934, the Court made it clear that a presumption against extraterritoriality applies in all cases.  BBVA analyzed Section 550 of the Bankruptcy Code under this analysis, concluding that Congress, except for very limited circumstances, did not intend for Section 550 to apply extraterritorially.

Under Federal Rules of Civil Procedure, Picard now has twenty-one days to respond to the motion.

A Copy of the Complaint filed by the Trustee is here.
A Copy of BBVA's Motion to Dismiss is here

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

The court-appointed trustee of Bernard Madoff's gigantic Ponzi scheme continued his quest to recover funds from investors in Madoff's largest feeder fund, filing five more lawsuits seeking over $95 million for defrauded investors. Irving Picard, the court-appointed trustee, filed the suits in the wake of a settlement with Fairfield Sentry, Madoff's largest 'feeder fund,' that allows him to "claw back" profits from investors who placed funds with Madoff through Fairfield. The latest lawsuits come on the heels of seven lawsuits filed last week seeking the return of at least $173 million.  Picard has now filed suits seeking nearly $470 million from Fairfield customers.

According to the complaints, a total of $3 billion was transferred from Madoff to Fairfield during the six-year period preceding BLMIS' bankruptcy filing.  Picard seeks to avoid the transfers - known as subsequent transfers - to each defendant from Fairfield Sentry under the powers granted under Sections 550 and 551 of the Bankruptcy Code.  The latest wave of lawsuits include the following defendants and amount sought:

  • National Bank of Kuwait - $18,724,399 
  • DEZ Financial Management Ltd. - $14,776,114
  • Maple Key Market Neutral Cayman Islands LP - $14,509,369
  • Unifortune Asset Management Sgr Spa and Unifortune Conservative Fund - $26,772,978
  • Delta National Bank and Trust Company - $20,634,958 

Filing the lawsuits on behalf of Picard are Baker & Hostetler attorneys David J. Sheehan, Mark A. Kornfeld, Deborah A. Kaplan, Michelle R. Kaplan and Torello H. Calvani.

Each of the complaints may be found here.




Madoff Trustee Files Seven Clawback Lawsuits Against Feeder Fund Investors

The court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities filed seven "clawback" lawsuits seeking the return of at least $173 million from entities that invested in one of the largest feeder funds to Madoff's scheme.  Irving Picard, the trustee, filed the suits after previously negotiating a settlement with the feeder fund, Fairfield Sentry, that allowed him to claw back profits from investors who placed funds with Madoff through Fairfield.  Last week, Picard filed suit against the Abu Dhabi Investment Authority seeking $300 million from investments with Fairfield.

The lawsuits, termed "clawback" suits, proceed under bankruptcy and state law allowing avoidance of transfers of funds made by Madoff to both initial transferees and any subsequent transferees.  According to the complaints, a total of $3 billion was transferred from Madoff to Fairfield during the six-year period preceding BLMIS' bankruptcy filing.  The seven entities sued by Picard and amount sought are as follows:


  • Concord Management LLC - $10 million
  • Parson Finance Panama S.A. - First Gulf Bank - $11.1 million
  • Lion Global Investors Limited - $50 million
  • Meritz Fire & Marine Insurance Co. Ltd. - $21.8 million
  • Quilvest Finance Ltd. - $37.8 million
  • Orbita Capital Return Strategy Limited - $30.6 million


The lawsuits were filed by David Sheehan, counsel to Picard.

Each complaint can be found here.


Madoff Trustee Seeks $300 Million From Abu Dhabi Investment Arm

Irving Picard, the court-appointed trustee tasked with recovering assets for defrauded investors of Bernard Madoff's massive Ponzi scheme, filed suit against the entity that acts as an investment arm of the Emirate of Abu Dhabi.  According to the complaint, the Abu Dhabi Investment Authority ("ADAI") withdrew approximately $300 million from investments with a Madoff feeder fund, Fairfield Sentry Limited, that are avoidable under New York and federal bankruptcy law.  

The lawsuit is the latest strategy taken by Picard, who, in his earlier settlement with Fairfield Sentry Limited, had negotiated for the right to 'clawback' profits from investors who had placed funds with Madoff indirectly through Fairfield's family of feeder funds.  At issue are so-called "subsequent transfers" made from Fairfield to ADIA.  Picard alleges that, of the over $3 billon withdrawn from Madoff's broker-dealer by Fairfield, approximately $300 million was subsequently transferred for the benefit of ADIA.  Picard is proceeding under Section 550 of the Bankruptcy Code, which allows a trustee to recover an avoidable transfer from the initial transferee or any immediate transferee of such initial transferee.  

Picard has filed more than 1,000 lawsuits seeking funds for Madoff victims, which have resulted in a recovery of over $10 billion to date.  Investors in Madoff's scheme are estimated to have lost $17.3 billion in principal.

A copy of the ADIA Complaint is here.


Legal Setbacks Threaten Madoff Trustee's Blockbuster Recovery

A recent series of legal setbacks threaten to derail the attainment of the ‘holy grail’ sought by the court-appointed trustee for Bernard Madoff’s massive Ponzi scheme: that litigation proceeds will allow investors to recover 100% of their net principal investment with Madoff.  In the past week, Irving Picard, the trustee overseeing the liquidation of Madoff’s defunct brokerage and tasked with recovering assets for distribution to defrauded investors, has seen his potential recovery for victims increasingly threatened by adverse rulings on his ability to bring such suits.  Of the over-1,000 suits filed thus far by Picard, nearly all seek the “clawback” of profits enjoyed in excess of an investor’s original principal.  The few non-clawback suits at issue instead seek billions of dollars in damages from high-profile banking entities that Picard alleged ignored red flags that should have alerted them to Madoff’s fraud in favor of lucrative profits from Madoff’s operations. 

In The Wizard of Lies, the pre-eminent book on Madoff's scheme written by esteemed New York Times financial reporter Diana B. Henriques, the author recounts a conversation with Madoff at the Butner Medium Security prison where Madoff is currently serving his 150-year sentence.  In discussing the fallout from his fraud, Madoff made the prediction that “people who were with me will make out better than if they’d been in the market [during the meltdown of 2008].”   (For reference, the S&P 500 Index declined 37% in 2008.)  While such a prediction seemed implausible, Picard’s unrelenting approach after his appointment enjoyed several early successes that soon gave birth to whispers suggesting that Madoff’s victims could see more than a statistically insignificant recovery. 

Such whispers reached a fever pitch at the end of 2010 on news of several important accomplishments.  First, Picard filed lawsuits in early December against several prominent banking entities (the “Banking Lawsuits”), including JP Morgan, HSBC, and UBS, seeking billions of dollars based upon the bank’s alleged failure to detect Madoff’s fraud.  Picard would later amend these claims to include a theory under the Racketeer Influenced Corrupt Organizations (“RICO”) Act, which allowed treble damages.  Under this later theory, Picard’s total amount demanded exceeded tens of billions of dollars in damages, including nearly $20 billion demanded from JP Morgan alone. 

The second important event came on December 17, 2010, when Picard announced that the estate of Jeffrey Picower, a longtime Madoff friend and investor, agreed to settle with Picard for the full amount sought - $7.2 billion.  Of that amount, $5 billion would be paid to Picard for distribution, and $2.2 billion would be forfeited to the Government and then distributed to victims.  With Picard estimating that total investor losses would be approximately $20 billion, the Picower settlement immediately boosted the amount of a Madoff investor’s potential recovery by 35%.  As detailed in an earlier Ponzitracker post, The announcement of the settlement, combined with the enormous amounts sought from the banks, caused the value of Madoff investor claims in the secondary marketplace to approach 70% - 75% of estimated losses – with no plan or timeline for eventual distribution even discussed.  

When the initial euphoria of an undeniably successful 2010 died down, it soon became clear that Picard would face a much more difficult legal battle against the banks.  Where the clawback lawsuits proceeded upon well-established bankruptcy principles, the Banking Lawsuits sought to impose liability based on much less-ironclad claims - the bank’s failure to detect Madoff’s fraud.  First, Picard lost his bid to keep the lawsuits within the friendly confines of Bankruptcy Court when several federal judges agreed with the banking entities that Picard’s legal theories encompassed non-bankruptcy claims and were more appropriately addressed in federal court. 

The banking entities then sought the dismissal of Picard's common law claims, including theories of unjust enrichment, aiding and abetting fraud, and aiding abetting breach of fiduciary duty.  At issue was who had legal standing to bring such claims.  Under the federal Bankruptcy Code, the trustee stands in the shoes of the debtor – not the creditors of the debtor.  Under this interpretation, the banking defendants argued only the creditors, and not Picard, could bring such claims. 

Picard countered that his standing to bring claims stemmed from two principal arguments.  First, he argued, the Securities Investor Protection Act (“SIPA”) conferred upon him broad powers outside the purview of the Bankruptcy Code.  Second, he argued that under the broad definition of customer property in SIPA, chiefly the catchall provision including “any other property of the debtor,” bestowed authority to bring such claims.

On July 28, 2011, the same day that Picard announced a $1 billion settlement with Tremont Group Holdings, United States District Judge Jed S. Rakoff issued a strongly-worded opinion dismissing Picard’s common-law claims against HSBC.  Calling Picard’s arguments “convoluted” and a “stretch,” Judge Rakoff concluded that all of the common law claims were to be dismissed.  Because Picard's claims lacked standing, Judge Rakoff declined to address HSBC's remaining contention that the claims were pre-empted by the Securities Litigation Uniform Standards Act.

The decision to dismiss the common law claims immediately removed nearly $9 billion from the roughly $100 billion sought by Picard.  While HSBC still faces bankruptcy claims seeking $2 billion, the focus has already shifted to the claims against JP Morgan, UBS, and Unicredit that suddenly appear on the verge of also eluding Picard's grasp.  As a result of Picard's ability to seek treble damages under RICO claims, the total amount sought from JP Morgan and Unicredit alone is nearly $80 billion.  Picard has also sought nearly $2 billion in common-law claims from UBS.  Many suspect that, with nearly $9 billion at stake, Picard will appeal Judge Rakoff's decision to the Second Circuit Court of Appeals.  Such a move would also open the possibility of a settlement to end the claims, although any conjecture is pure speculation.

No doubt encouraged by the HSBC ruling, UBS and JP Morgan recently asked United States District Judge Colleen McMahon to dismiss Picard's common-law claims.  Tracking the language of Judge Rakoff, JP Morgan asserted that Picard's claims were nothing more than

an illegitimate attempt by the trustee to usurp and assert thousands of state law securities claims that belong not to BLMIS but exclusively to its customers.

JP Morgan sought the dismissal not only of Picard's eight common-law claims, but also twelve of Picard's bankruptcy claims.  UBS, in its filing, urged the adoption of JP Morgan's arguments.  The two unlikely allies join UniCredit, who had filed a motion to dismiss the previous week. 

Picard will have an opportunity to respond in the coming two weeks.  But Judge Rakoff's well-reasoned order dismissing common-law claims against HSBC will prove both difficult to dispute by Picard and easy to adopt by other judges.  Rakoff is widely recognized for his expertise in securities law matters and is a leading authority on the topic of white collar crime.  

The $1 billion settlement with Tremont brings the total amount recovered to date to $8.6 billion - nearly half of the $17.3 billion Picard has estimated was the total principal lost by investors. 

 A copy of the Order dismissing Picard's common-law claims against HSBC is here.

A copy of JP Morgan's Motion to Dismiss is here.

A copy of UBS's Motion to Dismiss is here.