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Entries in Madoff (34)


Madoff Trustee's Disagreement With HSBC Ruling Takes Center Stage in Response to JP Morgan Motion to Dismiss

"Without arguing the Trustee’s appeal in this case, the Trustee respectfully submits that the HSBC decision is unsound in multiple respects and should not be followed by this Court."

Late this past week, the trustee appointed to recover funds for the benefit of investors defrauded by Bernard Madoff's massive Ponzi scheme filed his response to an effort by JP Morgan ("JPM") to dismiss a suit seeking billions in damages for JPM's alleged role in the scheme. In the amended complaint filed in June, Irving Picard tripled the amount sought from JP Morgan from $5.4 billion to nearly $20 billion based on JPM's willingness 

to assist in the daily operation of a Ponzi scheme on an unprecedented scale: to routinely enable billions of dollars to bounce back and forth between BLMIS and its customers with an evident lack of legitimate business purpose, to overlook the lack of securities trading, to decline to inquire into or report fictitious account activity, and to cloak the whole enterprise in the respectability of a renowned financial institution. 

In his 168-page opposition to JPM's Motion to Dismiss, Picard makes several arguments in response to JPM's claims, including (1) that Picard has standing under SIPA and the Bankruptcy Code to bring a contribution claim, (2) that Picard has standing to stand in the shoes of a judgment creditor and assert common law claims, (3) that Picard has sufficient standing as bailee and subrogee to bring common law claims, (4) that Wagoner and the doctrine of in Pari Delicto are inapplicable to his claims, (5) that Picard's claims are not barred by the Securities Litigation Uniform Standards Act, (6) that Picard has sufficiently pled each cause of action under which he is proceeding against JPM, and (7) the specific transfers sought to be avoided are in fact avoidable.  Many of the issues are hardly new to Picard, who has faced steady opposition in his quest to recover damages outside the "comfort zone" of bankruptcy clawback suits and settlements with various feeder funds.  Both UBS and HSBC, among other banking institutions facing similar suits from Picard, have asserted some form of these arguments in their efforts to win dismissal.  

But it is not Picard's latest legal wrangling with these issues that stands out in this filing.  Instead, perhaps most notable is the fact that it is one of the first substantive filings since Judge Rakoff's ruling that Picard lacked standing to assert the same common law claims against HSBC - potentially erasing $9 billion in prospective damages for Madoff's victims. And while Picard appealed that ruling to the Second Circuit Court of Appeals several days ago, he lays out his discontent with Judge Rakoff's ruling in this filing.  

The focal point of Picard's discontent lies in the differing interpretations of the standing conferred on a trustee proceeding under the authority of the Securities Investor Protection Act ("SIPA") or the Bankruptcy Code.  The term "standing" refers to the ability of a party to show a sufficient connection to and harm from the matters at issue to justify that party's involvement in the case.  Such an issue has been hotly contested in the forum of court-appointed receivership and bankruptcy proceedings, where often the most common claims pursued by the receiver or trustee are on behalf of the class of defrauded victims.  

Perhaps luckily for Picard, Judge Rakoff is not overseeing the suit against JP Morgan.  Instead, the suit is before United States District Court Judge Colleen McMahon.  In accordance with the Federal Rules of Civil procedure, JP Morgan will now have an opportunity to file a Reply to Picard's Response.

A Copy of Picard's Amended Complaint against JP Morgan is here.

A Copy of Picard's Response is here.


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.


Madoff Trustee to Dismiss Common Law Claims Against Maxam Capital Management

Irving Picard, the trustee overseeing the liquidation of Bernard L. Madoff Investment Securities ("BLMIS"), has agreed to dismiss several of the common law claims originally asserted against several feeder funds of Madoff's massive Ponzi scheme.  These entities, collectively referred to as the "Maxam Funds", were formed by Sandra Manzke, who originally founded Tremont Capital, another large Madoff feeder fund that earlier reached a $1 billion settlement with Picard for its role in the scheme.  Picard had filed suit against the Maxam Funds in June, seeking not only the avoidance of transfers under the Bankruptcy Code, but also damages under common law theories of unjust enrichment and constructive trust.  

In light of United States District Judge Jed S. Rakoff's recent rulings dismissing Picard's attempt to assert common law claims against HSBC and Bank Austria, many entities facing similar suits sought the same relief.  This included a motion to dismiss filed by the Maxam Funds.  In a court filing this week, Picard ceded to the Maxam Funds and agreed to drop the common law claims, stating that "the parties wish to avoid the expense and time of additional resources in connection with defendants’ motion to dismiss the common law claims."  However, in conjunction with his appeal of the decision to dismiss the common law claims against HSBC filed last week, Picard indicated he would renew the claims should he receive a favorable ruling.

A copy of the original Maxam Complaint is here


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.



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