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  Picard alleges that, of the over $3 billon withdrawn from Madoff's broker-dealer by Fairfield, approximately $300 million was subsequently transferred for the benefit of ADIA.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.

Sentencing Today for $200 Million Ponzi Scheme Operator

A Jamaican banker who admitted to orchestrating a Ponzi scheme that defrauded victims out of more than $200 million is set to be sentenced today in an Orlando, Florida courtroom.  David A. Smith, 41, faces sentencing on four counts of wire fraud, a count of conspiracy to commit money laundering, and 18 counts of money laundering, to which he pled guilty in March.  While each count carries a maximum sentence of twenty years, the sentencing judge will ultimately decide the sentence and whether the terms will run concurrently or consecutively.  Smith was previously sentenced by a Turks and Caicos court to six years in prison on fraud and conspiracy charges relating to the scheme.

According to his plea agreement, Smith formed Overseas Locket International Corporation ("OLINT") in February 2005 in Panama, with a principal place of business in Kingston, Jamaica.  Various derivations of the company were later registered in the Turks and Caicos and Jamaica, along with "i-Trade" that was registered in Lake Mary, Florida.  OLINT was advertised as an investment club that traded foreign currencies.  Investors were promised the prospect of high monthly returns, with only 20% of their prospective investment at risk.  Fictitious account statements were distributed to clients, often showing monthly returns ranging from 5% to 10%.  Additionally, Smith told to investors that he had never suffered a monthly trading loss.  In total, over $220 million was collected from 6,000 investors located in Jamaica, Florida, and the Turks and Caicos.  Yet, only a small portion of investor funds were used to trade foreign currencies.  The majority of funds were instead used to pay redemption requests and monthly interest payments to existing investors, as well as fund a lavish lifestyle.  

Prosecutors have asked for a lengthy sentence based on the seriousness of Smith's crimes.  In addition to his prison sentence, Smith will also likely be ordered to pay restitution to defrauded investors.  

A copy of the plea agreement is here.

Guilty Plea in Idaho Ponzi Scheme

An Idaho man entered a guilty plea in connection with accusations that he orchestrated a $2 million Ponzi scheme.  Dale Edward Lowell, 59, pled guilty to two counts of wire fraud in exchange for the dismissal of the remaining eleven counts of wire fraud contained in his indictment.  Wire fraud carries a maximum prison sentence of twenty years, a fine of up to $250,000, and the possibility of restitution to victims.  In exchange for the guilty plea, the Department of Justice is recommending that Lowell be sentenced at the lower range of federal sentencing guidelines, although the court is not bound by the recommendation in fashioning a sentence.

In an indictment filed earlier this year, authorities alleged that Dale's Investment Club, founded by Lowell in 2005, was nothing more than an elaborate Ponzi scheme that took in a total of $2.2 million from more than 22 investor "units."  These units often included multiple members of a single family.  Lowell advertised potential returns ranging from thirty to forty percent resulting from the trading of stock options.  Lowell also guaranteed investments with certificates of deposit, which authorities alleged were never purchased.  Lowell returned or repaid approximately $530,000 to investors before the scheme unraveled.

Lowell is scheduled to be sentenced on October 31.  He has already been sued by the Idaho Department of Finance in 2009, and was ordered to pay $2,038,376 in restitution to defrauded investors.  

Court Freezes Assets Tied to Money Manager Who Swindled College Coaches

According to Bloomberg, the United States Securities Exchange Commission has obtained an asset freeze of those associated with deceased Houston money manager Joel Salinas, who is accused of running a Ponzi scheme that took in over $50 million.  Several days earlier, the SEC filed a complaint and sought an asset freeze against Salinas's companies, J. David Financial and Select Asset Management, and Brian A. Bjork, chief investment officer of Select Asset.  

In an order entered today by United States District Judge Keith P. Ellison, Bjork agreed to an order enjoining him from committing any further securities violations or engaging in fraud, without admitting or denying any wrongdoing.  Additionally, Judge Ellison appointed Steven Harr as the receiver of the scheme and tasked him with marshalling assets for future distribution to investors.   Harr is an attorney at the Dallas law firm of Munsch Hardt Kopf & Harr PC.

According to his lawyer, Bjork is cooperating with the SEC and did not play any role in the scheme.  Bloomberg earlier reported that Salinas had left a suicide note claiming sole responsibility for the crimes.  According to the court-appointed receiver, Bjork is permitted to keep assets valued at up to $10,000 to cover reasonable and ordinary household and living expenses, and must submit monthly bank records.

Judge Grants Dismissal of Madoff Trustee's Common Law Claims Against Bank Austria

When Judge Jed S. Rakoff recently granted the dismissal of Irving Picard's common-law claims against HSBC, included in the order was an innocuous footnote at the bottom of page 25 stating that "Although it seems clear that these claims would also have to  be dismissed against any other defendants who appeared and so moved, no other such defendant has so moved."  In the ensuing days, several of the other banking institutions sued by Picard obliged, including JP Morgan and Unicredit Bank Austria.

In an order signed Saturday, August 6, and filed on the Court docket the following Monday, Judge Rakoff granted the dismissal of common-law claims asserted by Picard against Unicredit Bank Austria.  As requested by Bank Austria, the previous order dismissing common-law claims against HSBC was ordered amended to include a dismissal of the common-law claims consisting of counts twenty through twenty-four asserted against Bank Austria in Picard's amended complaint.

With this dismissal, the total amount sought by Irving Picard, the court-appointed trustee overseeing the liquidation of Bernard Madoff's massive Ponzi scheme, continues to decrease.   The amount is set to further decrease should the Court follow its rationale in ruling on JP Morgan's still-pending motion to dismiss similar common-law claims, including treble-damages claims based on the Racketeer Influenced and Corrupt Organizations Act.  

A copy of the Order is here.