The Supreme Court has rejected a court-appointed trustee’s push to claw back money from hundreds of investors who profited from Bernard Madoff’s Ponzi scheme. The decision could bar the trustees from recovering about $2 billion, and it would make it harder to seek a further $2 billion, putting a total of $4.3 billion in question.
Madoff’s trustee Picard recouped $10.69 billion
As detailed by ValueWalk, Bernard Madoff, one of the most notorious financial criminals in living memory, orchestrated a Ponzi scheme in which investors lost over $17 billion. He was sentenced to 150 years in prison in June 2009. The trustee in the Bernard Madoff case, Irving Picard, has been exploring all avenues, including the opportunity to sue defendants such as Credit Suisse, Royal Bank of Canada and Credit Agricole. Picard’s team had recovered $5 billion from the estate of Jeffry Picower, who began investing with Madoff in the 1970s.
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However, the Supreme Court’s decision on Monday doesn’t affect the $10.69 billion Picard has recouped for Madoff’s customers. Ruling without comment, the court left intact a lower court decision that blocked trustee Picard from seeking funds on behalf of the thousands of other former Madoff customers.
The trustee had hoped to recover an estimated $2 billion from so-called net winners, or former Madoff customers who withdrew more than the principal they’d invested before the scam’s December 2008 collapse.
The Supreme Court left in place a ruling by the New York-based Second U.S. Circuit Court of Appeals in December. That ruling said the fictitious profits paid out to those Madoff investors were shielded by a provision of federal bankruptcy law that prohibits recovery of securities-related payments made by a stock broker. The appeals court said that allowing the “clawbacks” the trustee was seeking risked the kind of “significant market disruption” that Congress aimed to avoid by adopting protections for brokerage customers in the bankruptcy code.
However, Irving Picard argued that the bankruptcy-law provision didn’t apply because Madoff never initiated, completed or settled securities transactions as contemplated by the written contractual agreements customers signed when they opened accounts. Rejecting the argument, the appeals court said the law was broadly written to apply to payments made in connection with a securities contract, even in circumstances like Madoff’s in which he didn’t complete the securities transactions he had purported to execute.
The court rejected two related petitions, one filed by Picard and one by the Securities Investor Protection Corp, a federally chartered nonprofit that helps customers recover funds when brokerages go under.
Hailing Monday’s ruling, Loeb & Loeb LLP law firm partner Daniel Besikof, among several attorneys who opposed the claw-back effort, said: “It means that about 1,600 of Madoff’s innocent victims — many of whom were wiped out by Madoff’s fraud — need no longer worry about having to forfeit to Mr. Picard nearly $2 billion in redemptions they received from Madoff’s brokerage as much as a dozen years ago.”