Judge cuts back Madoff trustee lawsuit versus Merkin

Wed Aug 13, 2014 11:48am EDT
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By Jonathan Stempel

NEW YORK (Reuters) - The trustee seeking money for Bernard Madoff's victims suffered his second loss in less than a week to Wall Street hedge fund manager J. Ezra Merkin, as a Manhattan bankruptcy judge dismissed most claims in a roughly $565 million lawsuit.

Judge Stuart Bernstein said the trustee Irving Picard failed to show that Merkin knew Madoff was running a giant Ponzi scheme while his "feeder funds" were sending money to the swindler's firm, Bernard L. Madoff Investment Securities LLC.

Picard's allegations "do not imply the level of certainty or absence of substantial doubt associated with actual knowledge," the judge wrote in a 66-page decision on Tuesday.

Bernstein dismissed claims alleging various fraudulent transfers among Merkin's funds, and said Picard cannot block the funds from trying to recoup money from the Madoff firm's estate.

He let Picard pursue a claim over roughly $315 million transferred to Merkin's funds from Madoff's firm in the two years prior to the firm's bankruptcy, on the ground that Merkin willfully blinded himself to the fraud and ignored red flags.

Picard may also pursue a claim that Merkin's funds should recover nothing from the estate until other customers and creditors get paid.

Andrew Levander, a lawyer for Merkin and his firm Gabriel Capital Corp, said he was pleased at the dismissal of the "vast majority of the trustee's baseless claims as a matter of law," and that the remaining claims are "factually without merit."

Amanda Remus, a spokeswoman for Picard, said the trustee is reviewing the decision and "prepared to move forward to trial" on the remaining claims.   Continued...

Israeli Prime Minister Ariel Sharon (L) shakes hands with Ezra Merkin (R), managing partner of the Gabriel Capital Group, as Israeli Finance Minister Ehud Olmert (C) looks on during a ceremony completing the sale of Bank Leumi to a private U.S. investment group in his office in Jerusalem in this January 4, 2006 file photo. 
million lawsuit. REUTERS/Eliana Aponte/Files