Madoff trustee loses appeal on clawbacks
By Jonathan Stempel
NEW YORK (Reuters) - Victims of Bernard Madoff's Ponzi scheme may recover less money than they had hoped after a federal appeals court limited the ability of the trustee liquidating the swindler's firm to recoup "fictitious profits" and other payments from customers.
The 2nd U.S. Circuit Court of Appeals in New York on Monday said federal bankruptcy law did not let the trustee Irving Picard recoup a variety of payments that Bernard L. Madoff Investment Securities LLC made to some customers more than two years before the firm collapsed on Dec. 11, 2008.
Picard has been seeking to recoup money from customers who withdrew more from their accounts than they invested.
Circuit Judge Barrington Parker, however, said allowing the "clawbacks" sought risked the kind of "significant market disruption" that Congress sought to avoid by adopting protections for brokerage customers in the bankruptcy code.
"The magnitude of BLMIS's scheme, which included thousands of customers and billions of dollars under management, is unprecedented," Parker wrote. "Permitting the clawback of millions, if not billions, of dollars from BLMIS clients – many of whom are institutional investors and feeder funds – would likely cause the very 'displacement' that Congress hoped to minimize."
Amanda Remus, a spokeswoman for Picard, said the trustee is reviewing the decision by a unanimous three-judge panel.
The decision does not affect the $10.5 billion that Picard has recouped for former Madoff customers he calls victims, who lost about $17.5 billion of principal.
But it could stop him from recouping at least $1.8 billion more from "innocent" customers he targeted in more than 600 lawsuits, according to Richard Levy, a Pryor Cashman partner representing some of those customers. Continued...