Member access

4-Traders Homepage  >  News  >  Business Leaders  >  All news

Business Leaders

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 
HomeAll newsMost read newsBusiness Leaders Biography 
Bernard Madoff
Country of residence : USA
Birthday : 04/29/1938

Madoff indirect investors lose U.S. court appeal

02/22/2013 | 01:00pm US/Eastern

(Reuters) - People who lost money by investing in funds that funneled their money to Bernard Madoff's Ponzi scheme are not entitled to recover for their losses, in the manner that direct victims of the massive fraud can recover, a federal appeals court ruled on Friday.

The decision by the 2nd U.S. Circuit Court of Appeals in New York is a victory for Irving Picard, the trustee liquidating Bernard L Madoff Investment Securities LLC and seeking money for its former customers.

Picard, a partner at Baker & Hostetler, persuaded the court that "indirect" investors who lost money in the fraud were not Madoff customers who could recover from the bankruptcy estate.

Madoff, 74, is serving a 150-year prison sentence, and Picard had estimated that customers lost $17.3 billion of principal in the fraud.

The appeal was brought by 17 investors who had invested in limited partnerships known as Spectrum Select. These in turn sent their money to two Rye Select hedge funds overseen by Tremont Group Holdings Inc.

Tremont was one of the largest Madoff "feeders," and settled with Picard for $1.025 billion in July 2011.

Prior to the appeal, two lower court judges had found that the 17 indirect investors could not recover from the estate because they had not been Madoff customers, unlike the feeder funds that dealt directly with him.

That distinction matters because it is customers, not indirect investors, who may draw up to $500,000 each from a fund overseen by the Securities Investor Protection Corp, to the extent they cannot recover losses from a bankruptcy estate.

SIPC is a nonprofit created by Congress and funded by the brokerage industry.

CRITICAL REQUIREMENT NOT SATISFIED

Writing for a three-judge 2nd Circuit panel, Circuit Judge Reena Raggi said there were several reasons that the indirect investors did not qualify as Madoff customers.

She said they had no direct relationship or accounts with his firm, were not identified in the firm's books and records, had no property interest in the assets sent there by the feeder funds, and lacked control over the feeder funds' investments.

"We have identified the critical aspect of the 'customer' definition to be the entrustment of cash or securities to the broker-dealer for the purpose of trading securities," Raggi wrote. "Appellants fail to satisfy this critical requirement."

William Chapman, who argued the indirect investors' appeal, did not immediately respond to a request for comment.

A spokeswoman for Picard did not immediately respond to a similar request.

The decision does not affect the ability of indirect investors to sue the feeder funds, or share in any recovery by those funds from the SIPC fund.

Friday's decision is the second this week by the 2nd Circuit in a Madoff-related appeal.

On Wednesday, the court refused to let former investors pursue claims against Madoff's brother Peter, as well as Madoff's son Andrew and the estate of his late son Mark, over the family members' roles in the fraud.

The court said allowing such claims would impede Picard's effort to maximize payouts from the estate.

Among the investors who had challenged the trustee was a charitable foundation for New Jersey Senator Frank Lautenberg.

Separately, Picard on February 13 asked U.S. Bankruptcy Judge Burton Lifland in Manhattan for permission to distribute another $505 million to customers, boosting the total to $5.44 billion.

The case is Kruse et al v. Securities Investor Protection Corp et al, 2nd U.S. Circuit Court of Appeals, Nos. 12-410, 12-437, 12-483 and 12-529.

(Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz)

By Jonathan Stempel

React to this article
Latest news about Bernard Madoff 
Ex-Madoff computer programmer gets 2-1/2 years prison for fraud
12/10 - NEW YORK (Reuters) - A former computer programmer for Bernard Madoff was sentenced to 2-1/2 years in prison on Wednesday for helping the imprisoned fraudster carry out his multibillion dollar Ponzi scheme.
Ex-Madoff manager, computer programmer get prison terms
12/09 - NEW YORK (Reuters) - A former manager and a former computer programmer at Bernard Madoff's firm were sentenced to prison on Tuesday for helping the convicted fraudster run a multi-billion dollar Ponzi scheme.
Madoff trustee loses appeal on clawbacks
12/08 - 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...
Five ex-Madoff aides face up to 20 years in prison
12/07 - NEW YORK (Reuters) - Five former employees of Bernard Madoff, convicted in March of helping the fund manager bilk investors of billions of dollars in his massive Ponzi scheme, will be sentenced this week, with prosecutors seeking prison terms...
Advertisement
Popular Business Leaders 
Sheldon Adelson Paul Allen Mukesh Ambani Bernard Arnault Luc Besson Vincent Bolloré Martin Bouygues Richard Branson Warren Buffett Marc De Lacharrière Benjamin De Rothschild Jean-baptiste Descroix-vernier Barry Diller Bill Gates Philip Green Carl Icahn Steve Jobs Li Ka-shing Arnaud Lagardère Peter Lynch Lakshmi Mittal Rupert Murdoch Zong Qinghou Patrick Ricard Naguib Sawiris Carlos Slim George Soros Donald Trump Guy Wyser-pratte Jerry Yang
A-Z Business Leaders
Most Read News 
Top 10 favorite gift brands of rich Chinese women
6 days ago - Wealthy Chinese gave fewer gifts in 2013, and the value of the gifts too dropped compared with the previous year, accordi...
Nazarbayev, CEO ArcelorMittal discuss activities of company in Kazakhstan
6 days ago - President of Kazakhstan Nursultan Nazarbayev has met today with CEO ArcelorMittal Lakshmi Mittal in Astana, the press ser...
Penngrove students pick Bill Gates' brain as part of 'Hour of Code'
12/10 - Dec. 11--From transitional kindergarten students in Healdsburg to high schoolers in Petaluma, kids around
Core Resource Management Acquires Working Interests in Oklahoma Oil and Gas Properties in All Equity Deal
6 days ago - PHOENIX, AZ -- -- 12/12/14 -- The Mission of Core Resource Management, Inc.   to acquire and manage proven-producing...
Time names Ebola fighters Person of the Year
12/10 - Time magazine has named its "Person of the Year 2014" the health care workers treating the Ebola epidemic, which has kille...
More news
Dynamic quotes  
ON
| OFF