By Scott Flaherty, From The Litigation Daily
Irving Picard has recovered billions for victims of Ponzi fraudster Bernie Madoff, but he’s hit a wall in his efforts to claw back billions more in profits that Madoff customers earned from his scheme. Can Goldstein & Russell’s Thomas Goldstein succeed where Picard’s partners at Baker & Hostetler have failed?
Goldstein on Tuesday urged the U.S. Supreme Court to review a December ruling by the U.S. Court of Appeals for the Second Circuit, which affirmed a lower court decision blocking Picard’s clawback efforts. Picard, the court-appointed liquidation trustee for Madoff’s defunct investment firm, wants to recover nearly $2 billion in “fictitious” earnings by some of Madoff’s clients in the six years before his scheme crumbled.
In TuesdayMarch 19th’s Supreme Court petition, Goldstein argues that the Second Circuit was wrong to bar Picard’s campaign to recover earnings from investors who came out as “net winners” in Madoff’s long-running fraud.
Backed by Baker & Hostetler’s David Sheehan, Goldstein takes aim at the Second Circuit’s view of a safe harbor provision in bankruptcy law intended to minimize uncertainty in the financial markets after major bankruptcies. The provision shields certain institutions against clawback actions related to settlement payments made in connection with securities contracts.
Since Madoff’s customers received money he swindled out of other investors, the petition asserts, those payouts shouldn’t be considered “securities contracts,” and therefore, the safe harbor shouldn’t apply.
“Congress obviously did not intend to protect the beneficiaries of a Ponzi scheme,” Goldstein wrote.
Picard’s filing was complemented on Tuesday by a parallel petition from the Securities Investor Protection Corp., which is also seeking review of the Second Circuit’s December ruling. SIPC oversees liquidation proceedings, like the Madoff matter, that arise under the Securities Investor Protection Act.
For Picard, the Supreme Court bid is just latest attempt to recover from Madoff’s “net winners.” U.S. District Judge Jed Rakoff rebuffed Picard in September 2011, followed by the Second Circuit’s ruling in December. Those decisions did allow Picard to try to recover earnings going back two years before Madoff’s firm collapsed, but Picard has fought for a six-year claw back period.
Tuesday’s petition also isn’t the first time Picard has turned to the Supreme Court in connection with the Madoff liquidation. But it appears to be the first time he’s tapped Supreme Court specialist Goldstein. Baker & Hostetler took the lead in a handful of earlier petitions related to other aspects of the case, including Picard’s unsuccessful attempt to hold HSBC and several other banks accountable for allegedly facilitating Madoff’s fraud.
Richard Levy Jr. of Pryor Cashman, who argued at the Second Circuit for investors opposing Picard’s clawback efforts, told us Wednesday he’s aware of the Supreme Court petition and plans to file a response.
IMAGE: Irving Picard
For more on this story go to: http://www.litigationdaily.com/id=1202720980895/Picard-Taps-SCOTUS-Pro-for-Swipe-at-Madoff-Net-Winners#ixzz3UpdXuFdm