Securities Law Blog

The concerns of Madoff investors, many of whom are still coming to grips with devastating losses, are turning from “what have I lost” to “how do I keep what I have”. As I have written before in this space, Irving Picard, the Madoff Trustee, is evaluating his rights to “clawback” any money paid out to Madoff investors over the last few years. The most recent Madoff clawback related developments are the subject of an article today on Bloomberg.com, which is repeated below. I would also suggest that, if you are a Madoff investor possibly subject to clawback, that it may be worthwhile lobbying your US senator and congressperson now. There have been whispers of a movement afoot in Washington to prevent the clawback. How that happens, I don’t know. What I do know is that a clawback is a clawback—and the trustee can’t be selective about it. That is good for individual investors. It means that Mr. Picard would have to clawback money from many charities as well as individuals—and the powers in DC may have little appetite for letting that happen.

Madoff Investors Seek Exemption From July Claim Deadline

By Christopher Scinta

Feb. 11 (Bloomberg) -- Investors who may have to return cash withdrawn from Bernard L. Madoff Investment Securities LLC before it failed said they should be exempted by the bankrupt firm’s trustee from a July claim deadline.

Investors may have a claim against the Madoff firm if they are forced to return the funds, some customers said in a filing yesterday in U.S. Bankruptcy Court in Manhattan.

The Lucerne Foundation, Collingwood Enterprises and Douglas Rimsky want the deadline pushed back, according to court papers. While investors who withdrew money before Madoff Securities collapsed in December don’t have claims now, they could be entitled to a claim should Irving Picard, the trustee, sue them for the withdrawn funds. The trustee can seek a so-called clawback if he believes there was a preferential payment or fraudulent transfer.

“While we filed this motion on behalf of three of our clients that need this relief, we recognize that this is an issue of importance to hundreds, if not thousands of investors,” plaintiffs’ attorney Philip Bentley said in a phone interview. “We hope the court will enter an order that will resolve the dilemma facing a large number of Madoff investors.”

Since Picard hasn’t told investors how clawback claims would be handled, people who withdrew money before the firm imploded may be compelled to file documents before the July 2 deadline to preserve their claim. If they do, they may lose the right to a jury trial if Picard sues seeking return of the money.

Rimsky, reached at Lucerne Textiles Inc., declined to comment. Bentley declined to provide specifics about his clients’ investments. A hearing is scheduled for Feb. 24 before U.S. Bankruptcy Judge Burton Lifland.

$950 Million
Picard said Feb. 4 he has recovered about $946.4 million in cash and securities for customers of the bankrupt New York company, allegedly at the center of a $50 billion Ponzi scheme. Picard, appointed as part of the Securities Investor Protection Corp.’s supervision of the advisory firm, declined to comment.

Bernard Madoff was arrested by FBI agents in December and charged with securities fraud. Madoff, 70, hasn’t formally responded to the criminal charge, though on Feb. 9 he partially settled a parallel suit by the U.S. Securities and Exchange Commission. He said he wouldn’t challenge the SEC allegations when the judge in that case determines the penalty. Madoff didn’t admit or deny any wrongdoing in the settlement.

Creditors of his firm may file claims until July 2, though customers should submit their forms before March 4 to be paid “out of customer property,” according to Picard’s Web site.

On Feb. 5, Picard filed with the court a 162-page list of Madoff “customers” for the year before his Dec. 11 arrest after sending out claim forms to 8,000 customers in January. Legal experts estimate it may take several years for Picard to pay all the customers of the accused fraudster.

The SIPC case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christopher Scinta in New York bankruptcy court at scinta@bloomberg.net.

On March 31, 2008 Treasury Secretary Henry Paulson outlined the details of a broad blueprint to significantly change the financial regulatory landscape. The Proposal would, among other things, shift many regulatory powers to the Federal Reserve from other agencies. Initial reaction from state securities regulators has been negative with Massachusetts Secretary of the Commonwealth William F. Galvin calling the Proposal a “disastrous backward step that would put the investor in jeopardy.” You will find various important links concerning this historic overhaul plan below. These are provided courtesy of SIFMA.

Link to Treasury’s fact sheet on the plan
http://www.treas.gov/press/releases/reports/Fact_Sheet_03.31.08.pdf

Link to the Blueprint’s executive summary
http://www.sifma.org/regulatory/pdf/Paulson-BlueprintExec-summary.pdf

Link to the Blueprint
http://www.sifma.org/regulatory/pdf/Modernized-Financial-Reg-Structure-Blueprint.pdf

Link to Secretary Paulson’s speech
http://www.treas.gov/press/releases/hp897.htm

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.