Alison Frankel

Justice Department sides with Madoff’s banks on SCOTUS review

Alison Frankel
May 27, 2014 20:02 UTC

Not every shred of hope is lost for Bernard Madoff trustee Irving Picard in his quest to recover billions from the international banks he has accused of abetting Madoff’s fraud. But it’s looking bleak for the Madoff trustee after the Justice Department filed a brief Friday at the U.S. Supreme Court. In response to the court’s request for the government’s view of Picard’s petition for a writ of certiorari, Solicitor General Donald Verrilli advised the justices to reject Picard’s appeal.

The dismissal in 2013 of Picard’s fraud suits by the 2nd U.S. Circuit Court of Appeals “does not conflict with any decision of (the Supreme Court) or of another court of appeals,” the SG’s brief said. “The decision below also does not preclude customers from pursuing their own actions against (the banks) based on the same alleged conduct that forms the basis of (Picard’s) claims. Further review is not warranted.”

The brief is an arduous trudge through the deep weeds of the law on federal pre-emption of state contribution claims; subrogation rights of the Securities Investor Protection Corporation; and the Bankruptcy Code standing of securities trustees to bring common-law claims on behalf of brokerage customers. If you are in the extremely small group of people for whom these are consequential questions, perhaps you’ll find illumination in the SG’s discussion of the intersection of Picard’s claims with such precedent as Caplin v. Marine Midland and Redington v. Touche Ross. For the rest of us, the brief is notable for the many different ways in which the Justice Department and its co-signer, the Securities and Exchange Commission, undercut Picard’s arguments for Supreme Court review.

According to the filing, the issues are obscure, the 2nd Circuit decision was well-founded and Picard’s appeal suffers from procedural defects because he didn’t even raise at the 2nd Circuit some of the arguments he’s asserting in his cert petition. In short, the Justice Department and the SEC said, there’s no justification for the Supreme Court to revive Picard’s suits claiming that JPMorgan Chase, UBS, HSBC and Unicredit made possible Madoff’s infamous Ponzi scheme.

It’s still possible that four justices will vote to take the case when it comes up for conference next term. A fascinating empirical study of cert grants and SG briefs, published in the George Mason Law Review in 2009, concluded that the Supreme Court followed the Justice Department’s recommendation in about 80 percent of the cases in which it invited briefing by the SG between 1998 and 2004. But in 18 percent of the cases in which the SG recommended against review, the justices nonetheless granted cert. Those aren’t great numbers for Picard, but his chances of a hearing at the Supreme Court are still better, according to the 2009 study, than they’d have been if the justices had not asked for the Solicitor General’s brief. A spokeswoman for Picard and his BakerHostetler team said in an emailed statement that the trustee and his lawyers “respectfully disagree” with the government’s brief and are still hoping that the Supreme Court grants cert and resolves the important issues the case presents.

Former SEC GC Becker gives $556k gift to Madoff investors

Alison Frankel
Feb 29, 2012 18:24 UTC

There’s a very good chance that former Securities and Exchange Commission general counsel David Becker owes absolutely nothing to the folks who lost money in Bernard Madoff’s Ponzi scheme. Nevertheless, on Monday, Becker and his two brothers agreed to turn over every penny of the proceeds they received from their mother’s long-ago Madoff investment account, a total of $556,017. Becker, a partner at Cleary Gottlieb Steen & Hamilton, didn’t return my call seeking comment. But he is doubtless hoping that the $556,017 settlement with Madoff bankruptcy trustee Irving Picard of Baker & Hostetler puts an end to the ugliest chapter in his career.

For a brief while last year, you’ll recall, Becker was the favorite whipping boy of Madoff victims and their congressional champions. Becker and his two brothers were what’s known as net winners in the Madoff pyramid. After their mother’s death in 2004 they transferred the approximately $2 million in her Madoff investment account to a Smith Barney probate account. By September 2006, the will was probated and the account was liquidated. But in December 2010, Picard sued Becker and his brothers, demanding the return of $1.5 million in allegedly fraudulent profits from their mother’s estate.

At the time, Becker was the SEC’s general counsel. And though he informed the agency’s ethics office of his inheritance (and SEC Chairman Mary Schapiro was aware of Becker’s Madoff proceeds), the GC was not asked to step out of SEC deliberations — and did not recuse himself from the debate — on the appropriate method for compensating investors. When word got out of Becker’s Madoff money, Schapiro took a beating in Congress.

Why Rakoff dumped Picard’s $60 bln RICO case v. Unicredit

Alison Frankel
Feb 23, 2012 15:48 UTC

Over the last six months, U.S. Senior District Judge Jed Rakoff has made Irving Picard of Baker & Hostetler look more like Don Quixote than a white knight riding to the rescue of investors who lost billions in Bernard Madoff’s Ponzi scheme.

Rakoff has already squelched the Madoff trustee’s fraud claims against the banks that allegedly aided and abetted Madoff’s scheme, as well as cutting off Picard clawback claims that date back more than two years. On Tuesday, in Rakoff’s biggest-dollar ruling in the Madoff case, the judge said Picard does not have standing to pursue a $60 billion racketeering suit against UniCredit and two other foreign banks that allegedly participated in a scheme to funnel $9.1 billion to Madoff in exchange for kickbacks to a woman named Sonja Kohn. (Picard had claimed $20 billion in damages, which can be tripled under the Racketeer Influenced and Corrupt Organizations Act.)

Interestingly, Rakoff did not use the same analysis to dismiss the RICO claims as he did in tossing fraud claims against UniCredit and the other banks. In a quick dismissal of the fraud counts, the judge reiterated his July 2011 holding that Picard can’t stand in the shoes of Madoff investors to assert fraud against the financial institutions that allegedly abetted Madoff’s Ponzi scheme. He could have simply said the same is true in the trustee’s racketeering case (which is what I assumed he would do when I wrote about the fraud dismissal in July). Instead, Rakoff seemed to accept, for the purposes of considering the banks’ motion to dismiss, Picard’s argument that Sonja Kohn’s alleged racketeering scheme was, at least to some extent, distinct from Madoff’s scam.

Inside the shadowy market for Madoff claims

Alison Frankel
Jan 14, 2012 00:19 UTC

One of the most intriguing offshoots of the mess Bernard Madoff created is the underground market for claims against the estate of his bankrupt securities firm. Last June, when the Wall Street Journal ran a revelatory story on big banks’ trading in Madoff claims, suits by Madoff trustee Irving Picard of Baker Hostetler seemed so promising that claims were trading at 75 cents on the dollar. But according to fascinating new litigation between Deutsche Bank and two Madoff feeder funds, the value of claims has been dropping ever since, and was down to 60 cents on the dollar last month. The billion-dollar declaratory judgment complaint by Kingate Global and Kingate Euro against Deutsche Bank doesn’t offer an explanation for the declining value of Madoff claims. But it’s not much of a leap of inference to guess that U.S. District Judges Jed Rakoff and Colleen McMahon of Manhattan federal district court have more than a little to do with it.

Some background: The British Virgin Islands-based Kingate funds channeled billions of dollars to Madoff before his Ponzi scheme was exposed in December 2008. When Madoff’s securities business collapsed, Kingate investors were out $3.5 billion, according to the funds’ complaint against Deutsche Bank. The funds asserted that they were net losers in Madoff’s scheme, meaning that their losses exceeded their withdrawals from Madoff accounts. They claimed more than $1.6 billion against the Madoff estate.

Picard had rather a different view of the Kingate funds, which he said ignored warning signs of Madoff’s fraud. He sued Kingate Global and Kingate Euro to claw back $1 billion in withdrawals the funds made in the run-up to Madoff’s collapse, as well as allegedly excessive compensation the funds paid top executives.

Are big banks now in the clear for allegedly aiding Madoff?

Alison Frankel
Nov 2, 2011 20:19 UTC

Irving Picard has given the bankruptcy laws one hell of a workout. As trustee in the Chapter 7 bankruptcy of Bernard Madoff’s securities firm, Picard, a partner at Baker & Hostetler, has been more aggressive and creative than any bankruptcy trustee in history in his search for defendants to blame for Madoff’s epic Ponzi scheme. His most ambitious gambit, as everyone knows, was a series of megabillion-dollar suits against the international financial institutions that Picard’s team of lawyers at Baker & Hostetler accused of willfully ignoring warnings of Madoff’s fraud.

The trustee’s suits were provocative headline-grabbers — and on Tuesday, a second Manhattan federal judge concluded that they’re fatally flawed. U.S. District Court Judge Colleen McMahon dismissed Picard’s common law tort claims against JPMorgan Chase and UBS (and related defendants), finding that Picard does not have standing. Her ruling expands and reinforces a previous decision on the same issue by her Manhattan federal court colleague Judge Jed Rakoff, who in July dismissed Picard’s common law claims against HSBC and UniCredit. Tuesday’s decision wipes out about $20 billion in alleged damages, leaving Picard with about $450 million in traditional bankruptcy court clawback claims against JPMorgan and about $80 million against UBS. It’s a huge win for JPMorgan’s lawyers at Wachtell, Lipton, Rosen & Katz — who were actually the first lawyers to ask a federal district court judge to hear one of Picard’s cases — and for UBS’s lawyers at Gibson, Dunn & Crutcher.

But now the question is whether Picard’s allegations that these global banks helped Madoff perpetuate his scheme are dead. The answer is not quite. The trustee’s spokesperson has already announced that Picard’s team from Baker & Hostetler intends to appeal McMahon’s ruling to the 2nd U.S. Circuit Court of Appeals; the trustee has already filed a notice of appeal of Rakoff’s decision. Moreover, as both McMahon and Rakoff discussed in their opinions, Madoff’s customers have the standing Picard lacks. Some enterprising plaintiffs lawyer could certainly capitalize on Picard’s spade work and file a class action against the banks on behalf of Madoff victims.

Mets ruling could upend Madoff bankruptcy

Alison Frankel
Sep 28, 2011 22:27 UTC

Helen Chaitman of Becker & Poliakoff represents more than 300 investors who had accounts with Bernard Madoff. For more than two years she’s hammered away at one particular argument in federal bankruptcy court, in Congress, even on YouTube: Madoff bankruptcy trustee Irving Picard of Baker & Hostetler shouldn’t be allowed to demand the return of profits that Madoff investors pulled out of their accounts as long ago as 2002, six years before the Ponzi scheme imploded in December 2008. On Tuesday night, Chaitman finally found vindication, even though it wasn’t in any of her cases. Manhattan federal judge Jed Rakoff, ruling in Picard’s fraud case against the owners of the New York Mets, concluded that a section of the federal bankruptcy code precludes Picard from attempting to claw back money Madoff investors pulled out of the Ponzi scheme before 2006.

“This is something I’ve been saying from the beginning,” Chaitman told me. “Anyone who didn’t withdraw their money in the last two years [of Madoff's scheme] is out completely.” Jonathan Landers of Milberg, who represents 30 clawback clients, agreed: “This is a very, very significant ruling.”

That’s putting it mildly. Judge Rakoff’s 18-page ruling could completely upend the Madoff bankruptcy. Among the big-name Madoff investors who would be off Picard’s hook completely if Rakoff’s ruling stands is former Securities and Exchange Commission general counsel David Becker, who’s in hot water for allegedly failing to alert SEC commissioners of a potential conflict of interest stemming from his parents’ long-closed Madoff account. Picard had filed a clawback suit against Becker, who inherited money after his parents’ account was liquidated in 2002; Rakoff’s ruling would wipe out Picard’s suit.

Fraud and the feeder fund: How Merkin dodged fed. class action

Alison Frankel
Sep 26, 2011 22:05 UTC

You had to be a sophisticated investor if you wanted to give J. Ezra Merkin your money. The hedge fund director made that clear in the offering documents for three of his funds: investors had to entrust considerable assets to him (at least $5 million for individuals and $25 million for businesses); had to conduct their own due diligence before deciding to invest; and had to accept the risk that Merkin’s funds might lose their money. Unsaid, but well-understood by many of the investors in Merkin’s Ascot fund (at least according to Merkin lawyer Andrew Levander of Dechert), was that Merkin would be feeding investors’ money to Bernard Madoff.

Merkin earned between 1 and 5 percent fees on the hundreds of millions of dollars he funneled to Madoff beginning in the early 1990s. At the same time, his own Madoff investment blossomed to more than $100 million. When Madoff’s Ponzi scheme was exposed in December 2008, Merkin was as stunned as his hedge fund clients, according to his lawyers. Merkin also claimed that he and his family were among Madoff’s biggest victims, with nine-figure paper losses.

Many doubted that depictions of events, including the New York attorney general, who filed a state-law fraud action against Merkin; real estate developer and Merkin investor Morton Zuckerman, who brought in Susman Godfrey for a New York state supreme court suit; and investors in Merkin’s Ascot, Gabriel, and Arial funds, whose cases were consolidated in June 2009 in a Manhattan federal court securities class action. The hedge fund investors, represented by lead counsel from Abbey Spanier Rodd Abrams & Paradis and Wolf Haldenstein Adler Freeman & Herz, alleged that Merkin had misrepresented the operation of his funds in offering documents that implied Merkin himself — and not Bernie Madoff — would be making investment decisions. They also asserted that Merkin ignored warning signs.

Picard drops $2bl in claims against UBS? Um, no, he doesn’t

Alison Frankel
Jul 20, 2011 22:44 UTC

The damages claims in Irving Picard’s pursuit of the banks that allegedly helped Ponzi schemer Bernard Madoff are so outsized that even a simple two-page letter from a federal judge can lead to a $2 billion kerfuffle. On Tuesday, Manhattan federal district court judge Colleen McMahon sent a letter to lawyers for Picard, the bankruptcy trustee for Bernard L. Madoff Investment Securities, and to lawyers for UBS, which is a defendant in two of Picard’s suits. UBS’s counsel at Gibson, Dunn & Crutcher had moved in June to transfer two Picard suits naming the bank as a defendant out of bankruptcy court and into federal court; Judge McMahon, who is overseeing Picard’s case against JPMorgan Chase, agreed to take the cases on July 7 and began requesting information, by letter, from Picard counsel at Baker & Hostetler and UBS counsel at Gibson Dunn.

To understand Judge McMahon’s July 19 letter — and how it was misinterpreted — it’s important to know that in the two actions naming UBS defendants, Picard is asserting different causes of action and seeking different amounts of money. In the case known as Luxalpha, Picard and Baker & Hostetler claim that UBS breached its fiduciary duty and aided and abetted fraud. That suit demands $2 billion from UBS and other defendants. The other case, known as LIF, is a clawback action demanding the return of all the money the bank and other defendants redeemed from Madoff or earned in fees, a total of $550 million, according to Picard. Though the press release announcing the LIF suit refers to “alleged financial fraud” by UBS, the suit actually claims only unjust enrichment and another common-law cause of action as an alternative to the clawback theory.

In a July 14 letter, Judge McMahon told Baker & Hostetler and Gibson Dunn that she needed more explanation of how the LIF and Luxalpha cases intersected and overlapped, and warned the lawyers that she wasn’t going to slow down the JPMorgan case to address complications in the UBS suit. In response, the Picard lawyers decided to simplify matters, reasoning that if they dropped the alternative-theory common law claims in the $550 million LIF case, there would be no reason for the case to stay in federal court. Picard could simply go after the $550 million in a bankruptcy court clawback action.