Legal News

Irv Picard Bares His Claws: Madoff Trustee Files First Recovery Suit

By Ashby Jones

Let the Madoff-clawback games begin.

The doubtlessly bitter and protracted battle among investors who lost billions in Bernard Madoff’s massive fraud is underway. Irving Picard, the trustee of Madoff’s firm, responsible for recovering assets for investors, on Thursday filed a lawsuit in bankruptcy court in Manhattan against Vizcaya Partners, a Madoff investor based in the British Virgin Islands, and the investor’s bank, Gibraltar-based Banque Jacob Safra.

The suit seeks to “claw back” $150 million in funds, which were withdrawn about six weeks before Madoff’s scheme was exposed. Vizcaya Partners and the bank couldn’t be reached for comment. Click here for the WSJ story; here for the Bloomberg story.

The process of grabbing money paid out to investors as part of the fraud was anticipated, but appears to be ramping up. In the suit, Picard said Vizcaya Partners transferred the $150 million to the bank on Oct. 31, about six weeks before Madoff’s arrest. He said Vizcaya opened its Madoff account in 2001 and used the Gibraltar bank to wire about $327 million to the Madoff firm before the October redemption.

Under the U.S. bankruptcy code, Picard can sue investors for any fictional profits as well as the principal investment that they withdrew in the past six years. Such so-called clawback provisions are based on the logic that the redemptions were paid using other investors’ money.

Also under the code, if investors made withdrawals in the 90 days prior to the Madoff firm’s collapse, the process for grabbing that money is easier for Picard.

It’s the second time in less than a week that Picard has brought out the sharpened claws. His lawyer, Marc Hirshfield, recently sent a letter to a Brooklyn law student who recently sued Madoff’s brother, Peter, letting the student know that he’d be coming after any money the student managed to recover.

Full post as published by Law Blog - WSJ.com on April 10, 2009 (boomark / email).