Legal News

Madoff Trustee Spreads His Wings, Sues Ruth

By Ashby Jones

Ever since Bernie Madoff’s guilty plea back in March, life seemed to be finally settling down for Bernie’s wife, Ruth. Last month, she agreed to give up her potential claim to more than $80 million of assets, but, in an agreement with federal prosecutors, was allowed to keep $2.5 million in cash. Then, earlier this month, federal investigators concluded they didn’t have enough evidence to charge her criminally.

But things took a turn for the worse for Ruth earlier today when Irv Picard, the trustee for Bernie’s collapsed firm, filed civil suit against Ruth, seeking to recover some $44 million from her. Click here for the complaint, filed in Manhattan bankruptcy court.

So why, if Ruth seemingly wasn’t a co-conspirator in Bernie’s operation, gives the trustee the right to go after her? Picard explains in the complaint:

For decades, Mrs. Madoff lived a life of splendor using the money of BLMIS's customers. Regardless of whether or not Mrs. Madoff knew of the fraud her husband perpetrated at BLMIS, during the past two- and six-year statutory periods, she received tens of millions of dollars from BLMIS for which BLMIS received no corresponding benefit or value and to which Mrs. Madoff had no good faith basis to believe she was entitled. The purpose of this action is to recover that money to the extent possible for the benefit of BLMIS and its defrauded customers.

And will the $2.5 million be part of what Picard goes after? Apparently so:

The United States government agreed not to contest Mrs. Madoff's claim to $2.5 million and to make a payment to her in that amount following forfeiture of the Madoffs' assets. The forfeiture Stipulation And Order . . . expressly provides that the $2.5 million payment to Mrs. Madoff "does not in any way preclude . . . Irving H. Picard, Esq. as trustee for the liquidation of the business of defendant Bernard L. Madoff Investment Securities LLC . . . from seeking to recover the Funds from Ruth Madoff." While Madoff's crimes have left many investors impoverished and some charities decimated, Mrs. Madoff remains a person of substantial means. The inequity between Mrs. Madoff's continuing financial advantages and the economic distress of Madoff's customers compels the Trustee to bring this action.

Peter Chavkin, a lawyer for Ruth, had this to say: “What makes this complaint particularly perplexing and totally unjustified . . . is the fact that Ruth already forfeited to the United States Attorney’s Office almost all of the assets named in this complaint,” assets that prosecutors will distribute to victims of the fraud. “We believe the Trustee’s action is wrong as a matter of law and fairness.”

LBers, we really want to hear from you on this one. Given all you know about Ruth, should she be allowed to hang onto her $2.5 million?

Full post as published by Law Blog - WSJ.com on July 29, 2009 (boomark / email).