NEW YORK, N.Y. – A federal appeals court dealt the trustee working to recover money for Bernard Madoff’s investors a setback Thursday, ruling that he doesn’t have legal standing to make claims against major financial institutions that Madoff’s burned customers could make themselves.
The 2nd U.S. Circuit Court of Appeals in Manhattan upheld earlier district court decisions barring trustee Irving Picard from pursuing tens of billions of dollars from JPMorgan Chase, USB AG and other institutions.
Picard, as trustee for the Securities Investor Protection Corporation, has brought claims in bankruptcy court alleging that the institutions were complicit in Madoff’s massive Ponzi scheme because they provided him with financial services while ignoring obvious signs he was a con artist.
The appeals court found that as trustee, Picard “stands in the shoes” of Bernard L. Madoff Investment Securities LLC and therefore “may not assert claims against third parties for participating in a fraud that BLMIS orchestrated.”
The ruling cited New York state laws that “bars a trustee from suing to recover for a wrong that he himself essentially took part in.” It also shot down Picard’s argument that denying him the exclusive authority to bring the claims would in effect immunize the institutions, saying it’s “not obvious customers cannot bring their own suits” against the institutions.
“Picard’s scattershot responses are resourceful, but they all miss the mark,” the 2nd Circuit said.
Picard issued a statement Thursday saying he was reviewing the appeals court’s decision.
Jerry Reisman, a Long Island lawyer who has represented Madoff victims, said, “This decision will send shock waves to Madoff victims who were hoping that a favourable decision to Picard would add billions for distribution to the many victims.”
He said in a statement that the appeals court left open the possibility that victims and others on their behalf can sue third parties to recover from anyone who had a role in the fraud.
Picard and a team of lawyers have spent more than four years untangling an international Ponzi scheme that spanned decades and victimized thousands of customers on a scale never seen before. According to his website, he’s secured more than $9.3 billion of the estimated $17.5 billion that thousands of investors put into Madoff’s sham investment business.
Following Madoff’s arrest, investigators quickly realized that client statements showing they held more than $60 billion in securities were fiction. The once-respected financier made no investments, but instead was paying out principal bit by bit to other investors.
Madoff, 75, is serving a 150-year prison term.