Madoff victims' trustee largely prevails in 233 lawsuits

(Reuters) — A federal judge on Tuesday ruled largely in favor of the trustee seeking potentially hundreds of millions of dollars for Bernard Madoff’s victims in 233 lawsuits that sought to recoup alleged fictitious profits generated by the Ponzi schemer’s firm.

In a 72-page decision, U.S. Bankruptcy Judge Stuart Bernstein in Manhattan said trustee Irving Picard could try to claw back money that former customers who he calls “net winners” withdrew from Bernard L. Madoff Investment Securities L.L.C. in the two years prior to that firm’s December 2008 bankruptcy.

Judge Bernstein rejected the argument that clawbacks should be limited because only a few of Mr. Madoff’s employees knew of the fraud.

“Once it is determined that a Ponzi scheme exists, all transfers made in furtherance of that Ponzi scheme are presumed to have been made with fraudulent intent,” he wrote.

But the judge said Mr. Picard did not show he was presently entitled to recoup money from various “subsequent transferee” defendants who received sums originally withdrawn from Madoff’s firm.

More than a dozen law firms represented the defendants. Helen Chaitman, whose law firm Becker & Poliakoff represented defendants in 128 of the lawsuits, declined to comment.

A spokeswoman for Mr. Picard declined immediate comment.

Courts have largely upheld Mr. Picard’s methods to calculate losses and identify net winners, who the trustee said withdrew more money from Mr. Madoff’s firm than they put in.

“Treating the phony ‘profits’ concocted by Madoff as real would give claimants such as defendants, all of whom have already received back their principal plus hundreds of thousands of dollars of other people’s misappropriated investment funds, an unfair advantage at the expense of those customers who have not yet recovered their principal,” Mr. Picard’s lawyers wrote last year. “There is no result less equitable than that.”

Mr. Picard has recovered roughly $10.7 billion for former Madoff customers who he estimates lost $17.5 billion of principal.

He has held some of that back because of litigation, including two cases involving the U.S. Supreme Court.

Mr. Picard wants the Supreme Court to review a lower court decision barring him from clawing back money in the six years before Mr. Madoff’s firm went bankrupt because of a “stockbroker defense” available to customers.

Meanwhile, some Madoff victims have until July 20 to ask the Supreme Court to review a separate decision denying them interest and inflation adjustments on their claims.

Mr. Madoff, 77, is serving a 150-year prison term.