Madoff Investors Seek Exemption From July Claim Deadline

Date: Wednesday, February 11, 2009
Author: Christopher Scinta, Bloomberg.com

Investors who may have to return cash withdrawn from Bernard L. Madoff Investment Securities LLC before it failed said they should be exempted by the bankrupt firm’s trustee from a July claim deadline.

Investors may have a claim against the Madoff firm if they are forced to return the funds, some customers said in a filing yesterday in U.S. Bankruptcy Court in Manhattan.

The Lucerne Foundation, Collingwood Enterprises and Douglas Rimsky want the deadline pushed back, according to court papers. While investors who withdrew money before Madoff Securities collapsed in December don’t have claims now, they could be entitled to a claim should Irving Picard, the trustee, sue them for the withdrawn funds. The trustee can seek a so-called clawback if he believes there was a preferential payment or fraudulent transfer.

“While we filed this motion on behalf of three of our clients that need this relief, we recognize that this is an issue of importance to hundreds, if not thousands of investors,” plaintiffs’ attorney Philip Bentley said in a phone interview. “We hope the court will enter an order that will resolve the dilemma facing a large number of Madoff investors.”

Since Picard hasn’t told investors how clawback claims would be handled, people who withdrew money before the firm imploded may be compelled to file documents before the July 2 deadline to preserve their claim. If they do, they may lose the right to a jury trial if Picard sues seeking return of the money.

Rimsky, reached at Lucerne Textiles Inc., declined to comment. Bentley declined to provide specifics about his clients’ investments. A hearing is scheduled for Feb. 24 before U.S. Bankruptcy Judge Burton Lifland.

$950 Million

Picard said Feb. 4 he has recovered about $946.4 million in cash and securities for customers of the bankrupt New York company, allegedly at the center of a $50 billion Ponzi scheme. Picard, appointed as part of the Securities Investor Protection Corp.’s supervision of the advisory firm, declined to comment.

Bernard Madoff was arrested by FBI agents in December and charged with securities fraud. Madoff, 70, hasn’t formally responded to the criminal charge, though on Feb. 9 he partially settled a parallel suit by the U.S. Securities and Exchange Commission. He said he wouldn’t challenge the SEC allegations when the judge in that case determines the penalty. Madoff didn’t admit or deny any wrongdoing in the settlement.

Creditors of his firm may file claims until July 2, though customers should submit their forms before March 4 to be paid “out of customer property,” according to Picard’s Web site.

On Feb. 5, Picard filed with the court a 162-page list of Madoff “customers” for the year before his Dec. 11 arrest after sending out claim forms to 8,000 customers in January. Legal experts estimate it may take several years for Picard to pay all the customers of the accused fraudster.

The SIPC case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net.