The Supreme Court declined Monday to review a case challenging the ability of a Madoff trustee to recover money transferred to offshore feeder funds and foreign banks.
That leaves intact a February 2019 decision by the U.S. Court of Appeals for the Second Circuit allowing trustee Irving H. Picard to use U.S. bankruptcy law to recover funds stolen by Mr. Madoff and subsequently transferred overseas. Mr. Picard is seeking to distribute those foreign assets to Madoff victims with proper claims.
The petitioners seeking Supreme Court review are foreign individuals and entities who invested with Madoff through offshore feeder funds. The money was never invested but instead was deposited into a U.S. bank account used to fund the massive Ponzi scheme. The feeder funds were organized under the laws of the British Virgin Islands and the Cayman Islands and are also involved in separate foreign liquidation proceedings.
Heather Wlodek, a spokeswoman for Mr. Picard, the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, said in a statement that the Supreme Court's denial of review "paves the way" for the trustee to recover funds that were withdrawn from the defunct firm by defendants in several dozen cases, including those against feeder funds and global banks and subsequently redistributed to their managers.
"While the feeder funds themselves are largely insolvent, the SIPA Trustee will continue his recovery actions against subsequent transferees that received distributions originating with BLMIS," Ms. Wlodek said. The potential recoveries are estimated to be $3.2 billion, "every penny of which would be distributed to BLMIS customers with allowed claims," she said.
The case, HSBC Holdings PLC vs. Picard, focused on the interpretation of U.S. bankruptcy code and whether its provisions have extraterritoriality, said David Flugman, a partner with Selendy & Gay PPLC who represents Herald Fund SPC, one of the largest investment fund victims of Madoff.
Now, Mr. Flugman said in an interview, the several cases on hold should move forward into discovery and may possibly lead to other settlements.
In an amicus brief supporting the foreign institutions, the Securities Industry and Financial Markets Association said that "the Second Circuit's decision does not account for the significant role that the presumption against extraterritoriality plays as a guiding principle for international actors ... a rule of law that would enable one jurisdiction — the U.S. — to impose its law in a foreign jurisdiction, at any time and without notice, serves only to upset settled expectations and undermine the certainty required for international commerce."