July 14, 2019, Southern District of New York, – Last week, the bankruptcy court for Southern District of New York denied the Trustee Irving Picard’s motion for summary judgment against the defendant Legacy Capital, Ltd in the Madoff’s bankruptcy case, thereby sending 9-year clawback case to trial.
While considering the motion of Irving H. Picard (the “Trustee”), as Trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”) under the Securities Investor Protection Act, 15 USC. §§ 78aaa-lll, and the substantively consolidated chapter 7 estate of Bernard L. Madoff (“Madoff”), seeking summary judgment pursuant to Federal Rule of Civil Procedure 56 and the Defendant Legacy Capital, Ltd. (“Legacy”) ‘s memorandum of law in opposition to the motion, the Court denied the Trustee’s motion for summary judgment. The Court held the following:
(1) The Trustee has established that there is no genuine disputed issue of fact that BLMIS was a Ponzi scheme and that it transferred its interest in $174 million to or for the benefit of Legacy, within the meaning of 11 USC. § 550(a)(1), in furtherance of the Ponzi scheme within two years of December 11, 2008.
(2) The Trustee is entitled to rely on the Ponzi scheme presumption and has established as a matter of law that the two-year transfers were made with the transferor’s actual intent to defraud.
(3) On Legacy’s submission that it has a complete defense according to Section 548 (c) because its value defense exceeds the amount sought by the Trustee, Legacy bears the burden of proof as regards its value defense.
(4) A trial will be held to determine (i) the start date of the BLMIS Ponzi scheme; and (ii) whether the profits reported on Legacy’s BLMIS account statements arising from BLMIS’s purported US Treasury Bill trades were real and resulted from BLMIS’s purchase of those US Treasury Bills from third-party brokers for Legacy’s benefit.
(5) The two-year transfers did not satisfy antecedent debts, based on the law of the case and established case precedent that a transferee in a Ponzi scheme does not give value beyond his deposit of principal.
By way of background, the Trustee Picard had brought an adversary proceeding among other things, to avoid and recover intentional fraudulent transfers worth $213 million from Legacy Capital Ltd. according to 11 USC. §§ 548(a)(1)(A) and 550(a)(1) in December 2010.
The Trustee filed an amended complaint on July 2, 2015, asserting actual and constructive fraudulent transfer claims under the Bankruptcy Code and New York law to avoid and recover over $213 million from Legacy as initial transferee and $6.6 million from Khronos LLC as subsequent transferee. Legacy and Khronos each moved to dismiss the amended complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court rejected the allegations against Khronos and dismissed the claims against Legacy except for the actual fraudulent transfer claim under 11 USC. § 548(a)(1)(A) to avoid and recover transfers from Legacy’s BLMIS account within two years of the Filing Date.
The case is In re Bernard L. Madoff, Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC vs. Legacy Capital Ltd, AP No. – 10-05286-SMB. Honorable Judge Stuart M. Bernstein is presiding over the Debtor’s bankruptcy case. The lead bankruptcy case is 08-99000