Bloomberg Businessweek - USA (2019-11-18)

ByJoeNocera

HSBCHoldingsPlc,

etal.,Petitionersv.

IrvingH.Picard

Case#19-277

The Madoff Clawback

Saga Is Almost Over

①THEORIGINRememberwhenBernardMadoffacknowledgedoperating

thebiggestPonzischemeever,bilkinginvestorsoutof$17.5billion?Thatwas

11 yearsago.Sincethen,IrvingPicard,thetrusteeintheMadoffbankruptcy,

hasfiledhundredsoflawsuitstorecovermoneyforMadoffvictims.He’sclawed

back$14.2billionsofar.Butthere’sonebucketofmoneyhehasn’tbeenable

togetat:about$3.2billionheldbyforeignbanks.

②THEHEARINGIn 2012 dozensoftheseoffshoreinstitutionsarguedbefore

U.S.DistrictJudgeJedRakoffthatPicardhadnobusinessgoingaftertheir

money.Yes,themoneyhadbeentransferredfromfeederfunds—investment

vehiclesrunbyMadoff ’sfriendsandenablersthatkeptthemoneyflowinginto

thescam.Butthatdidn’tmatter,theyargued,becausethesectionoftheU.S.

BankruptcyCodethatdealtwithvoidingtransfersdidn’tapplytotransactions

betweenforeignentities.In2014,Rakoffruledintheirfavor.

③THEAPPEALYouknowhowtheysaythewheelsofjusticeturnslowly?Has

thateverbeentrueintheMadoffbankruptcy!InFebruary,sevenyearsafter

that 2012 hearing,theU.S.CourtofAppealsfortheSecondCircuitfinallyover-

turnedRakoff.Thethree-judgepanelconcludedthatwhatmatteredwasthat

theoriginaltransfer,fromMadofftothefeederfunds,originatedintheU.S.

If thesubsequenttransfertotheforeignbankscouldn’tbeclawedback,they

wroteintheirdecision,it wouldessentiallymakefraudulenttransferslegal.

④THEFINALENosurprisehere:ThebanksappealedtotheSupremeCourt.

A few weeks ago, Picard asked the court to reject their appeal. The court is

expected to decide whether to take the case in early December. Whatever it

decides, this will be the last big case for Picard—at least as far as the Madoff

victims are concerned. In most Ponzi schemes, the trustee recovers 5% to

30% of thelostfunds.Picardhasrecoveredmorethan80%sofar;if the

courts lethimclawbackthe$3.2billionfromtheforeignbanks,he’llbe close

to 100%.<BW>�Nocera is a business columnist for Bloomberg Opinion

●Thishasalready

beena bigyearfor

Picard:InJulyhe

reacheda settlement

witha coupleoffunds

basedin theBritish

Virgin Islands to return

$860 million of the

$926.4 million they’d

invested with Madoff.

One of the funds,

Kingate Management

Ltd., later filed

for bankruptcy to

protect its ability

to pay.

● Anexcellentwayto

getrichis tobecome

a bankruptcylawyer.

AsofSeptember,the

lawyers,trustees,

andconsultants(but

mostly the lawyers)

working on behalf of

the Madoff victims

have brought in

almost $1.8 billion in

fees. That’s almost

$164 million per year

since the clawback

process began more

than a decade ago.

76

ILLUSTRATION BY GEORGE WYLESOL

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