The trustee liquidating the Bernard Madoff Ponzi scheme under the Securities Investor Protection Act won an appellate victory in Manhattan District Court upholding the bankruptcy court-approved method for calculating customers’ claims involving inter-account transfers, ABI’s Rochelle Daily Wire reported today. In his 53-page opinion on Jan. 14, U.S. District Judge Paul A. Engelmayer said that the approach proposed by Madoff trustee Irving Picard was the “only method” consistent with the Second Circuit’s so-called net equity opinion in 2011. Judge Engelmayer’s decision upheld the trustee’s methodology in objecting to more than 400 customer claims. Madoff pretended to be investing customers’ funds by purchasing securities. However, he never purchased a single share of stock. Consequently, all the profits shown on customers’ account statements were fictitious. In its 2011 net equity decision, the Second Circuit upheld the trustee and ruled that a customer’s proper claim must ignore the account statements. Instead, each allowed claim equals the customer’s cash investment less amounts withdrawn, thus ignoring fictitious profits. The 2011 decision did not address the method to employ when a customer transferred money from one Madoff account to another. Read more.
For further analysis of fraud and forensics in a commercial bankruptcy case, including the Madoff case, be sure to pick up ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.
