At the earliest, the Supreme Court will not decide until 2021 whether the subsequent recipient of a fraudulent transfer can be sued in the U.S. when the transfer occurred abroad.
In a broadly worded opinion in February in the Madoff liquidation, the Second Circuit held that Sections 548 and 550 can be applied extraterritorially to recover fraudulent transfers even if subsequent transfers occurred abroad. In re Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, 917 F.3d 85 (2d Cir. Feb. 25, 2019). To read ABI’s report, click here.
The appeals court was reversing District Judge Jed Rakoff, who had ruled in July 2014 that Section 550 does not permit recovering from a subsequent foreign recipient of stolen funds, given comity and the presumption against extraterritorial application of U.S. statutes.
Picking up on an argument made by the Madoff trustee, the Second Circuit said it was closing a “loophole,” because the district court’s decision would have enabled a fraudster to transfer property to a “foreign entity,” thereby rendering the “property recovery-proof.” Id. at 100.
The Second Circuit’s decision had put deep-pocket defendants back on the hook for perhaps $4 billion in fraudulent transfers. They filed a petition for certiorari in late August. The Madoff trustee responded at the end of October, opposing certiorari because there is no circuit split.
The justices of the Supreme Court considered the certiorari petition at a conference on December 6. On December 9, the Court asked the U.S. Solicitor General “to file a brief in this case expressing the views of the United States.” Presumably, the justices are seeking the opinion of the U.S. government because the case deals with comity and a possible effect on international relations.
The Solicitor General is not likely to proffer his opinion on granting certiorari until late in the winter or spring of 2020. Even if the Court grants the petition at that time, the case would not be argued until the term to begin in October 2020. At the earliest, we cannot realistically expect a decision from the Supreme Court on the merits until 2021.
Although there is ostensibly no circuit split, the Madoff case does involve billions of dollars. Should the Supreme Court deny the petition or uphold the Second Circuit, the trustee’s $4 billion in suits will spring back to life. If the Madoff trustee in turn prevails against or settles with the offshore defendants, he has a chance of paying creditors in full for the $17 billion they lost in the world’s largest Ponzi scheme. The Madoff trustee has already recovered about $14.3 billion.
Because there is no circuit split, the views of the Solicitor General may be the pivotal factor in the Court’s disposition of the certiorari petition, and particularly so if the government believes that the Second Circuit was wrong.
The case boils down to the following question: Does the U.S. have the primary interest in recovering fraudulent transfers that originated in the U.S., even if subsequent transfers occurred abroad?
At the earliest, the Supreme Court will not decide until 2021 whether the subsequent recipient of a fraudulent transfer can be sued in the U.S. when the transfer occurred abroad.
In a broadly worded opinion in February in the Madoff liquidation, the Second Circuit held that Sections 548 and 550 can be applied extraterritorially to recover fraudulent transfers even if subsequent transfers occurred abroad. In re Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, 917 F.3d 85 (2d Cir. Feb. 25, 2019). To read ABI’s report, click here.
The appeals court was reversing District Judge Jed Rakoff, who had ruled in July 2014 that Section 550 does not permit recovering from a subsequent foreign recipient of stolen funds, given comity and the presumption against extraterritorial application of U.S. statutes.
Picking up on an argument made by the Madoff trustee, the Second Circuit said it was closing a “loophole,” because the district court’s decision would have enabled a fraudster to transfer property to a “foreign entity,” thereby rendering the “property recovery-proof.” Id. at 100.
The Second Circuit’s decision had put deep-pocket defendants back on the hook for perhaps $4 billion in fraudulent transfers. They filed a petition for certiorari in late August. The Madoff trustee responded at the end of October, opposing certiorari because there is no circuit split.