A federal bankruptcy judge yesterday narrowed a $905 million lawsuit filed by the trustee seeking money for Bernard Madoff's victims against executives who ran a now-defunct Florida accounting firm that had close ties to the swindler, Reuters reported. Bankruptcy Judge Stuart Bernstein said that Irving Picard cannot recover alleged improper transfers made before 2001 to Palm Beach-based Avellino & Bienes, which ran the earliest "feeder funds" that sent client money to Madoff. The decision is a setback for Picard, in one of the larger of his more than 1,000 lawsuits seeking to recoup money from people he believes benefited improperly from Madoff's fraud. Picard accused principals Frank Avellino and Michael Bienes of helping conceal Madoff's Ponzi scheme, including in 1992 when Madoff created fake account statements to help their firm defend itself in a U.S. Securities and Exchange Commission probe. The trustee said the duplicity enabled Avellino, Bienes and their wives to reap millions of dollars to buy multiple luxury homes, art by Pablo Picasso and Edgar Degas for the Avellinos, and a cold storage compartment to store Dianne Bienes' furs. But in a 62-page decision, Judge Bernstein agreed with the defendants that Picard lacked power to recover transfers made before Jan. 1, 2001. Read more.
For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.
U.S. teen retailer Aeropostale Inc. plans to challenge in court private equity firm Sycamore Partners' claims as a creditor in its bankruptcy, Reuters reported yesterday. The fight between Aeropostale and Sycamore stands out from other bankruptcy cases of U.S. teen retailers, because very few of them triggered litigation. It could also complicate any effort by Sycamore to take over the retailer. The lawsuit, expected to be filed today, would follow an investigation by Aeropostale over the past several weeks into whether Sycamore drove the company into bankruptcy, in part by making the terms of its debt investment in the company in 2014 deliberately onerous. Sycamore affiliates loaned Aeropostale $150 million in 2014, and, as part of the deal, required that the chain make merchandise purchases from one of Sycamore's companies, MGF Sourcing. Aeropostale has said that MGF imposed new, burdensome terms on the retailer that precipitated its bankruptcy.
Jon Corzine has reached a settlement with the trustee for the former New Jersey governor's collapsed brokerage MF Global Holdings Ltd, as part of a series of accords expected to provide about $132 million to creditors, Reuters reported yesterday. The trustee, Nader Tavakoli, on Wednesday asked a U.S. bankruptcy judge to approve payments being made on behalf of Corzine and several other defendants, including MF Global's former Chief Operating Officer Bradley Abelow and former Chief Financial Officer Henri Steenkamp. Insurers will make payments on behalf of the defendants, who did not admit wrongdoing, the court papers show. The accord does not resolve the U.S. Commodity Futures Trading Commission's civil lawsuit against Corzine and Edith O'Brien, a former MF Global assistant treasurer, but provides a reserve to help fund their defenses.
Criminal prosecutors in Minnesota won a rare admission of wrongdoing from the Archdiocese of St. Paul and Minneapolis, which conceded it protected a priest who was later convicted of sexually abusing children, the Wall Street Journal reported today. The deal announced yesterday resolves criminal charges against the archdiocese alleging it failed to take actions to safeguard children well after U.S. bishops instituted a new, strict abuse policy in 2002. As part of the deal, the archdiocese acknowledged that it failed to adequately respond to and prevent the abuse of three children, and that it put its own interests and the interests of an abusive priest, Curtis Wehmeyer, ahead of the safety of those children. It is unclear how yesterday’s admission will affect the Twin Cities archdiocese, but legal experts say that for dioceses in bankruptcy in general, admitted criminal activity can complicate potential insurance recovery because intentional or criminal actions are typically excluded by insurance policies.
Flying Star is seeking court approval to end a two-year-old legal battle with two former executives by settling for $375,000 now and not fighting another $611,523 in claims the two can pursue against the restaurant company in its ongoing bankruptcy case, the Albuquerque (N.M.) Journal reported today. Flying Star’s former COO, Clyde Harrington, and former CFO, Donna Schmidt, were already in arbitration with Flying Star and its owners, Jean and Mark Bernstein, when the Albuquerque cafe chain filed for chapter 11 protection in January 2015, and the parties’ legal wranglings have been an ongoing part of the larger bankruptcy case. Harrington and Schmidt had sued Jean Bernstein in 2014 in a contractual dispute following their terminations. They alleged that the restaurant chain had “falsely (cited) cause as the basis” of their firings, depriving them of their employment and allowing the company to deny payment of their stock options worth hundreds of thousands of dollars. The original filing did not specify the amount sought in damages, but the duo later filed claims in the bankruptcy case totaling between $5.8 million and $7.3 million, according to court records.
Gawker Media LLC founder and Chief Executive Nick Denton appears to be headed for bankruptcy after a federal judge declined to shield him from a legal battle with former wrestler Hulk Hogan and his billionaire backer, MarketWatch.com reported yesterday. During a hearing in Manhattan, Bankruptcy Judge Stuart Bernstein denied Gawker’s request to extend chapter 11’s litigation shield to its founder, who isn’t currently in bankruptcy. “I expect my personal bankruptcy will be anything but straightforward,” Denton said in court Tuesday, adding that he expects the onslaught of litigation to continue “to be as aggressive as it possibly could.” The ruling is a blow to Denton, who says he can’t pay his share of a $140 million invasion-of-privacy judgment handed down earlier this year in favor of Terry Bollea, the wrestler’s real name. The judgment, which is being appealed, led Gawker to file for chapter 11 protection last month.
