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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 Instead, each allowed claim equals the customer’s cash investment less amounts withdrawn, thus ignoring fictitious profits.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. 

PricewaterhouseCoopers agreed to pay $55 million to settle a class-action lawsuit accusing it of misleading investors in feeder funds that funneled their cash to Bernard Madoff, Dow Jones Daily Bankruptcy Review reported today. The cash deal, filed in court on Wednesday, heads off a trial that would have begun this week in which investors in Fairfield Greenwich Ltd. were set to accuse PwC affiliates of negligence in connection with their work auditing Fairfield's funds, which invested with Madoff. Investors have asked a federal judge to schedule a hearing in the spring to consider the deal, reached with PwC's Canadian and Dutch units as well as with PricewaterhouseCoopers International Ltd. Read more. (Subscription required.) 

For more on fraud and Ponzi scheme cases, including analysis of the Madoff case, be sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

Bankrupt San Bernardino, Calif., says that it can’t afford to pay more than 100 people who have sued San Bernardino for injuries and deaths allegedly caused by its police officers and employees, the Wall Street Journal reported today. Under the city’s bankruptcy plan, the city would spend $56.5 million in the next five years to hire more officers and buy new vehicles. The plan, however, would inflict some of the deepest cuts on people who have sued over incidents of alleged police brutality or excessive force. San Bernardino’s bankruptcy plan proposes a 1 percent payment rate, though city officials promised to negotiate each lawsuit separately. Some might get insurance money, the city said, though it hasn’t provided details. San Bernardino faced 109 lawsuits seeking a total of $19 million in “personal injury and bodily injury” claims against the city and its employees as of Nov. 25. Bankruptcy Judge Meredith Jury is scheduled to review objections to the city’s bankruptcy-exit summary at a March 9 hearing. If she approves the plan, it would go to creditors for a vote.

Timothy Blixseth, former owner of the bankrupt Yellowstone Mountain Club LLC, has been jailed for almost nine months — not for a crime, but for contempt from violating a bankruptcy court injunction and subsequent district court orders, according to a report today from ABI Editor at Large Bill Rochelle. Unless the Ninth Circuit intervenes, Blixseth’s incarceration could last a year or more; District Judge Sam E. Haddon of Butte, Mont., handed down a 40-page opinion on Dec. 30 explaining why Blixseth is still in civil contempt of an order directing him to account for how he spent $13.8 million obtained from the sale of a Mexican resort in violation of a bankruptcy court order.

A new settlement with one of Bernard Madoff’s investors will add another $25 million to the billions of dollars that have been recovered following the collapse of his Ponzi scheme, the Wall Street Journal reported yesterday. Irving Picard, the trustee overseeing the liquidation of the Bernard L. Madoff Investment Securities LLC investment firm, reached the deal with investor Vizcaya Partners Ltd. as well as with Vizcaya’s investors and their bank. Picard had sued Vizcaya in bankruptcy court in 2009 to recover the false profits it received during the course of Madoff’s Ponzi scheme. The lawsuit also targeted two of Vizcaya’s investors and its bank, to which Vizcaya subsequently transferred the funds that originated with Madoff’s firm. Read more. (Subscription required.) 

For more information on fraud cases, including the Madoff case, be sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.