SEC Tries to Block Madoff Forced Bankruptcy BidApr 9, 2009 | Parker Waichman LLP
In a move that scammed Bernard Madoff investors have found disappointing, both the Securities and Exchange Commission (SEC) and the Justice Department (DOJ) have asked a federal judge to block an attempt to force Bernard Madoff into bankruptcy, the Wall Street Journal reported. The two groups argued that forced bankruptcy is not needed to protect Madoff’s victims from collecting from his assets, Bloomberg News said.
Bloomberg reported that the two groups said that bankruptcy would be a wasted legal move; however, victims are concerned that if bankruptcy is not forced, they will lose any chance of collecting their lost funds. The SEC said that once Madoff’s assets are recovered, they would be distributed to victims and creditors, reported Bloomberg.
“The SEC can state unequivocally that it will cooperate fully with the DOJ and the Securities Investor Protection Corporation to ensure than any Madoff assets it recovers will be distributed to Madoff’s victims and creditors,” SEC attorney Alexander Vasilescu wrote in a brief filed in Manhattan federal court, quoted Bloomberg News.
On March 12, Madoff pleaded guilty to 11 fraud counts. The former chairman of the NASDAQ stock exchange ran an investment advisory business for decades that was, in reality, a Ponzi scheme. Last November, Madoff told his investors that his fund held more than $65 billion, but in reality, he only had a fraction of that amount.
Madoff faces up to 150 years in prison. In addition to a long jail term, U.S. prosecutors are also seeking as much as $170 billion in forfeited assets from Madoff. According to a prior Los Angeles Times report, that amount includes all of the money that moved through the Madoff accounts since the early 1980s, when the government says the investor fraud began. Madoff has been held at the Metropolitan Correctional Center in lower Manhattan since March 12.
According to acting Manhattan U.S. attorney, Lev Dassin, in a letter “joining the SEC’s opposition,” he said that the bankruptcy request was “premised on a fundamental misunderstanding of forfeiture and bankruptcy law,” adding that forced bankruptcy could adversely affect what is recovered, reported Bloomberg News. A judge’s approval must be obtained to force bankruptcy.
Some of the creditors petitioning the Madoff bankruptcy include, said Bloomberg News, Blumenthal & Associates ($30.2 million claim) and Martin Rappaport ($20.8 million and a trust claiming another $8.3 million). A judge must approve the petitioners’ request before the victims may formally seek to force Madoff into bankruptcy. An attorney representing the group said, “The bankruptcy court has well-established mechanisms to gather and return assets. We’re not confident that the SEC or the Justice Department can do as well,” quoted Bloomberg News.
But, according to the Wall Street Journal, prosecutors wrote in a letter that, “they intend ‘to maximize recovery for victims of the Madoff fraud by distributing forfeited property to those victims.’" According to prosecutors, if the motion was granted, it could minimize recovery because “forfeited funds” would "unnecessarily be used to pay the fees of a bankruptcy trustee."