Friday's unanimous decision by a three-judge panel of the 2nd U.S.
Circuit Court of Appeals in New York leaves intact a $410 million
settlement with J. Ezra Merkin, a Wall Street hedge fund manager who
oversaw the Ariel Fund Ltd and Gabriel Capital LP, and an $80
million settlement with Fairfield Greenwich Ltd.
The Merkin settlement had been negotiated by New York Attorney
General Eric Schneiderman and also resolved claims by Bart Schwartz,
the receiver of the Ariel and Gabriel funds.
Irving Picard, the trustee liquidating Bernard L. Madoff Investment
Securities LLC, claimed the settlements impeded his ability to
recoup fraudulent transfers that Madoff made to Merkin and
Fairfield, and which belong to the firm's estate.
Writing for the appeals court, however, Circuit Judge Robert Sack
said Picard "is incapable of establishing either that the
settlements would in fact have an immediate adverse economic
consequence for the BLMIS estate, or that the estate is likely to
suffer irreparable harm" if the settlements go ahead.
Amanda Remus, a spokeswoman for Picard, said the trustee is
reviewing the decision, and will keep pursuing his own cases related
to Merkin and Fairfield in Manhattan bankruptcy court.
The decision upheld rulings last year by U.S. District Judges Jed
Rakoff and Victor Marrero allowing the respective Merkin and
"This ruling is a victory for justice and accountability,"
Schneiderman said in a statement.
Merkin's lawyer Andrew Levander said he is pleased with the
decision, and that his client's former investors, which include
charities, "should now be able to participate in the settlement in
the near future."
Picard has recovered $9.83 billion for Madoff customers who lost
roughly $17.5 billion of principal in a decades-long scheme that
collapsed in 2008.
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Madoff, 76, is serving a 150-year prison term.
Picard had argued that he could block the Merkin and Fairfield
settlements under an "automatic stay" provision in federal
bankruptcy law, and a separate federal law protecting investors of
But Sack said Picard had no legal right to any Merkin or Fairfield
assets, and that the stay did not cover disputes over whether the
feeder funds breached duties to their own investors.
Sack also said it was only "factually likely, as opposed to legally
certain," that the settlements affected the Madoff firm's estate at
"The decision makes clear that a trustee like Irving Picard doesn't
have the ability to block litigation or settlements of separate
claims brought by investors that arise from a complex fraud," said
Stuart Singer, a lawyer representing Fairfield investors.
In March, the 2nd Circuit heard arguments on how much of the
"fictitious profits" that Madoff sent to selected customers may be
clawed back by Picard. It has yet to rule.
The cases are Picard v. Fairfield Greenwich Ltd et al, 2nd U.S.
Circuit Court of Appeals, No. 13-1289; and Picard v. Schneiderman et
al in the same court, No. 13-1785.
(Editing by Grant McCool)
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