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Madoff trustee wins court fight over Picower settlement

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[January 14, 2014]  By Joseph Ax

NEW YORK (Reuters)  Two former investors with Bernard Madoff cannot pursue claims against the estate of a Florida businessman who was one of the convicted swindler's biggest clients, a federal appeals court ruled on Monday.

The decision by a three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan is a victory for Irving Picard, the trustee liquidating Madoff's firm, in a battle over his authority to reach settlements on behalf of victims of Madoff's Ponzi scheme.

Picard reached a $7.2 billion settlement with the estate of Jeffry Picower in 2010, the largest such settlement on behalf of victims of Madoff's Ponzi scheme.

The trustee has said that Picower, who drowned in 2009, knew or should have known that Madoff was operating a fraud.

About $5 billion was to go to the estate of Bernard L. Madoff Investment Securities LLC and $2.2 billion was to be forfeited to the U.S. government. Picower's widow at the time said she "absolutely confident" her husband was not complicit.

Despite the settlement, Madoff victims Adele Fox and Susan Marshall sought to press their own claims against Picower.

Picard had denied Fox's claims to recover money because she was a "net winner," having withdrawn more money than she had in principal. Marshall, whose account showed a final balance of $203,000, received $30,000 from Picard in 2009.

U.S. Bankruptcy Judge Burton Lifland, who oversaw the Madoff firm's bankruptcy prior to his death at age 84 on Sunday, issued an injunction in 2011 blocking Madoff victims from pursuing individual claims against Picower's estate.

That injunction was upheld in 2012 by U.S. District Judge John Koeltl in Manhattan, and again on Monday by the 2nd Circuit, which found the claims of Fox and Marshall were "derivative" of Picard's claims.

"They are predicated upon mere secondary harms flowing from the Picower defendants' fraudulent withdrawals and the resulting depletion of (Madoff firm) funds," Judge Jose Cabranes wrote for a three-judge 2nd Circuit panel.

He said Fox and Marshall were free to pursue claims against Picower's estate that did not derive from Picard's claims.

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Lawyers for Fox and Marshall did not immediately respond to requests for comment.

Picard has largely been successful in defeating challenges to his authority to recover money for Madoff customers.

He has recovered about $9.51 billion for victims, excluding sums from last week's settlements with Madoff's bank JPMorgan Chase & Co, and distributed more than half this amount.

Separately on Monday, the U.S. Supreme Court asked the Obama administration to weigh in on whether Picard can recover damages from banks he accused of aiding in Madoff's fraud.

It was not immediately clear who would replace Lifland as the judge overseeing the Madoff liquidation.

Madoff pleaded guilty in March 2009 and is serving a 150-year sentence in federal prison.

The cases are Marshall et al v. Picard, 2nd U.S. Circuit Court of Appeals, Nos. 12-1645, 12-1646, 12-1651, 12-1669, 12-1703.

(Reporting by Joseph Ax; editing by Cynthia Osterman)

[ 2014 Thomson Reuters. All rights reserved.]

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