Judge Rakoff Squeezes Strike Zone for Madoff Trustee

Judge Jed S. Rakoff last week largely sided with Fred Wilpon and Saul Katz, the owners of the New York Mets, and their families and affiliated enterprises (the "Wilpon/Katz Group") on their motion to dismiss the adversary proceeding brought by Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC ("BLMIS"). Judge Rakoff's decision will affect not only this particular lawsuit, but also many of the other lawsuits Picard has commenced seeking the recovery of funds from former investors of BLMIS. (Kelley Drye & Warren LLP represents other Madoff investors who may benefit from this ruling.)  

Judge Rakoff dismissed most of the counts against the Wilpon/Katz Group based on his reading of the "safe harbor" provisions Section 546(e) of the Bankruptcy Code. That section limits a trustee's powers to recover any transfer from a "stockbroker" that was a "settlement payment" made "in connection with a securities contract" to transfers made with actual fraudulent intent.  Crucially, this interpretation of 546(e) only permits a recovery of intentionally fraudulent transfers pursuant to Section 548(a)(1)(A) of the Bankruptcy Code, which has a two-year look back period. It completely eliminates Picard's ability to rely on the six-year look back period under New York state law fraudulent transfer provisions. 

Read this article in its entirety at Kelley Drye & Warren LLP's Bankruptcy Law Insights blog