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Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC

United States District Court for the Southern District of New York

July 6, 2014, Decided; July 7, 2014, Filed

12-mc-115 (JSR)

Opinion

 [*225]  OPINION AND ORDER

JED S. RAKOFF, U.S.D.J.

The question here presented is whether section 550(a)(2) of the Bankruptcy Code applies extraterritorially in the context  [**22] of this proceeding. Specifically, Irving H. Picard (the "Trustee"), the trustee appointed under the Securities Investor Protection Act ("SIPA"), 15 U.S.C. §§ 78aaa-78lll, to administer the estate of Bernard L. Madoff Investment Securities LLC ("Madoff Securities"), here seeks to recover funds that, having been transferred from Madoff Securities to certain foreign customers, were then in turn transferred to certain foreign persons and entities that comprise the defendants here at issue. These defendants seek to dismiss the Trustee's claims against them, arguing that 11 U.S.C. § 550(a)(2), the Bankruptcy Code provision allowing for such recovery, does not apply extraterritorially. The Court assumes familiarity with the underlying facts of the Madoff Securities fraud and ensuing bankruptcy and recounts here only those facts that are relevant to the instant issues.

Central to the question here presented is the role of the so-called "feeder funds," foreign investment funds that pooled their own customers' assets for investment with Madoff Securities. As customers of Madoff Securities, the feeder funds at times withdrew monies from Madoff Securities, which they subsequently transferred to  [**23] their customers, managers, and the like. When Madoff Securities collapsed in late 2008, many of these funds — which had invested all or nearly all of their assets in Madoff Securities — likewise entered into liquidation in their respective home countries. The Trustee seeks to recover not only the allegedly avoidable transfers made to the feeder funds but also subsequent transfers of alleged Madoff Securities customer property made by those funds to their immediate and mediate transferees. It is the recovery of those subsequent transfers — transfers made abroad between a foreign transferor and a foreign transferee — that is the subject of the instant consolidated proceeding.

For example, in October 2011, the Trustee filed an adversary proceeding against CACEIS Bank Luxembourg and CACEIS Bank (together, "CACEIS"), seeking $50 million in subsequent transfers of alleged Madoff Securities customer property. See Decl. of Jaclyn M. Metzinger dated Mar. 23, 2013, Ex. A ("CACEIS Compl.") ¶ 2, No. 12 Civ. 2434, ECF No. 2 (S.D.N.Y. filed Apr. 2, 2012). CACEIS Bank Luxembourg is a Luxembourg société anonyme operating there, while CACEIS Bank is a French société anonyme operating in France. Id.  [**24] ¶¶ 22-23. Both entities serve as custodian banks and engage in asset management for "corporate and institutional clients." Id. ¶¶ 3, 22-23.

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513 B.R. 222 *; 2014 U.S. Dist. LEXIS 91508 **; 59 Bankr. Ct. Dec. 194; 2014 WL 2998557

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff, -v- BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant.In re: MADOFF SECURITIES. PERTAINS TO: Consolidated proceedings on extraterritoriality issues

Subsequent History: Supplemental opinion at Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 2014 U.S. Dist. LEXIS 109539 (S.D.N.Y., July 25, 2014)

On remand at, Claim dismissed by Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff), 2016 Bankr. LEXIS 4067 (Bankr. S.D.N.Y., Nov. 21, 2016)

Request denied by Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC, 2017 Bankr. LEXIS 1219 (Bankr. S.D.N.Y., May 4, 2017)

Vacated by, Remanded by In re Picard, 2019 U.S. App. LEXIS 5411 (2d Cir. N.Y., Feb. 25, 2019)

Prior History: Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 513 B.R. 437, 2014 U.S. Dist. LEXIS 90089 (S.D.N.Y., June 30, 2014)

CORE TERMS

extraterritorial, customer, domestic, feeder, liquidation, wherever, comity, fraudulent, consolidated, abroad