Fred Wilpon, Saul
Katz, and their families and affiliated enterprises (the "Wilpon/Katz
Group") last week formally requested the dismissal of the adversary proceeding
commenced by Irving Picard, the trustee
of Bernard L. Madoff Investment Securities LLC ("BLMIS"). In a two
hour hearing before U.S. District Court Judge Jed Rakoff, the Wilpon/Katz Group
argued that Picard has no basis to seek the return of approximately $1 billion
received over the years by the Wilpon/Katz Group from BLMIS.
Picard's complaint seeks to avoid all transfers made by
BLMIS to the Wilpon/Katz Group as "fraudulent conveyances", and to recover such
amounts on behalf of the BLMIS estate. Both the U.S. Bankruptcy Code and
New York State law permit a trustee to recover transfers made up to six years
prior to the bankruptcy case by an insolvent debtor for less than "reasonably
equivalent value" or which were made with fraudulent intent. However, a
"good faith" transferee can retain such property or funds to the extent it gave
value to the debtor in exchange for the challenged transfer, such as the
satisfaction of antecedent debt.
The Wilpon/Katz Group argued that "reasonably equivalent
value" existed for the $300 million of fictitious profits that the Wilpon/Katz
Group received from BLMIS. Since the account statements issued by BLMIS
prior to the discovery of Madoff's fraud evidenced substantial account balances,
the Wilpon/Katz Group contends that such payments constituted the satisfaction
of antecedent debt as reflected by those statements. Unfortunately for the
Wilpon/Katz Group, the U.S. Court of Appeals for the Second Circuit last
week squarely rejected the ability of Madoff investors to rely on the
fabricated account statements for the purpose of asserting claims against the
BLMIS estate, and it is highly unlikely that Judge Rakoff would view the
account statements any differently in this context.
Read this article
in its entirety at Kelley Drye & Warren LLP's Bankruptcy Law
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