The second anniversary of the Chapter 7 bankruptcy of Bernard Madoff and Bernard L. Madoff Investment Securities Inc. is December 11. That means that the statute of limitations for the bankruptcy trustee to file bankruptcy fraud and look-back lawsuits is about to run out.

The infamous Wall Street Ponzi schemer was forced into involuntary bankruptcy in April of 2009, and his Chapter 7 case was consolidated with the liquidation of his investment firm. In March 2009, Madoff pled guilty to 11 counts of fraud, money laundering, perjury and theft in the $65 billion scheme. He was sentenced to 150 years in prison.

Look-back lawsuits allow bankruptcy trustees to reach back into a debtor’s financial transactions for up to six years before the bankruptcy was filed. The purpose of doing so is to find out if the debtor fraudulently or improperly transferred money to anyone. In some cases the trustee says, Madoff transferred assets to family members in an illegal attempt to shield them from liquidation.

In this case, the trustee has also sued several parties who received money from Madoff when they knew or should have known that the transfers were fraudulent. Money transferred as part of a fraud can be seized by the bankruptcy trustee in order to pay creditors.

Chapter 7 Trustee Sues Citibank, Merrill Lynch, Others for Return of Ill-Gotten Gains

Most recently, the Chapter 7 trustee filed lawsuits seeking a total of $1.421 billion from an international array of financial institutions that allegedly received transfers from Madoff Investment Securities feeder funds after the fraud should have been apparent to them. He is seeking:

  • $400 million from New York- based Citibank NA
  • $400 million from the Paris-based commercial bank Natixis
  • $230 million from Fortis Bank SA
  • $270 million from ABN Amro
  • $45 million from Banco Bilbao Vizcaya Argentaria SA
  • $35 million from Nomura Holdings Inc.
  • $16 million from Merrill Lynch & Co. Inc.

The Chapter 7 trustee is also suing Sandra Manzke and her company Maxam Capital Management LLC for $100 million. He says that Manzke continued to do business with Madoff even after she left Tremont Group Holdings, which the trustee has already sued. Manzke and her co-defendants are accused of knowingly bringing $300 million into the Ponzi scheme.

Any recoveries made in these look-back lawsuits will be treated as customer property, according to the Chapter 7 trustee. By treating them as customer property, the trustee pledges that they will be not be used to pay any bankruptcy expenses unless the customers are paid in full.

Source: Bloomberg, “Madoff, Lehman, Vitro, Blockbuster: Bankruptcy,” Bill Rochelle, December 9, 2010