Madoff Judge Refuses to Block Investor Forced-Bankruptcy Filing

Madoff Judge Refuses to Block Investor Forced-Bankruptcy Filing


April 11 (Bloomberg) -- Bernard Madoff may be forced into personal bankruptcy to ensure that all his assets are used to pay the investors he stole from, a federal judge ruled.

U.S. District Judge Louis Stanton in New York today turned aside objections from the U.S. Securities and Exchange Commission and the Justice Department, granting a request by victims of Madoff’s Ponzi scheme. Stanton reversed his Dec. 18 ruling that prevented the investors from filing a request to force Madoff into bankruptcy.

“The concern that appointment of a bankruptcy trustee will increase administrative costs or delay recovery by victims is speculative and outweighed by the benefits to Mr. Madoff’s victims,” the judge said in a four-page opinion.

A bankruptcy filing may enable creditors to reach Madoff assets that aren’t proceeds of his fraud, Stanton said. The judge added that such a filing may be helpful to investors who unwittingly bought into Madoff’s Ponzi scheme through so-called feeder funds.

The bankruptcy laws offer a “familiar, comprehensive” set of statutes for investors seeking “his personal assets other than those criminally forfeitable,” Stanton said.

The investors have yet to ask that Madoff be forced into bankruptcy. Today’s ruling means only that they may do so.

Ira Sorkin, the lawyer for Madoff, and Peter Chavkin, the attorney for his wife, Ruth Madoff, declined to comment. Jonathan Landers, lawyer for the investors seeking to force Madoff into bankruptcy, SEC lawyer Alexander Vasilescu and Kevin McCue, a spokesman for the Securities Investor Protection Corp., didn’t return calls seeking comment.

U.S. Attorney

Rebekah Carmichael, a spokeswoman for Acting U.S. Attorney Lev Dassin, declined to immediately comment.

The SIPC, a government-backed firm that covers losses when brokerages fail, is conducting a broad investigation of the assets of Madoff’s New York-based firm, Bernard L. Madoff Investment Securities LLC. Investigators so far have identified about $1 billion in assets, which will be used to compensate investors. SIPC also opposed the investor request that they be allowed to force Madoff into bankruptcy.

Prosecutors have identified more than $100 million in real estate, cash, bonds, art, autos, boats and other assets owned by Madoff and his wife, Ruth, which the government said in March it intends to seize. The couple’s Palm Beach, Florida, residence, a yacht called “Bull” and a smaller boat have been seized by the U.S. Marshals Service.

Federal Prosecutors

Federal prosecutors in New York, who may continue to obtain Madoff’s assets through criminal forfeiture proceedings, have said that the assets they obtain will be turned over to victims.

Bernard Madoff pleaded guilty March 12 to defrauding investors by using money from new ones to pay off old ones in a $65 billion Ponzi scheme. He faces as many as 150 years in prison at his sentencing in June. He is in custody awaiting sentencing.

The SIPC case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The SEC case is SEC v. Madoff, 08-cv-10791, U.S. District Court, Southern District of New York (Manhattan).

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