(Updates with trustee statement in fifth paragraph.)
Oct. 17 (Bloomberg) -- Investors in 16 funds that channeled money into Bernard Madoff’s Ponzi scheme asked a court to decide that they were “customers” eligible to claim money set aside for the confidence man’s victims.
In a brief filed Oct. 14, the investors asked U.S. District Judge Denise Cote to reverse a bankruptcy court ruling that blocks them from claiming a share of the $8.7 billion recovered so far by Madoff bankruptcy trustee Irving Picard. In June, U.S. Bankruptcy Judge Burton Lifland ruled them ineligible because they didn’t hold accounts directly with Madoff’s firm, Bernard L. Madoff Investment Securities LLC.
The investors say they placed their money with funds that channeled 95 percent or more to Madoff’s firm. In his opinion, Lifland agreed with Picard’s decision to deny their claims.
“The Bankruptcy Court simply ignores that the ‘Feeder Funds’ were created specifically, and with a legal obligation, to invest their investors’ funds in the BLMIS accounts, expressly to take advantage of Bernard Madoff’s management of their money through his apparently successful, long-term ‘split strike conversion’ investment strategy,” the investors said in the brief.
Amanda Remus, a spokeswoman for Picard, declined to comment. She said Picard will respond to the investors’ motion when his brief is due Nov. 4.
The 16 feeder funds are companies organized in New York, Delaware, the Cayman Islands and the British Virgin Islands. All were created as investment vehicles that sold ownership interests to investors, according to Lifland’s June opinion. The funds held a total of 19 Madoff accounts.
Madoff, 74, was arrested and his firm forced into bankruptcy in December 2008. He pleaded guilty to running the biggest Ponzi scheme in history and is serving a 150-year sentence in a federal prison in North Carolina.
The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 11-CV-6565, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Andrew Dunn, Mary Romano
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