(Updates with clawbacks in fourth paragraph.)
Oct. 17 (Bloomberg) -- A U.S. district judge said he would take over a lawsuit by the liquidator of Bernard Madoff’s firm against investor Gerald Blumenthal to decide whether a trustee can demand the return of payments made by the confidence man’s brokerage to its clients.
U.S. District Judge Jed Rakoff said he would take 31 related suits out of bankruptcy court as well, “to the extent that the 31 cases that joined Blumenthal” raised the same issues. A bankruptcy judge could rule on remaining issues, Rakoff said in the Oct. 14 filing in Manhattan federal court.
Rakoff said he would issue a written explanation of his decision “in due course” and directed lawyers for all parties to contact him to set a schedule.
Most of the 1,000 suits the trustee, Irving Picard, has filed to gather funds for customers who lost money are aimed at clawing back profit withdrawn before Madoff’s 2008 bankruptcy, he has said. Picard, who has raised $8.7 billion to pay claims of $17.3 billion, has said parties in 247 of his suits are seeking new judges.
Rakoff’s ruling on Picard’s $1 billion suit against the New York Mets owners could cost him $6.2 billion, the trustee estimates.
Blumenthal, a doctor who invested in the Ponzi scheme, was sued for $1.6 million in transfers deemed “fraudulent” under bankruptcy law. He asked Rakoff to rule on whether the Madoff estate owes him the amount reflected on his Madoff brokerage statements, among other issues, and was joined by the 31 other investors facing similar so-called clawback suits.
Rakoff said he would decide if the trustee’s actions were “consistent” with non-bankruptcy law on three issues, one of which he had already addressed by reducing Picard’s potential recovery from Mets owners Fred Wilpon and Saul Katz.
Rakoff said he also would rule on a third question, whether Picard can claw back money taken out of the Ponzi scheme if it was an obligatory withdrawal from a retirement account. Older people must take funds out or pay a penalty, under federal law.
Amanda Remus, a Picard spokeswoman, didn’t immediately respond to an e-mail seeking comment on Rakoff’s order. Jonathan Landers, a lawyer for Blumenthal, declined to comment.
The case is Picard v. Blumenthal, 11-cv-04293, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Andrew Dunn, Glenn Holdcraft
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