Bloomberg News

SIPC Says Bankruptcy Court Can Rule on Madoff Clawbacks

May 25, 2012

Bankruptcy judges can rule on claims for fraudulent transfers by the liquidator of Bernard Madoff’s brokerage, exercising powers that aren’t affected by a U.S. Supreme Court ruling in the Anna Nicole Smith case, the Securities Investor Protection Corp. said.

SIPC was responding to U.S. District Judge Jed S. Rakoff, who has received hundreds of requests by defendants to remove their cases from bankruptcy court. If needed, bankruptcy judges may ready cases for trial, and then send them to district court, SIPC said in today’s filing in federal court in Manhattan.

In their requests to move cases to district court, some Madoff defendants cited the Smith case, known as Stern v. Marshall, which stopped the former Playboy magazine model’s heirs from collecting millions of dollars from Texas billionaire J. Howard Marshall’s estate.

The Madoff trustee’s right to take back so-called customer property for the brokerage estate is protected by law, empowering bankruptcy judges to make final judgments subject to district court review, SIPC said.

“The close connection between the statutory protection scheme and the claim renders the claim a public right under Stern and its predecessors and therefore permits the bankruptcy court to adjudicate the claim through final judgment,” SIPC said in the filing.

The SIPC brief was filed in the case of In re Madoff Securities, 12-mc-0115, U.S. District Court, Southern District of New York (Manhattan). The brokerage liquidation 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).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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