* Foundation, others claim right to sue Madoff brother, sons
* Some investors in Madoff "feeder funds" also seek payments
By Jonathan Stempel
NEW YORK, Jan 25 A federal appeals court
signaled that victims of Bernard Madoff's fraud more than four
years ago might be allowed to eventually sue the swindler's
family members over their losses, if they're willing to wait
The 2nd U.S. Circuit Court of Appeals in New York weighed
whether investors, including a charitable foundation for Senator
Frank Lautenberg, Democrat of New Jersey, and the town of
Fairfield, Connecticut, could pursue claims against Madoff's
brother Peter, his son Andrew, and the estate of his late son,
Irving Picard, the trustee liquidating Bernard L. Madoff
Investment Securities LLC, has largely been successful in
stopping lawsuits that he believes overlap his own and impair
his ability to recover money for victims of the Ponzi scheme.
But Circuit Judge Pierre Leval suggested more than once
during the hour-long argument that it might be permissible to
let investors pursue claims against the family members, who were
all senior employees of Madoff's firm, once Picard was done.
"What prejudice would there be to the trustee" if the claims
were "allowed to sit in purgatory" until Picard collected all he
could, Leval asked David Sheehan, a lawyer for the trustee.
When Sheehan answered that there was none, Leval responded,
"In that case, there is no need to make this (lawsuit) void."
So far, Picard has recovered about $9.3 billion for Madoff
victims, and distributed $2.95 billion. He has estimated that
Madoff's Ponzi scheme caused $17.5 billion of losses, meaning
that many investors remain far from being made whole.
Bernard Madoff, 74, is serving a 150-year sentence in a North
Carolina federal prison.
NOT AN HONEST NICKEL
The Lautenberg Foundation, which claimed $9 million of
losses, accused Picard of overreaching by barring its securities
It said these differed from their claims because they sought
property from people who worked for Madoff, not from the
bankruptcy estate itself.
"The causes of action should be permitted to proceed in
parallel," the foundation's lawyer, Jennifer Ann Hradil, told
the three-judge 2nd Circuit panel.
"The Madoff family: These are the people that ran the
fraud," he said. "They never made an honest nickel. And that is
the money that we're trying to bring back into the estate."
It is unclear how much money the Madoff family members might
still have once Picard finishes his own recovery efforts.
Circuit Judge Reena Raggi said the trustee had made a
"strong presentation" that Peter, Andrew and Mark Madoff had
amassed their respective wealth through the Madoff firm.
But she said it would be "very odd" to bar lawsuits if it
were found, for example, that Peter Madoff had been left money
from a wealthy uncle that had nothing to do with the fraud.
Peter Madoff had been chief compliance officer at his
brother's firm, and was sentenced last month to 10 years in
prison over his role in the fraud.
Andrew and Mark Madoff were co-directors of trading at the
firm. Mark Madoff committed suicide in December 2010.
On Friday, the 2nd Circuit also heard arguments in a second
group of cases by investors in some "feeder funds" that funneled
money to Madoff. Picard has long denied such claims, saying the
funds themselves are the "customers" entitled to recovery.
The 2nd Circuit often takes several weeks or months to rule.
It has yet to rule on whether former Madoff customers could
revive claims against the estate of Florida businessman Jeffry
Picower, a one-time Madoff client whose $7.2 billion settlement
with Picard is the trustee's largest.
The Lautenberg case is The Lautenberg Foundation et al v.
Picard, 2nd U.S. Circuit Court of Appeals, No. 11-5421.