| NEW YORK
NEW YORK Aug 8 In a setback for the trustee
seeking money for the former customers of imprisoned fraudster
Bernard Madoff, an appeals court refused to void two settlements
benefiting investors who sued "feeder funds" that sent their
money to Madoff.
Friday's unanimous decision by a three-judge panel of the
2nd U.S. Circuit Court of Appeals in New York leaves intact a
$410 million settlement with J. Ezra Merkin, a Wall Street hedge
fund manager who oversaw the Ariel Fund Ltd and Gabriel Capital
LP, and an $80 million settlement with Fairfield Greenwich Ltd.
The Merkin settlement had been negotiated by New York
Attorney General Eric Schneiderman and also resolved claims by
Bart Schwartz, the receiver of the Ariel and Gabriel funds.
Irving Picard, the trustee liquidating Bernard L. Madoff
Investment Securities LLC, claimed the settlements impeded his
ability to recoup fraudulent transfers that Madoff made to
Merkin and Fairfield, and which belong to the firm's estate.
Writing for the appeals court, however, Circuit Judge Robert
Sack said Picard "is incapable of establishing either that the
settlements would in fact have an immediate adverse economic
consequence for the BLMIS estate, or that the estate is likely
to suffer irreparable harm" if the settlements go ahead.
Amanda Remus, a spokeswoman for Picard, said the trustee is
reviewing the decision, and will keep pursuing his own cases
related to Merkin and Fairfield in Manhattan bankruptcy court.
The decision upheld rulings last year by U.S. District
Judges Jed Rakoff and Victor Marrero allowing the respective
Merkin and Fairfield settlements.
Picard has recovered $9.83 billion for Madoff customers who
lost roughly $17.5 billion of principal in a decades-long
scheme that collapsed in 2008. Madoff, 76, is serving a 150-year
Picard had argued that he could block the Merkin and
Fairfield settlements under an "automatic stay" provision in
federal bankruptcy law, and a separate federal law protecting
investors of failed brokerages.
But Sack said Picard had no legal right to any Merkin or
Fairfield assets, and that the stay did not cover the question
of whether the feeder funds breached duties to their own
Sack said it was only "factually likely, as opposed to
legally certain," that the settlements affected the Madoff
firm's estate at all.
A spokesman for Schneiderman had no immediate comment.
Merkin's lawyer Andrew Levander did not immediately respond to
requests for comment.
"The decision makes clear that a trustee like Irving Picard
doesn't have the ability to block litigation or settlements of
separate claims brought by investors that arise from a complex
fraud," Stuart Singer, a lawyer representing Fairfield
investors, said in an interview.
In March, the 2nd Circuit heard arguments on how much of the
"fictitious profits" that Madoff sent to selected customers may
be clawed back by Picard. It has yet to rule.
The cases are Picard v. Fairfield Greenwich Ltd et al, 2nd
U.S. Circuit Court of Appeals, No. 13-1289; and Picard v.
Schneiderman et al in the same court, No. 13-1785.
(Editing by Grant McCool)