| NEW YORK
NEW YORK Aug 13 The trustee seeking money for
Bernard Madoff's victims suffered his second loss in less than a
week to Wall Street hedge fund manager J. Ezra Merkin, as a
Manhattan bankruptcy judge dismissed most claims in a roughly
$565 million lawsuit.
Judge Stuart Bernstein said the trustee Irving Picard failed
to show that Merkin knew Madoff was running a giant Ponzi scheme
while his "feeder funds" were sending money to the swindler's
firm, Bernard L. Madoff Investment Securities LLC.
Picard's allegations "do not imply the level of certainty or
absence of substantial doubt associated with actual knowledge,"
the judge wrote in a 66-page decision on Tuesday.
Bernstein dismissed claims alleging various fraudulent
transfers among Merkin's funds, and said Picard cannot block the
funds from trying to recoup money from the Madoff firm's estate.
He let Picard pursue a claim over roughly $315 million
transferred to Merkin's funds from Madoff's firm in the two
years prior to the firm's bankruptcy, on the ground that Merkin
willfully blinded himself to the fraud and ignored red flags.
Picard may also pursue a claim that Merkin's funds should
recover nothing from the estate until other customers and
creditors get paid.
Andrew Levander, a lawyer for Merkin and his firm Gabriel
Capital Corp, said he was pleased at the dismissal of the "vast
majority of the trustee's baseless claims as a matter of law,"
and that the remaining claims are "factually without merit."
Amanda Remus, a spokeswoman for Picard, said the trustee is
reviewing the decision and "prepared to move forward to trial"
on the remaining claims.
JOKES, NOT ACKNOWLEDGMENTS
Bernstein ruled four days after a federal appeals court in
New York rejected Picard's effort to void Merkin's $410 million
settlement with New York Attorney General Eric Schneiderman to
repay investors in the Gabriel Capital LP, Ariel Fund Ltd, Ascot
Fund Ltd and Ascot Partners LP feeder funds.
Picard contended that the accord interfered with his ability
to recoup money from Merkin to pay Madoff's own customers.
The trustee's case included comments Merkin allegedly made
after fraud was uncovered in 2005 at Bayou Group LLC, whose
principal Samuel Israel is serving a 22-year prison term.
Picard claimed Merkin mused to an investment adviser about
renaming the "Ponzi scheme" the "Madoff scheme," and told Madoff
himself that "as soon as there is a scam in the hedge fund
industry, someone is going to call about Bernie."
Bernstein, however, said such quips "seem more like jokes
than acknowledgments" about Madoff's activities.
But in allowing the willful blindness claim, the judge said
Picard plausibly alleged that Merkin's "finer faculties were
overcome by the fees" he earned by dealing with Madoff.
Picard has recovered $9.83 billion for Madoff customers who
lost roughly $17.5 billion of principal. Madoff, 76, is serving
a 150-year prison term.
The case is Picard v. Merkin et al, U.S. Bankruptcy Court,
Southern District of New York, No. 09-ap-01182.
(Reporting by Jonathan Stempel in New York; Editing by Tom