NEW YORK (Reuters) - Some $11 million invested by two businessmen with the firm of accused swindler Bernard Madoff just days before his arrest will be set aside from other money recovered for investors, their lawyer said on Friday.
The attorney had argued in filing two lawsuits that his clients’ money in Madoff firm bank accounts should not be part of assets eventually distributed to investors by a court-appointed trustee overseeing the firm’s liquidation.
“We are pleased that the bankruptcy court has stipulated that when the money comes to the trustee he will hold that until our claim is resolved,” attorney Howard Kleinhendler said. “The money can be traced because it was deposited soon before Madoff’s assets were frozen.”
The amounts of money invested by Kleinhendler’s clients are small compared with the billions of dollars that hedge funds and super-rich clients around the world are said to have lost.
Documents attached to the lawsuits identify two employees of New York-based Bernard L. Madoff Investment Securities LLC who handled the wire transfers faxed to the bank.
They are chief financial officer Frank DiPascali and Jodi Crupi, whose position with the firm has not been made public.
Lawyers for the two employees did not return phone calls.
A spokesman for the U.S. Securities and Exchange Commission, which has started an internal investigation of how regulators missed Madoff’s purported $50 billion fraud over many years, declined comment on whether DiPascali or Crupi were being investigated in the SEC’s civil case.
Prosecutors declined comment on the criminal probe.
Madoff is under house arrest awaiting indictment or a guilty plea following his December 11 charge for what authorities said was the biggest Ponzi scheme in history. A Ponzi scheme is one in which early investors are paid with the money of new clients.
Many wealthy people invested directly with Madoff, 70, while others put their money in hedge funds that in turn invested with his firm.
On January 1, Kleinhendler filed a lawsuit against the trustee, lawyer Irving Picard, and JP Morgan Chase bank on behalf of New York fuel company businessman Martin Rosenman.
Rosenman’s $10 million investment was wired by Madoff’s firm to a JP Morgan Chase account on December 5, the complaint said, six days before Madoff was arrested.
Kleinhendler filed a second lawsuit on January 7 on behalf of Miami businessman Stanley Kriegler’s firm, Hadleigh Holdings LLC, to recover $1 million deposited on December 8 in a Madoff firm account at the same bank.
A bank spokesman has declined comment on the lawsuits.
“To the extent funds are transferred from the Chase Account to the Trustee, the Trustee shall withhold from distribution the amount of $10,000,000 until the merits of the (case) are adjudicated,” the order in the Rosenman case entered January 20 in U.S. Bankruptcy Court in New York said.
The same order was also applied to Hadleigh’s $1 million, according to court documents.
The cases are Rosenman Family LLC v Picard et al 09-01000 in U.S. Bankruptcy Court for the Southern District of New York (Manhattan) and Hadleigh Holdings LLC v Picard et al 09-01005
Reporting by Grant McCool, editing by Matthew Lewis