NEW YORK (Reuters) - The trustee recovering money for victims of Bernard Madoff’s epic fraud can seek $386 million at most from owners of the New York Mets baseball team who invested in Madoff’s firm, a federal judge said.
U.S. District Judge Jed Rakoff on Tuesday narrowed a $1 billion lawsuit against the Mets owners and on Wednesday issued an additional order on the litigation, which could have an impact on the trustee’s other so-called clawback lawsuits seeking more than $94 billion.
Rakoff wrote that, “the most that the trustee can recover from the defendants is the total of all transfers made during the two-year period” before he filed the case in bankruptcy court and which “appears to be approximately $386 million.”
Some legal experts said the ruling may not necessarily act as a precedent for other cases against major banks and so-called feeder funds who invested in Madoff’s firm.
“Two judges sitting across the hall from each other can rule very differently,” said Neal Levin at Freeborn & Peters LLP in Chicago who specializes in recovery of fraud victims’ assets. “It is also possibly not appealable at this point.”
At a hearing in Manhattan federal court on Wednesday, the trustee’s lawyer told the judge they would file an application by October 24 to appeal his decision to dismiss nine of 11 counts in the lawsuit against the Mets owners.
Rakoff also changed the tentative trial date to next March 19 from March 5. Lawyers on both sides agreed to a schedule of depositions and filing court briefs over the coming months.
But the case could still be settled before trial, a frequent occurrence in complex, costly efforts to recover money for victims of fraud.
A federal bankruptcy court judge who originally had the case appointed former New York State Governor Mario Cuomo to act as mediator in the dispute between the trustee and Mets owners Fred Wilpon and Saul Katz,
New York lawyer Irving Picard is the trustee for the defunct Bernard L. Madoff Investment Securities LLC, the investment advisory arm of which was at the center of a multibillion-dollar, decades-long Ponzi scheme. Madoff ran a classic Ponzi scheme; when investors needed to be paid, he used money deposited by other investors.
Wednesday’s court order said that it remained “an open question” whether, in determining what portion of the $386 million should be considered principal and what portion as fictitious profits, reference should be made only to the two-year period or to earlier transfers of money as well.
In court, he asked lawyers for the two sides to file briefs on their arguments on this point by October 24 and November 4.
Rakoff said in Tuesday’s decision that to recover principal, Picard would have to show the Mets owners “willfully blinded themselves” to “red flags” of Madoff’s scheme. He suggested that the trustee might have difficulty meeting this standard.
The Mets owners had sought to dismiss the lawsuit, claiming they did not suspect Madoff was running a Ponzi scheme, and never bought insurance to protect themselves against fraud.
The lawsuit has threatened the owners’ hold on the Mets, which are losing tens of millions of dollars a year, prompting them to try selling part of the Major League Baseball team.
Picard has filed more than 1,050 lawsuits on behalf of former Madoff customers seeking more than $94 billion. Madoff, 73, was arrested in December 2008 and pleaded guilty in March 2009. He is serving a 150-year prison term.
The case is Picard v. Katz et al, U.S. District Court, Southern District of New York, No. 11-03605.
Reporting by Grant McCool and Jonathan Stempel. Editing by Robert MacMillan, Bernard Orr