Pryor Cashman Serves as Lead Counsel in Successfully Persuading U.S. Supreme Court Not to Review Second Circuit Ruling Limiting Madoff Trustee’s Clawback Remedies
On June 22, 2015, the U.S. Supreme Court declined to hear an appeal by Irving H. Picard, as Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, and the Securities Investor Protection Corporation, of a unanimous December 2014 decision of the U.S. Court of Appeals for the Second Circuit which significantly limited the Trustee’s remedies against Madoff Securities customers targeted by the Trustee in more than 600 lawsuits. Richard Levy, Jr., co-chair of Pryor Cashman’s Bankruptcy, Reorganization and Creditors’ Rights Practice Group, was counsel of record in the Supreme Court proceeding. He also was a principal oral advocate on behalf of the customers in the Second Circuit appeal.
Picard and SIPC had asked the Supreme Court to review the Second Circuit’s ruling that the Trustee could not recover transfers made to Madoff customers more than 2 years before the collapse of Madoff, and could only reach made within that 2-year period that qualified as fraudulent transfers made with an actual intent to defraud creditors. The Second Circuit concluded that the transfers made more than 2-years before the start of the bankruptcy case were covered by a safe harbor in Section 546(e) of the Bankruptcy Code, which protects payments that either were made by a stockbroker “in connection with securities contracts” or were securities “settlement payments.” Although Picard and SIPC argued that the statute should not apply to an alleged Ponzi scheme in which they claim that no actual securities trades occurred, the Second Circuit held that the plain language of the statute applied and thus limited the Trustee’s clawback remedies.
In a statement issued shortly after the Supreme Court declined review, Levy said that the customers were “gratified” that the Supreme Court decided not to review the unanimous ruling of the Second Circuit. “This means that former Madoff Securities customers named as defendants by trustee Picard, but who dealt with the broker under standard brokerage contracts and who knew nothing of their broker's conduct, are protected from having to give back any account withdrawals made more than two years before the collapse of the brokerage firm. We estimate that this covers an aggregate of more than $1.8 billion in transfers that the Second Circuit ruled to be beyond the reach of the Trustee."
Levy was quoted in the Law360 article, “High Court Won't Hear Madoff Trustee's $2B Clawback Appeal,” about the case. To read the full article, please click here. Levy was also quoted in articles about the victory in the Dow Jones Newswires and The Deal.
Levy has also authored a legal update about the case entitled "Supreme Court Declines To Review Second Circuit Decision In Madoff Case Limiting Trustee’s Power To Avoid Securities-Related Payments As Fraudulent Transfers."
