49 F.4th 170
2d Cir.2022Background
- This is an appeal from the S.D.N.Y. grant of summary judgment to SIPA Trustee Irving H. Picard recovering $2,925,000 in fictitious profits that defendants withdrew from a BLMIS account within two years of the SIPA filing.
- JABA Associates LP (and its general partners, the Goodmans) maintained BLMIS Account 1EM357; they deposited principal and withdrew profits, including $2,925,000 in the two-year avoidable window.
- Bernard Madoff converted his sole proprietorship to Bernard L. Madoff Investment Securities LLC (BLMIS) in 2001 and filed an Amended Form BD stating the predecessor would transfer all assets and liabilities to the successor.
- Defendants argued the JPMorgan accounts and IA business remained Madoff’s personal property (pointing to names on checks, endorsement stamps, and an unchecked IA box on Form BD), so the Trustee lacked SIPA standing to avoid the transfers.
- The district court admitted the Amended Form BD and related evidence, applied the Ponzi-scheme presumption of fraudulent intent, ruled the funds were recoverable customer property, awarded recovery plus 4% prejudgment interest, and granted summary judgment to the Trustee.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Amended Form BD | Form BD is probative and properly in the summary-judgment record; Trustee relied on it. | Form BD is inadmissible hearsay and untrustworthy because Madoff lied to the SEC. | Defendants waived the objection by not challenging admission below and by relying on the form; district court did not abuse discretion in admitting it. |
| Whether JPMorgan accounts (and IA business) were BLMIS property | The Amended Form BD, operating agreement, customer agreements, letterhead and other documentary evidence show successor LLC assumed all predecessor assets and operated the IA business; thus transfers are of debtor property/customer property. | Names on bank accounts, endorsement stamp, and checks show accounts remained in Madoff’s personal name and raise a factual dispute about ownership. | Sparse account-name evidence insufficient; no genuine dispute of material fact that BLMIS controlled the IA business funds or that transfers were recoverable. |
| Application of Ponzi presumption / fraudulent intent | Trustee invokes Ponzi presumption to show actual intent to defraud under 11 U.S.C. § 548; permits avoiding fictitious profits. | (Not contested on appeal.) | District court properly applied Ponzi presumption and found fraudulent intent; that holding stands. |
| Prejudgment interest award | Prejudgment interest compensates Trustee for loss of use and reduces defendants’ unjust enrichment; 4% (prime on Dec. 15, 2008) is equitable. | Defendants are innocent victims; § 548 is silent on interest; award is punitive and excessive. | Award of prejudgment interest is permissible and not an abuse of discretion; 4% rate justified under Wickham factors. |
Key Cases Cited
- In re Bernard L. Madoff Inv. Sec. LLC, 773 F.3d 411 (2d Cir. 2014) (background appellate precedent on the BLMIS SIPA liquidation)
- Gettinger v. Securities Inv. Prot. Corp., 976 F.3d 184 (2d Cir. 2020) (recent BLMIS SIPA precedent cited in background)
- LaSalle Bank Nat’l Ass’n v. Nomura Asset Cap. Corp., 424 F.3d 195 (2d Cir. 2005) (two-step review when evidentiary rulings define the summary-judgment record)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary-judgment standard: genuine issue for trial)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (party must designate specific facts showing a genuine issue for trial)
- Wickham Contracting Co. v. Local Union No. 3, 955 F.2d 831 (2d Cir. 1992) (factors for awarding prejudgment interest)
- Peloro v. United States, 488 F.3d 163 (3d Cir. 2007) (customer property can exist even if funds were not held in an account formally owned by the debtor)
- In re Brentwood Sec., Inc., 925 F.2d 325 (9th Cir. 1991) (cash can remain customer property after transfer from a predecessor brokerage)
- In re Primeline Sec. Corp., 295 F.3d 1100 (10th Cir. 2002) (facts showing debtor actually received or controlled customer funds determine SIPA protection)