Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC
480 B.R. 501
Bankr. S.D.N.Y.2012Background
- Trustee Picard files a SIPA/Bankruptcy Code action against BLI to recover $42,123,406 as a subsequent transferee from Fairfield Sentry.
- BLI is an agency/instrumentality of the Republic of China (Taiwan) and invested tens of millions in Fairfield Sentry with the plan to have funds invested in BLMIS in New York.
- Subscription Agreement and Private Placement Memoranda establish that Fairfield Sentry’s assets would be held and invested primarily in BLMIS in New York, with 95% of assets in U.S. securities and BLMIS as custodian.
- Subscription/payments flow from BLI in Taiwan through London, New York banks, to Fairfield Sentry and then to BLMIS, with redemptions flowing back through the same chain.
- The settlement with Fairfield Sentry approved by this Court and the BVI Court creates finality for avoidable transfers but preserves rights of subsequent transferees to challenge avoidability.
- BLI moves to dismiss on subject matter jurisdiction, personal jurisdiction, Section 550 recovery as subsequent transferee, and extraterritoriality grounds, which the court addresses in turn.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| FSIA third-clause jurisdiction | Picard: foreign state commercial activity abroad with direct U.S. effects. | BLI: immunity and lack of direct effect; extraterritoriality concerns. | Court: subject matter jurisdiction under FSIA third clause applies. |
| Personal jurisdiction over BLI | Picard: BLI purposefully directed funds to New York; has New York forum clause and law. | BLI: isolated contacts and lack of due process protections | Court: specific personal jurisdiction exists; due process satisfied. |
| Section 550 recovery against subsequent transferee | Picard: avoidability of initial transfers suffices to recover from BLI as a subsequent transferee. | BLI: settlement with initial transferee requires final avoidance judgment before §550 recovery. | Court: may recover under §550; no final avoidance against Fairfield Sentry required. |
| Extraterritoriality presumption and §550 | Picard: §550 applies domestically; if extraterritorial, Congress intended such application. | BLI: presumption blocks extraterritorial application; Maxwell-like distinction warned. | Court: §550 is domestically focused or Congress authorized extraterritorial application; presumption does not bar here. |
Key Cases Cited
- Weltover, Republic of Argentina v. Weltover, 504 U.S. 607 (1992) (direct effect test for FSIA third clause)
- Morrison v. Nat. Australia Bank Ltd., 130 S. Ct. 2869 (2010) (focus/presumption against extraterritoriality)
- French v. Liebmann (In re French), 440 F.3d 145 (4th Cir. 2006) (avoidance provisions extend to foreign property)
- Maxwell Communication Corp. plc v. Barclays Bank (In re Maxwell Communication Corp. plc), 93 F.3d 1036 (2d Cir. 1996) (extraterritoriality limits for certain foreign-origin transfers; distinguish from domestic focus)
- Enron Creditors Recovery Corp. v. Int’l Fin. Corp. (In re Enron Creditors Recovery Corp.), 388 B.R. 489 (S.D.N.Y. 2008) (flexibility in §550 avoidance recovery after settlement)