Irving Picard’s efforts to spread money among Bernard Madoff’s Ponzi victims hit a snag this week, when a judge ruled that Picard must present more potent allegations in order to proceed with so-called avoidance actions against entities like Societe Generale SA and UniCredit SpA that handled Madoff funds.
Picard, a partner at Baker Hostetler, is serving as the liquidation trustee for Madoff’s defunct firm. As Picard explains on a website for Madoff victims, avoidance actions are a way of undoing money transfers that Madoff made to investors or third parties in the years before he got busted. The idea is to put the transferred funds, which total in the billions of dollars, back into a common pool for victims.
U.S. District Judge Jed Rakoff in Manhattan, who is overseeing hundreds of avoidance actions along with a counterpart in bankruptcy court, had tough words for Picard in a 13-page decision issued on Monday. Rakoff concluded that defendants in these cases can only be found liable for failing to act in good faith if they intentionally blinded themselves to Madoff’s fraud, something Picard failed to show. Picard tried to argue that a less strict standard should apply, but Rakoff called his proposed “inquiry notice” approach “unfair and unworkable.” Rakoff also accused Picard of continually relitigating long-settled issues.
Dozens of individual investors stand to benefit from Rakoff’s ruling, along with larger banks like UniCredit and SocGen. Skadden, Arps, Slate, Meagher & Flom represents UniCredit. SocGen has Flemming Zulack Williamson Zauderer.
The avoidance actions in which good faith is at issue aren’t finished yet. Rakoff transferred them back to bankruptcy court for further proceedings consistent with his ruling.
Correction: Because of an editing error, an earlier version of this story incorrectly stated that the judge’s decision was issued on Tuesday. We regret the error.