Not long after Melvyn Weiss wrapped up his prison sentence last year for paying kickbacks to securities class action plaintiffs, the former Milberg chief found himself drawn into a different headline-grabbing scandal. Mr. Weiss, along with family members and former Milberg partner David Bershad, was accused by the Bernard L. Madoff Investment Securities liquidation trustee of making $33 million from Mr. Madoff’s Ponzi scheme, and the trustee, Irving Picard of Baker & Hostetler, wanted most of that money back. Ten months later, Mr. Weiss is finally fighting back. Lawyers for Mr. Weiss at Seeger Weiss, his son’s firm, filed a motion last week seeking to have the suit that Mr. Picard filed last year withdrawn from bankruptcy court and put before a federal district court judge. Mr. Weiss claims that the transfer is justified since the complaint raises “significant issues of non-bankruptcy law” and relies on a novel interpretation of the Securities Investor Protection Act.
Mr. Weiss’ arguments echo those of a growing number of Mr. Picard’s targets, some of which have met with success. In his motion, Mr. Weiss contends that Mr. Picard’s suit raises “complex issues of first impression under SIPA.” In particular, Mr. Weiss’ motion asserts that “using SIPA, a customer protection statute, to assert claims against innocent customers for withdrawals made by them over 15 years ago is a novel issue requiring mandatory withdrawal of the reference.”
