Bernie Madoff’s Ponzi scheme and its unraveling is arguably one of the greatest personal tragedies in the history of American financial markets—lives were ruined as Madoff lost his investors roughly $18 billion, according to estimates from the Securities Investor Protection Corp. The fallout from Madoff’s scheme, however, has led to many interesting legal developments. For example, earlier this year—over a decade after Madoff’s arrest—the U.S. Court of Appeals for the Second Circuit ruled on yet another controversy arising from the collapse of Madoff’s house of cards. The ruling in In re Picard, 2019 U.S. App. LEXIS 5411 (2d Cir. Feb. 25, 2019), considered the reach of the Bankruptcy Code’s fraudulent transfer mechanism and whether a trustee could properly claw back funds from foreign transferees into a U.S. bankruptcy estate. The Second Circuit’s opinion has important implications for trustees and debtors-in-possession when dealing with overseas entities in a fraudulent transfer situation and highlights the importance of balancing respect for foreign jurisdictions against the effectiveness of U.S. laws.

The dispute in In re Picard was between the trustee responsible for administering the liquidation of Bernard L. Madoff Investment Securities LLC and certain victims of Madoff’s Ponzi scheme who invested in Madoff Securities via offshore feeder funds (the appellees). By way of background, shortly after Madoff’s arrest, the Securities Investor Protection Corp. petitioned the U.S. District Court for the Southern District of New York for a protective order placing Madoff Securities into liquidation, pursuant to the Securities Investor Protection Act of 1978. Under SIPA, a trustee is appointed to ensure that “customer property” (i.e., cash and securities held by a broker or fund for the benefit of investors) is properly returned to a fund’s investors. The district court entered the protective order, appointed Irving H. Picard as trustee, and referred the case to the Bankruptcy Court for the Southern District of New York.