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New York Court Denies Trustee’s Motion to Re-Argue the Dismissal of the Pre-2001 Claims

Sec. Inv’r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Nos. 08-01789 (SMB), 10-05421 (SMB), 2016 Bankr. LEXIS 3757 (U.S. Bankr. S.D.N.Y. Oct. 18, 2016)

Trustee Irving H. Picard brought the adversary proceeding under the Securities Investor Protection Act (SIPA), and as representative of the substantively consolidated estate of Debtor Bernard L. Madoff, to avoid and recover transfers made to the accountants, Frank Avellino and Michael Bienes. The two auditors urged a New York bankruptcy judge last month to deny the motion of the Trustee to reargue these clawback claims against them as they were already dismissed earlier in July. The accountants urged the court to reject the trustee’s motion to re-argue as the Court lacked subject matter jurisdiction to hear claims for the fraudulent transfers which occurred before January 1, 2001. The Court agreed with the accountants and rejected the Trustee’s motion to reargue the dismissal of pre -2001 claims. The Court held that the SIPA Trustee, as trustee of BLMIS, could recover transfers of customer property under SIPA but the Chapter 7 Trustee could not. The Trustee’s argument that a SIPA’s protective order covered the individual debtor as well as his LLC because they used the same SEC registration number lacked support. Next, an order consolidating individual debtor and LLC’s bankruptcy cases did not authorize SIPA trustee to assert avoiding powers against transfers made by the individual debtor. Finally, the Court ruled that there was no manifest injustice and held for the accountants.