Another Win for Madoff Trustee: May Recover Fictitious Profits Received by Gerald and Barbara Family Trust
September 30, 2021, Southern District of New York – Irving H. Picard, The Securities Investor Protection Act of 1970 (SIPA) (“SIPA Trustee”), for the substantively consolidated SIPA liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff (“Madoff”), brought an adversary proceeding to avoid and recover fictitious profits received by the Gerald and Barbara Family Trust (“Family Trust”) and Gerald and Barbara Keller, in their capacities as trustees of the Gerald and Barbara Family Trust (collectively, “Defendants”) on account of their investment in BLMIS’s Ponzi scheme under Sec. 548 of the Bankruptcy Code.
The Court held that the SIPA Trustee met his burden on every element of his 11 U.S.C.S. § 548(a)(1)(A) prima facie case. The Court found that the Defendants did not rebut any of the SIPA Trustee’s experts’ opinions and the unrebutted reports were admissible. The Court further found that there was no genuine dispute regarding BLMIS’ interest in the transferred funds, payment of fictitious profits within the two years to or for the benefit of Defendants, and actual intent to hinder, delay, or defraud its creditors.
Since under New York law, an express trust vests in the trustee of the legal estate, and the trustee is the party with the capacity to sue on behalf of the trust, the court dismissed the Family Trust as a defendant. The Court also mentioned that it sympathizes with the Defendants as they are victims and like so many others, believed that they are making legitimate investments. However, the Court stated that though they have recovered their principal investment, many other victims have not been so fortunate. The Court awarded the prejudgment interest to the Trustee, highlighting that the Trustee had spent more than ten years prosecuting this case and could not be made whole without an award of prejudgment interest.
Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC, 2021 Bankr. LEXIS 2677, _ B.R. _, 2021 WL 4476811
(3)