Judge Blocks Transfer of Madoff Property

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Judge Blocks Transfer of Madoff Property


By DIANA B. HENRIQUES
Published: April 20, 2009
The increasingly thorny question of who should be in charge of finding assets and compensating Bernard L. Madoff’s victims touched off a public tug of war among federal judges in Manhattan on Monday — a fight that will determine how victims’ claims will be handled.



At a morning hearing, a federal bankruptcy judge approved the appointment of an interim trustee to oversee an involuntary bankruptcy case involving the personal assets of Mr. Madoff, who is in jail awaiting sentencing after pleading guilty to running a gigantic Ponzi scheme.

That filing had been approved by Judge Louis L. Stanton of Federal District Court, who is overseeing civil matters in the Madoff case. Over government objections, Judge Stanton ruled last week that the bankruptcy court, where Mr. Madoff’s brokerage firm is being liquidated, was the best place for gathering assets and ruling on victims’ claims.

Meanwhile, without notifying other parties, federal prosecutors quietly obtained an order from a third federal judge that effectively ties the bankruptcy court’s hands by excluding a long roster of Mr. Madoff’s and his wife’s personal assets from the personal bankruptcy process.

That order, signed by Judge Denny Chin of Federal District Court, gave the government’s criminal forfeiture laws precedence over the bankruptcy court’s process — a ruling at odds with Judge Stanton’s decision last week but supported by rulings in other recent cases.

Jonathan M. Landers of the Milberg law firm, who won the issue before Judge Stanton, expressed concern about the government’s strategy of relying on the forfeiture process, which was primarily intended to deal with drug cases, to gather assets that may be in foreign jurisdictions.

The criminal forfeiture laws, he added, do not give victims the same protections and opportunities to be heard that are built into the federal bankruptcy code.

Although federal prosecutors have said they intend to apply “the net proceeds” from forfeited property to compensate victims, there is no statutory requirement that they do so, Joel M. Cohen of the law firm Clifford Chance, said. “If the government wanted to keep the money and build a baseball stadium with it, it could,” Mr. Cohen said.

As this turf battle heated up, a separate court-appointed trustee handling the liquidation of Mr. Madoff’s brokerage firm filed a lawsuit in federal court aimed at recovering more than $250 million that Mr. Madoff had paid out to two offshore funds. Bankruptcy laws permit the trustee to claim a broad range of payments a debtor makes within 90 days of insolvency, and this is the second such lawsuit the trustee has filed in the last week.

More Articles in Business »A version of this article appeared in print on April 21, 20