Madoff Trustee Sues ‘Insiders’ Who Allegedly Got $1 Billion

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Madoff Trustee Sues ‘Insiders’ Who Allegedly Got $1 Billion


By Joel Rosenblatt

May 2 (Bloomberg) -- A group of “insider” investors was sued by the trustee liquidating Bernard L. Madoff Investment Securities LLC over claims its members received more than $1 billion from Bernard Madoff’s Ponzi scheme.

Similar lawsuits will be filed in coming weeks and months, said the trustee, Irving Picard, in an e-mailed statement. Stanley Chais, a philanthropist and investment adviser in Los Angeles, was named in the complaint filed yesterday in U.S. Bankruptcy Court in New York. The suit also named his companies including Brighton Co. and trusts in family members’ names.

“Stanley Chais was a beneficiary of this Ponzi scheme for at least thirty years,” Picard said in the complaint. Since December 1995, Chais and the other defendants “collectively profited from this scheme through the withdrawal of more than one billion dollars, and knew or should have known that they were reaping the benefits of manipulated purported returns, false documents and fictitious profits.”

Madoff, 71, pleaded guilty in March in federal court in Manhattan to running the biggest Ponzi scheme ever. He faces a prison sentence of as many as 150 years. Before his Dec. 11 arrest, Madoff told his thousands of clients that they had about $65 billion, prosecutors said.

Picard, a lawyer with Baker & Hostetler LLP in New York, has recovered about $1 billion for investors in Madoff’s money- management business, known by its initials as BLMIS.

“This is the first of several actions that will be brought against entities that either acted as insiders with Bernard Madoff and BLMIS or that benefited from Madoff’s scheme to the severe detriment of other customers of BLMIS,” David Sheehan, an attorney for Picard, said in the statement.

Chais couldn’t be reached for comment after regular business hours.

The case is Picard v. Chais, 09-01172, and the bankruptcy case is Bernard L. Madoff, 09-11893, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

Last Updated: May 2, 2009 00:01 EDT