Trustee Warns Student Who Froze Peter Madoffs Assets

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Trustee Warns Student Who Froze Peter Madoff’s Assets

By Patricia Hurtado


April 7 (Bloomberg) -- The trustee liquidating Bernard Madoff’s business told a law student who won a temporary freeze on the assets of the convicted fraudster’s brother that he may not get to keep any money he recovers in court.

Andrew Samuels, 22, obtained the asset freeze order on March 25, after filing a lawsuit claiming that Peter Madoff served as a trustee on his trust fund and lost $470,000 of his inheritance by investing with Bernard Madoff. Samuels seeks to recover the lost funds and as much as $2 million in damages.

Bankruptcy trustee Irving Picard “reserves the right, without limitation, to seek to recover from Mr. Samuels” any money that Samuels collects “from Mr. Madoff in the lawsuit or otherwise in order to distribute such amounts to all of the victims of the fraud” at Bernard L. Madoff Investment Securities LLC, according to an April 3 letter sent by Marc Hirschfield, a lawyer working with Picard.

This letter is the first statement by Picard and lawyers working with him that the trustee is investigating Peter Madoff’s assets. “Please be advised that to the extent the trustee subsequently asserts claims against” Peter Madoff, Picard may seek to recover money from “transferees of Mr. Madoff,” Hirschfield wrote.

Hirschfield declined to comment today. Charles Spada, a lawyer for Peter Madoff, didn’t immediately return a call to his office after regular business hours. Peter Madoff hasn’t been charged with any wrongdoing.

Asset Freeze

New York State Supreme Court Justice Stephen Bucaria, in Nassau County, froze all of Peter Madoff’s assets on March 25 at Samuels’s request. Peter Madoff persuaded Bucaria on April 3 to loosen the restrictions, allowing him $10,000 a month for expenses in addition to his mortgage, taxes and attorney fees. Bucaria extended the modified freeze until May 8.

Peter Madoff said last week that he’d already agreed in December to a voluntary asset freeze with federal prosecutors who were investigating Bernard Madoff’s dealings.

“I wish that the trustee would spend the time trying to help the real victims of the Madoff fraud and leave Andrew alone,” Stephen Schlesinger, Samuels’s lawyer, said in a phone interview. “This is a threat to my client, who had a personal claim against Peter Madoff. He was wronged by Peter.”

Fiduciary Duty

In a letter written today to Hirschfield and Picard, Schlesinger said his client doesn’t intend to seek recovery from Bernard Madoff. He argued that Peter Madoff, as the sole trustee of Samuels’s trust fund, owed him a fiduciary duty to protect his money and failed.

“An attempt by you or Mr. Picard,” Schlesinger said, “to recover any amounts that our client may be successful in recovering from Peter Madoff would run afoul of the general principles of equity and fairness.”

Samuels’s parents, Howard and Patricia, have said they lost $20 million after investing with Bernard Madoff. They filed a separate claim with Picard, Howard Samuels said.

Peter Madoff was among the thousands who lost money when Bernard Madoff’s scheme collapsed, according to an investor list previously filed in court. Peter Madoff served as chief compliance officer for his brother’s firm. Peter Madoff’s daughter, Shana, also worked in compliance at Madoff Securities.

Bernard Madoff, 70, pleaded guilty to 11 felony counts and is in jail in Manhattan awaiting sentencing. He faces as many as 150 years in prison. Before his Dec. 11 arrest, Madoff told his thousands of clients that they had about $65 billion, prosecutors said.

The Samuels case is Ross v. Madoff, 09-05534, New York State Supreme Court for Nassau County (Mineola).

To contact the reporter on this story: Patricia Hurtado in Brooklyn, New York, at phurtado@bloomberg.net.

Last Updated: April 7, 2009 22:32 EDT