Judge Dismisses Madoff Lawsuits Against Koch, Others

Victims of Bernard Madoff's ponzi scheme suffered a loss Nov. 22, when a federal bankruptcy judge dismissed lawsuits by the trustee liquidating Madoff's firm to recoup funds from Koch Industries Inc, among dozens of other defendants.

Dozens of prior Madoff customers, including Koch Industries, controlled by billionaires Charles and David Koch, will keep up to $2 billion dollars earned from the con man’s fake transactions after U.S. Bankruptcy Judge Stuart Bernstein in Manhattan ruled against a trustee attempting to recover money for victims, according to Bloomberg.

Irving Picard, the lawyer liquidating Madoff’s firm, sought to recover hundreds of millions of dollars in Madoff-linked money from foreign transferees on the grounds that investors and feeder funds “must have known they were subject to US law.”

But Koch Industries, combined with defendants in almost 100 additional suits, argued the money was beyond U.S. jurisdiction because it had been transferred among foreign banks years before Madoff’s December 2008 arrest.

The trustee did not accuse the foreign entities -- including Fairfield Greenwich Group, Tremont Group Holdings, and Koch, among others -- of wrongdoing, but posed that U.S. law entitled him to recoup funds from the Ponzi scheme even if recipients were unaware of the fraud.

In an 87-page decision, Bernstein ruled in favor of the “foreign transferees” because of international comity -- the need to let other countries enforce their own laws, Reuters reports. The judge also dismissed dozens of claims based on “extraterritoriality,” claiming the defendants had insufficient ties with the U.S. to be held accountable for the nation’s laws.

Defendants in related cases previously benefited from a 2014 ruling, when U.S. District Judge Jed Rakoff said Picard could not recoup foreign transfers because U.S. laws such as bankruptcy only apply within the United States. However, the case was sent back to bankruptcy court for further arguments on how the ruling affected individual cases.

The most recent decision dismisses most of Picard’s claims and denies the trustee’s request to amend them, Franklin Velie, who represented the defendants in all the lawsuits told Bloomberg.

“Foreign banks and service providers were dragged into the bankruptcy in the U.S. and claims were made against them for vast sums,” said Velie. “We are hopeful this is the end of the matter.”

Amanda Remus, a spokeswoman for Picard, told Reuters the trustee and his lawyers will not be able to discuss their plan going forward before thoroughly reviewing the court’s decision.

According to court records, Koch -- one of the largest private companies in the U.S., valued at $102 billion -- started investing with Madoff in the mid-1990s. Picard sued Koch in hopes of recouping $21.53 million allegedly sent by Madoff to Fairfield Sentry, a foreign feeder fund, and then to a leg of Koch in Great Britain.

Picard’s previous courtroom settlements and victories have raised nearly $11.5 billion for victims, who lost $17.5 billion in principal to Madoff’s scam.

Madoff is currently serving a 150-year sentence in a federal prison in North Carolina for orchestrating the Ponzi scheme.

Sources: Bloomberg, Reuters / Photo credit: Craig Warga/New York Daily News

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