Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. (In re Madoff)

Decision Date07 March 2023
Docket Number08-01789 (CGM),Adv. Pro. 12-01046 (CGM)
PartiesSECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. SNS Bank N.V. and SNS Global Custody B.V., Defendants.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York



(Substantively Consolidated)

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA

Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of Bernard L. Madoff


David Sheehan, Esq. (on the papers)

Counsel for Defendants SNS Bank N.V. and SNS Global Custody B.V.


George W. Shuster, Jr., Esq. (on the papers)



Pending before the Court is Defendants, SNS Bank N.V. ("SNS Bank") and SNS Global Custody B.V. ("SNS Global" and together with SNS Bank "Defendants"), motion to dismiss the complaint of Irving Picard, the trustee ("Trustee") for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") seeking to recover subsequent transfers allegedly consisting of BLMIS customer property. Defendants seek dismissal for lack of personal jurisdiction; for improperly using adoption by reference; and for failure to allege that they received BLMIS customer property. Defendants also assert the affirmative defense contained in the safe harbor provision of the Bankruptcy Code as well as that it gave "value," in "good faith," and "without knowledge of voidability" of the transfers it received. For the reasons set forth herein, the motion to dismiss is denied in its entirety.


This is an adversary proceeding commenced in this Court, in which the main underlying SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the "SIPA Proceeding"), is pending. The SIPA Proceeding was originally brought in the United States District Court for the Southern District of New York (the "District Court") as Securities Exchange Commission v. Bernard L. Madoff Investment Securities LLC et al., No. 08-CV-10791, and has been referred to this Court. This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1), and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).

This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). This Court has subject matter jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(a), the District Court's Standing Order of Reference, dated July 10, 1984, and the Amended Standing Order of Reference, dated January 31, 2012. In addition, the District Court removed the SIPA liquidation to this Court pursuant to SIPA § 78eee(b)(4), (see Order, Civ. 08- 01789 (Bankr. S.D.N.Y. Dec. 15, 2008) ("Main Case"), at ¶ IX (ECF No. 1)), and this Court has jurisdiction under the latter provision. Personal jurisdiction has been contested by the Defendants and will be discussed infra.


The Court assumes familiarity with the background of the BLMIS Ponzi scheme and its SIPA proceeding. See Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 178-83 (2d Cir. 2021), cert. denied sub nom. Citibank, N.A. v. Picard, 142 S.Ct. 1209, 212 L.Ed.2d 217 (2022).

This adversary proceeding was filed on February 9, 2012. (Compl., ECF[1] No. 1). Via the Complaint ("Complaint"), the Trustee is seeking to recover a total of "$74,468,402 in subsequent transfers of Customer Property made to the SNS Defendants . . . ." (Id. ¶ 2). Fairfield Sentry Limited ("Fairfield Sentry") is the initial transferee, having received approximately $3 billion from BLMIS. (Id. ¶ 35-41). Fairfield Sentry, allegedly, subsequently transferred BLMIS customer property to the Defendants either directly or indirectly through Fairfield Sigma Limited ("Fairfield Sigma") and Fairfield Lambda Limited ("Fairfield Sentry Limited"). (Id. ¶ 42-48). The Trustee seeks to recover approximately $21,060,551 in BLMIS' customer property transferred to Defendants from Fairfield Sentry; approximately $41,540,402 in BLMIS' customer property transferred to Defendants from Fairfield Sigma; and approximately $11,867,009 in BLMIS' customer property transferred to Defendants from Fairfield Lambda. (Id. ¶ 50).

Defendants are Dutch public limited companies that maintain places of business in the Netherlands. (Id. ¶¶ 22-23). Fairfield Sentry was a BVI company that had direct customer accounts with BLMIS's investment advisory business. (Id.). "Fairfield Sentry maintained in excess of 95% of its assets in its BLMIS customer accounts." (Id.). "Some of the subsequent transfers from Fairfield Sentry came through Fairfield Sigma and Fairfield Lambda, which each invested 100% of their assets in Fairfield Sentry." (Id. (cleaned up)).

Following BLMIS's collapse, the Trustee filed an adversary proceeding against Fairfield Sentry, Fairfield Sigma, and Fairfield Lambda (collectively the "Feeder Funds"), to avoid and recover fraudulent transfers of customer property in the amount of approximately $3 billion. (Id. ¶ 36). In 2011, the Trustee settled with the Feeder Funds. (Id. ¶ 41). As part of the settlement, Fairfield Sentry consented to a judgment[2] in the amount of $3.054 billion (Consent J., 09-01239-cgm, ECF No. 109) but repaid only $70 million to the BLMIS customer property estate. (Compl. ¶ 41). The Trustee then commenced a number of adversary proceedings against subsequent transferees, like Defendant, to recover approximately $3 billion in missing customer property.

In its motion to dismiss, Defendants argue that this Court lacks personal jurisdiction over them; that the Trustee has improperly adopted the Fairfield Sentry complaint by reference; and that he has failed to allege that Defendants received BLMIS customer property. Defendants also assert that their affirmative defenses of "value," "good faith," and "without knowledge of voidability;" and the "safe harbor." The Trustee opposes the motion to dismiss. The parties have waived oral argument on this motion.

Personal Jurisdiction

Defendants object to the Trustee's assertion of personal jurisdiction. In the Complaint, the Trustee argues that Defendants purposefully availed themselves of the laws of the United States and New York. (Compl. ¶ 6).

To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the Trustee "must make a prima facie showing that jurisdiction exists." SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30 34-35 (2d Cir. 2010)). A trial court has considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2). Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). "'It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion.'" Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899 904 (2d Cir. 1981)); see also Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).

"Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, legally sufficient allegations of jurisdiction." Dorchester Fin., 722 F.3d at 84-85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565 (Bankr. S.D.N.Y. 2021) (same). In this case, the Trustee has alleged legally sufficient allegations of jurisdiction simply by stating that "The SNS Defendants . . . knowingly direct[ed] funds to be invested with New York-based BLMIS through Fairfield Sentry, Fairfield Sigma, and Fairfield Lambda. The SNS Defendants knowingly received subsequent transfers from BLMIS by withdrawing money from Fairfield Sentry, Fairfield Sigma, and Fairfield Lambda, all Fairfield Greenwich Group ('FGG') managed Madoff feeder funds." (Compl. ¶ 6). This allegation alone is sufficient to establish a prima facie showing of jurisdiction over Defendants in the pre-discovery stage of litigation. At the pre-discovery stage, the allegations need not be factually supported. See Dorchester Fin. Securities Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d. Cir. 2013) (an averment of facts is necessary only after discovery). That being stated, this was not the only allegation made by the Trustee.

In order to be subjected to personal jurisdiction in the United States, due process requires that a defendant have sufficient minimum contacts with the forum in which the defendant is sued "'such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501 (Bankr. S.D.N.Y. 2012), 480 B.R. 501, 516 (Bankr. S.D.N.Y. 2012) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The pleadings and affidavits are to be construed "'in the light most favorable to the plaintiffs, resolving all doubts in their favor.'" Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010) (quoting Porina v. Marward Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008)); Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018).

The Supreme Court has set out three conditions for the

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