Sec. Investor Prot. Corp..

• Decision Date: 09 February 2011
• Docket Number: 10–03268 (BRL).,Adversary Nos. 08–01789 (BRL)
• Parties: SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff,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.Richard I. Stahl, et al.,1 Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

443 B.R. 295

65 Collier Bankr.Cas.2d 97

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff,

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.Richard I. Stahl, et al.,1 Defendants.

Adversary Nos. 08–01789 (BRL)

10–03268 (BRL).

United States Bankruptcy Court, S.D. New York.

Feb. 9, 2011.

Baker & Hostetler LLP, By: David J. Sheehan, Marc E. Hirschfield, Deborah H. Renner, Tracy L. Cole, Keith R. Murphy, Amy Vanderwal, Sammi Malek, Ferve Ozturk, New York, NY, for Irving H. Picard, Esq., Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff.Pavia & Harcourt LLP, By: Adam D. Mitzner, Jonathan A. Selva, New York, NY, for Reed Abend and Richard I. Stahl.Cotchett, Pitre & McCarthy, LLP, By: Steven N. Williams, Burlingame, CA, and By: Imtiaz A. Siddiqui, New York, NY, for Jay Wexler, Daniel Ryan, Theresa Ryan, Matthew Greenberg, Walter Greenberg, Doris Greenberg, The Estate of Leon Greenberg, and Donna M. McBride.Gibbons P.C., New York, NY, and By: Dale E. Barney, Michael R. Griffinger, Jennifer A. Hradil, Jonathan S. Liss, Newark, NJ, for The Lautenberg Foundation, Joshua S. Lautenberg and Ellen Lautenberg.Pullman & Comley, LLC, By: Elizabeth J. Austin, Irve J. Goldman, Richard C. Robinson, Bridgeport, CT, Silver Golub & Teitell, LP, By: David S. Golub, Jonathan M. Levine, Stamford, CT, for The Retirement Program for the Employees of the Town of Fairfield, The Retirement Program for the Police Officers and Firemen of the Town of Fairfield, and The Town of Fairfield.

MEMORANDUM DECISION GRANTING TRUSTEE'S MOTION FOR ENFORCEMENT OF THE AUTOMATIC STAY AND FOR A PRELIMINARY INJUNCTION

BURTON R. LIFLAND, Bankruptcy Judge.

Before the Court is the motion (the “Motion”) ² of Irving H. Picard, Esq. (“Trustee”), trustee for the substantively consolidated Securities Investor Protection Act ³ (“SIPA”) liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff (“Madoff”), seeking an order pursuant to, inter alia, sections 362(a) and 105(a) of the Bankruptcy Code (the “Code”) and Rule 7065 of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) (i) enforcing the automatic stay and the December 15, 2008 stay order and related orders (the “Stay Orders”) of the United States District Court for the Southern District of New York (the “District Court”) and declaring the actions (the “Third Party Actions”) brought in various jurisdictions by the above-named defendants (the “Third Party Plaintiffs”) against Ruth Madoff, Peter Madoff, Andrew Madoff, Mark Madoff ⁴ and Shana Madoff (collectively, the “Madoff Defendants”) void ab initio as against the Madoff Defendants; and (ii) enjoining the Third Party Plaintiffs from litigating the Third Party Actions, or any related actions, against the Madoff Defendants pending completion of the Trustee's actions against the Madoff Defendants (the “Trustee's Madoff Actions”). Certain, but not all, of the Third Party Plaintiffs have filed briefs in opposition to the Motion.⁵

For the reasons set forth below and at oral argument, the Motion is hereby GRANTED.

BACKGROUND

The facts underlying Madoff's notorious Ponzi scheme and this SIPA liquidation are now well known and are comprehensively outlined in prior decisions of this Court, including the March 1, 2010 net equity decision (the “Net Equity Decision”). See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122, 125–33 (Bankr.S.D.N.Y.2010).

I. The SIPA Trustee's Authority and the Claims Administration Process

In addition to the powers granted by SIPA, the Trustee has the general powers and duties of a bankruptcy trustee. See SIPA § 78fff–1(a), (b). He is charged with assessing claims, recovering and distributing customer property to BLMIS customers and liquidating the assets of BLMIS for the benefit of the estate and its creditors. On December 23, 2008, the Court entered an Order Approving Form and Manner of Publication and Mailing of Notices; Specifying Procedures For Filing, Determination, and Adjudication of Claims; and Providing Other Relief (the “Claims Procedure Order”), setting forth a systematic framework for the filing, determination and adjudication of claims in accordance with SIPA. Pursuant to the Claims Procedure Order, all customer claims are filed with the Trustee, who must determine the claims in writing. If the claimant does not object to the determination, it is deemed approved by the Court and binding on the claimant. If the claimant objects and files an opposition, the Trustee must obtain a hearing date and notify the claimant thereof. See Peskin v. Picard (In re Bernard L. Madoff Inv. Sec. LLC), 413 B.R. 137 (Bankr.S.D.N.Y.2009), aff'd, 440 B.R. 579 (S.D.N.Y.2010) (expounding generally on the claims administration process). These claims are then satisfied in accordance with the provisions of SIPA.

II. The Satisfaction of Customer Claims in a SIPA Liquidation

The statutory framework for the satisfaction of customer claims in a SIPA liquidation proceeding provides that customers share pro rata in customer property ⁶ to the extent of their net equities, as defined in SIPA section 78 lll(11) (“Net Equity”). See SIPA § 78fff–2(c)(1)(B). If the fund of customer property is insufficient to make customers whole, the trustee is entitled to an advance from SIPC to pay each customer the amount by which his Net Equity exceeds his ratable share of customer property, subject to a cap of $500,000 for securities claims. See SIPA § 78fff–3(a).

On March 1, 2010, after briefing and oral argument, the Court issued its Net Equity Decision approving the Trustee's method of calculating a customer's Net Equity as the amount of cash deposited into the customer's BLMIS account, less any amounts withdrawn from the customer's BLMIS account. See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 424 B.R. 122, 135, 140 (Bankr.S.D.N.Y.2010). The Court entered an order implementing its Net Equity Decision on March 8, 2010 (the “Net Equity Order”). The Net Equity Decision and Order, in accordance with SIPA and controlling Second Circuit precedent, upheld the Trustee's determination to allow claims in the amount of customers' net investments, denying claims of those customers whose withdrawals exceeded their initial investments and subsequent deposits. The Court's Net Equity Decision and Order held that the fictitious profits listed on customers' last BLMIS account statements as of the Filing Date were not controlling for purposes of determining customers' Net Equity claims.

On March 16, 2010, the Court, on its own motion, joined by the requests of certain parties, certified its Net Equity Order for immediate appeal to the United States Court of Appeals for the Second Circuit pursuant to 28 U.S.C. section 158(d)(2). See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No. 08–01789(BRL), Dkt. No.2022. Oral argument before the Second Circuit on the Net Equity issue has been scheduled for March 3, 2011.

III. The Trustee's Madoff Actions

The Trustee has filed two separate actions against the Madoff Defendants seeking to avoid and recover preferential payments and fraudulent transfers totaling over $244 million for distribution to victims in accordance with SIPA. The first complaint proceeds against Ruth Madoff, and the second against the remaining Madoff Defendants—Peter Madoff, Andrew Madoff, Mark Madoff and Shana Madoff.

In both actions, the Trustee has alleged that the Madoff Defendants were intimately associated with the Ponzi scheme by virtue of their familial ties to Madoff himself and their positions of authority in BLMIS and its related entities. Ruth, Peter, Andrew, Mark, and Shana Madoff are Madoff's wife, brother, sons, and niece, respectively. In addition, Ruth Madoff was a controller at Madoff Securities International Ltd. (“MSIL”), a British affiliated entity of BLMIS, in which she held a financial interest. In that capacity she had responsibilities for account reconciliation within the fraudulent investment advisory (“IA”) business. See Picard v. Ruth Madoff, Adv. Pro. No. 09–1391, Dkt. No. 1, ¶ 6. Peter Madoff was BLMIS's Senior Managing Director and Chief Compliance Officer, Mark and Andrew Madoff were Co–Directors of Trading, and Shana Madoff at times held herself out as Compliance Counsel, in-house Counsel and Compliance Director of BLMIS. Further, Mark Madoff “at times, managed both the Firm's proprietary trading desk and its market-making operations,” and Andrew Madoff “supervised trading at the Company, managed the trading floor, and directed many audit and compliance projects for the Company, including the confirmation and reporting of trades.” See Picard v. Madoff, et al., Adv. Pro. No. 09–1503, Dkt. No. 1, ¶¶ 7–8.

Picard v. Ruth Madoff, Adv. Pro. No. 09–1391(BRL)

The Trustee filed his complaint against Ruth Madoff (the “Ruth Madoff Complaint”) on July 29, 2009, seeking the return of over $44 million pursuant to SIPA sections 78fff(b), 78fff–1(a), and 78fff–2(c)(3), sections 105(a), 502(d), 541, 542, 544, 548(a), 550(a), and 551 of the Code, the New York Fraudulent Conveyance Act and New York common law. The common law claims sound in conversion and unjust enrichment, and the Trustee seeks the imposition of a constructive trust, an accounting, and compensatory and punitive damages.⁷ The Ruth Madoff Complaint alleges, inter alia, that Ruth Madoff, in her capacity as controller at MSIL, received tens of millions of dollars from BLMIS for no legitimate business purpose, without corresponding benefit to BLMIS, and to which she had no good faith basis to believe she was entitled.

Picard v. Madoff, et al., Adv. Pro. No. 09–1503(BRL)

On October 2, 2009, the Trustee filed his...