Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC

• Decision Date: 02 July 2021
• Docket Number: Adv. Pro. No. 10-04921 (CGM),No. 08-01789,08-01789
• Parties: SECURITIES 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 Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff, v. Stanley T. Miller, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

631 B.R. 1

SECURITIES 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 Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff,

v.Stanley T. Miller, Defendant.

No. 08-01789

Adv. Pro. No. 10-04921 (CGM)

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

Signed July 2, 2021

BAKER HOSTETLER LLP, Attorneys for the Plaintiff, 45 Rockefeller Plaza, New York, N.Y. 10111, BY: NICHOLAS J. CREMONA (TELEPHONICALLY), TARA TURNER, (TELEPHONICALLY).

DENTONS US LLP, Attorneys for the Defendant, 1221 Avenue of the Americas, New York, N.Y. 10016, BY: ARTHUR H. RUEGGER (TELEPHONICALLY), CAROLE NEVILLE, (TELEPHONICALLY).

MEMORANDUM DECISION GRANTING SUMMARY JUDGMENT IN FAVOR OF TRUSTEE

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

Irving H. Picard ("Trustee"), Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS"¹ ) and Bernard L. Madoff ("Madoff"), brings this adversary proceeding to avoid and recover fictitious profits received by Stanley T. Miller ("Defendant") on account of his investment in the infamous Ponzi scheme of BLMIS.

Jurisdiction

This Court has jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and 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. As the district court case has been dismissed and the reference has not been withdrawn, the Court has authority to enter a final order in these cases. To the extent that it does not, the Court asks the District Court to construe this decision as proposed findings of fact and conclusions of law, pursuant to the Amended Standing Order of Reference dated January 31, 2012.

Background

For a background of these SIPA cases and the BLMIS Ponzi scheme, please refer to the findings of fact in Picard v. Nelson (In re BLMIS) , 610 B.R. 197, 206–14 (Bankr. S.D.N.Y. 2019).

Undisputed Facts ²

The Defendant is a resident of Florida. See Trustee's Reply ¶ 108, ECF No. 109. Defendant was a customer of the Investment Advisory Business and owned Account No. 1ZR284 in the name of NTC & Co. (also known as Fiserv, Inc., TIB Holdings, Inc., Fiserv Investment Support Services, First Trust Corporation, Retirement Accounts Inc., Fiserv Trust Company, Trust Industrial Bank, Lincoln Trust Company, and Pensco Trust Company ("FiServ"³ )). Id. ¶ 109. FiServ was the former custodian of an Individual Retirement Account ("Miller IRA") for the benefit of Defendant. Id. ¶ 110.⁴ On November 9, 1998, the Defendant's IRA account was opened with a cash deposit check in the amount of $3,000,000, all representing principal. Id. ¶ 126. After this initial deposit, four additional cash deposits of $1,010,270 were made. Id. ¶ 127. These five cash deposits provided the Miller IRA with $4,010,270 of principal. Id. ¶ 128.

The Trustee has presented evidence that Fiserv did not hold onto this money, rather it was kept in BLMIs's 509 Account. Collura Decl., Attach B, ¶ 34. Collura's report shows that the four initial deposits were transferred into BLMIs's 703 Account, and Fiserv's withdrawals were made from BLMIs's 509 Account. Id. This is consistent with the Defendant's instructions regarding the opening of the Miller IRA. See Ruegger Decl., Ex. C. The instructions provide:

Note that we would like to open this IRA account immediately and therefore would appreciate it being process as soon as possible...With regard to investment of funds, all monies are to be invested with Bernard L. Madoff Investment Securities.

Id. An IRA "means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries ...." 26 U.S.C. § 408(a). The instructions also detailed that the Miller IRA was a Self-Directed Individual Retirement Custodial Account. Id. "Self-directed IRAs are authorized by federal law and are held by a trustee or custodian that permits investment in a broader set of assets than is permitted by traditional IRA custodians." Levine v. Entrust Grp., Inc. , No. C 12-03959, 2012 WL 6087399, at *1 (N.D. Cal. Dec. 6, 2012).⁵ In this case, Fiserv was directed to invest with Madoff. An example will illustrate how this operated. On January 14, 2008, Fiserv sent Bernard L Madoff a distribution request. Ruegger Decl., Ex. E at 11. The request stated:

RE: Trading InstructionsPlease use this letter as authorization to:Please send 60,000.00 net. Do not withhold state or federal taxes.Correspondence and/or liquidation checks should be sent to:*Retirement Accounts, Inc. FBO Stanley T MillerAccount # 031038030438717 17th Street, STE 1700Denver, CO 80202

Id. On January 16, 2008, the 509 Account, in the name of Bernard L. Madoff, sent a check of $60,000.00 to NTC & Co. [Fiserv], FBO Stanley T. Miller. Ruegger Decl., Ex. F at 4. Collura's analysis of Fiserv's account statements show an inflow of $60,00 on January 21, 2008. Collura Decl., Attach B, Ex. 11. On January 23, 2008, there was an outflow of $60,000 from Fiserv's account to the Defendant. Id. This turnaround of seven days seems to be the norm. It is also how Fiserv operated other IRA accounts. The following exchange occurred when Collura testified in Picard v. Nelson :⁶

Q: What was the timeframe that you saw from the funds going from BLMIS to the IRA, and ultimately to Mrs. Nelson [defendant/good faith investor]

A: Very short time period. Within, within a week.

There is no genuine dispute that between November 9, 1998 and December 11, 2008, the IRA account reflected a total of 65 cash withdrawals totaling $4,680,063. Greenblatt Decl., Attach. B. ¶ 14. There is no genuine dispute that Defendant withdrew $669,793 of funds in excess of principal, representing fictitious profits within the two-year period prior to December 11, 2008. Id. ¶ 15. The Trustee seeks to recover these fictitious profits to pay customer claims.

Before the Court is the Trustee's Motion for Summary Judgment⁷ and the Defendant's Cross-Motion for Summary Judgment.

The Court heard oral argument on the Trustee's summary judgment motion and the Defendant's cross-motion for summary judgment on June 16, 2021.

Discussion

Admissibility of Trustee's Experts; Plea Allocutions; BLMIS Records

The Trustee relies on three experts to establish his prima facie case. Bruce G. Dubinsky is a forensic accountant with more than thirty-five years of experience investigating financial fraud. See Dubinsky Decl., Attach A at 9-10. Lisa Collura is a forensic accountant and certified fraud examiner: she analyzed the books and records of BLMIS. See Collura Decl., Attach A at 1-4. Matthew B. Greenblatt is a forensic account with more than twenty-five years of experience in financial fraud cases. Greenblatt Decl., ¶ 2.

The Defendant argues that all three of the Trustee's expert reports are inadmissible. The Court disagrees. This Court and the District Court have repeatedly admitted these expert reports to resolve prior trials and summary judgment motions. See Picard v. Nelson, (In re BLMIS) , 610 B.R. 197, 221–29 (Bankr. S.D.N.Y. 2019) ; Picard v. JABA Associates L.P (In re BLMIS) , No. 20 CV. 3836, 2021 WL 1112342, at *7 (S.D.N.Y. Mar. 24, 2021). The Trustee made the experts available for cross-examination and their reports available for inspection. Despite this, the Defendant never deposed any of the experts nor proffered their own in rebuttal. The experts' reports are admissible.

Defendant argues that the plea allocutions of Bernard Madoff and his brother Peter Madoff are unreliable and inadmissible. This objection has been overruled numerous times. Picard v. Nelson, (In re BLMIS) , 610 B.R. 197, 208–210 (Bankr. S.D.N.Y. 2019) ; Picard v. JABA Associates L.P (In re BLMIS) , No. 20 CV. 3836, 2021 WL 1112342, at *7 (S.D.N.Y. Mar. 24, 2021).

Next, the Defendant argues that BLMIS books and records are inadmissible. The Defendant argues that the BLMIS records are permeated with fraud and cannot be relied upon. The Court disagrees. See Nelson , 610 B.R. 197 at 223–24 (admitting BLMIS records into evidence after finding that Dubinsky, Collura, and Greenblatt adequately showed that BLMIs's records of deposits and withdrawals "are extremely trustworthy."). And the Defendant's objection is disingenuous. His Opposition relies on BLMIs's records. Def.’s Mot. Summ. J. 25–27, ECF No. 105. It appears the Defendant advocates for admissibility when it suits his position, and inadmissibility when it does not.

Summary Judgment

Pursuant to Rule 56(c), incorporated by Bankruptcy Rule 7056(c) in this adversary proceeding, summary judgment should be granted to the moving party if the Court determines that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56(c) ). The materiality of facts must be determined with reference to the governing substantive law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "A fact is material only if it affects the result of the proceeding and a fact is in dispute only when the opposing party submits evidence such that a trial would be required to resolve the differences." In re CIS Corp. , 214 B.R. 108, 118 (Bankr. S.D.N.Y. 1997).

A movant has the initial burden of establishing the absence of any genuine issue of material...