The Work

April 1, 2009 5:14 PM

Madoff Clients Make Push for Involuntary Bankruptcy

Posted by Nate Raymond

Lawyers at Milberg and Seeger Weiss filed a motion Wednesday afternoon seeking court permission to push Bernard Madoff into involuntary personal bankruptcy in an attempt to stake out a claim to the assets of the admitted Ponzi-scheme mastermind.

The motion (download the document here), filed in Manhattan federal district court, would be a first step in pushing Madoff into Chapter 7. Under an order signed in December in an SEC case against Madoff, creditors were required to obtain court permission to file an involuntary bankruptcy proceeding against Madoff.

"We believe it's absolutely essential that his assets be brought under the jurisdiction of the bankruptcy court," says Jonathan Landers, a Milberg bankruptcy partner.

Madoff's lawyer, Ira Sorkin at Dickstein Shapiro, declined to comment.

The firms' goal is to get a bankruptcy court to appoint a bankruptcy trustee who could go after Madoff's personal assets. Bernard L. Madoff Investment Securities LLC is already under the supervision of court-appointed receiver Irving Picard of Baker & Hostetler. But Landers says a separate trustee for Madoff's personal assets could more easily go after funds that might have been transferred to other people.

"That's very important because we believe, at least on the basis of published reports, that it's at least possible that assets have been improperly transferred by Madoff himself that should not have been transferred or cannot be recovered for the benefit of creditors," Landers says.

Milberg and Seegar Weiss are also pushing for the personal bankruptcy in an attempt to secure its clients' rights to the assets in case of any government seizure. The Department of Justice filed notices of its intent to seek forfeiture of Madoff's assets on March 15 and March 17. U.S. Marshals on Wednesday took control of two of Madoff's boats in Florida, Reuters reports.

The Securities and Exchange Commission has separately said it may seek to impose civil penalties and recover those from Madoff's assets.

"It's not clear what forfeiture means or who gets the money, whether it goes to the victims, the United States, or some combination," Landers says. "And we believe that it is essential to have a bankruptcy case in which the rights of the victims can be coordinated."

Individual creditors have likewise already filed lawsuits against Madoff. The town of Fairfield, Conn. obtained a restraining order against Madoff's assets on Monday.

"You're just going to have creditors grabbing for assets, and it's absolutely essential that those efforts be coordinated in the form of a bankruptcy case," Landers says.

Claims by the five Milberg and Seeger Weiss clients listed on the proposed involuntary bankruptcy petition total $64 million. Among the claimants are The Blumenthal & Associates Florida General Partnership, which has a claim listed as $30.2 million, and Martin Rappaport, who lost $20.8 million personally and $8.2 million through his charitable trust.

Other clients include Marc Cherno; Judith Rock Goldman; the Horowitz Family Trust; and Steven Morganstern.

The lawyers for the clients include Landers, Matthew Gluck, and Brad Friedman at Milberg and Christopher Seeger and Stephen Weiss at Seeger Weiss.

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