Madoff trustee challenge fails

Irving Picard, the trustee liquidating Bernard Madoff's former

Irving Picard, the trustee liquidating Bernard Madoff's former investment firm. Photo Credit: Getty Images, 2010

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A federal bankruptcy judge used sharp language Wednesday as he shot down an attempt by some angry investors of Bernard Madoff to get the trustee handling the case removed and to undo a $220-million settlement with one of the larger investors in the Ponzi scheme.

Judge Burton Lifland said attorney Helen Chaitman, who has admitted losing money in the scam, used "excessive and unnecessary hyperbole" in papers she filed seeking the removal of bankruptcy trustee Irving Picard.

Chaitman, long a critic of Picard and the way he is calculating customer profits, accused the trustee of hiding facts in the case of deceased investor Norman Levy, an old friend of Madoff whose accounts were used by Madoff to shift money back and forth during the course of the Ponzi scheme. Chaitman said bank records indicated that $100 billion was transferred among accounts controlled by Levy, who died in 2005, or by Madoff.

She accused Picard of not publicizing that when he settled last year his claim for $220 million with the children of Levy, money which is being used to repay Madoff victims.

But Picard's counsel, David Sheehan, said Wednesday Chaitman's attempt to paint Picard as dishonest was "outrageous" and the trustee had already disclosed those unexplained transfers in a lawsuit against JPMorgan Chase. Sheehan also noted Picard is working closely with the U.S. Attorney's Office in Manhattan and wasn't hiding evidence.

"There is no hiding the ball," said Sheehan.

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Neither Sheehan nor Chaitman nor Lifland could say for sure what those transfers represented.

Lifland found that Picard had used his best business judgment, as required under bankruptcy law, to settle with the Levy family. Madoff became trustee to Levy's estate and promptly stole $250 million from it, said a family attorney.

Picard has recovered $10 billion in assets so far. He has angered some investors because he contends those who got back more money from Madoff then they invested -- "net winners" -- have to pay it back. The net winners are also ineligible for up to $500,000 in an advance from the Securities Investor Protection Corp., said Picard, who is also suing the New York Mets owners for up to $1 billion.

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