A federal appeals court Tuesday sided with the Bernard Madoff bankruptcy trustee in a dispute with investors including the owners of the New York Mets, ruling they cannot recover what was contained in their fictitious customer account statements.
The decision is a "victory" for Picard and could very well clear the way for Picard to prevail in such lawsuits, said John C. Coffee Jr., a professor of securities law at Columbia University School of Law.
The 35-page decision from the Second Circuit Court of Appeals could also go a long way toward Picard giving investors with approved claims as much as 40 cents on the dollar for their Madoff investments, the trustee has said in court records.
The three-judge appeals panel ruled unanimously that Picard was correct when he decided that customers like the Wilpon family were "net winners" who received more money from Madoff in fake profits than they invested and weren't entitled to recover anything from the nonprofit Securities Investor Protection Corporation.
Picard maintains net winners have to pay back their profits.
The court called Picard's methods "legally sound."
The Wilpons and other investors had insisted that Picard should allow customers to recover claims based on the last statements they received from Madoff in late 2008. But the appeals court, in siding with Picard, said that such an approach was impermissible and would have given credibility to Madoff's estimated $17-billion scheme.
"The [Madoff] customer statements reflect impossible transactions and the Trustee is not obligated to step into the shoes of the defrauder or treat customer statements as reflecting reality," the court stated.
"The Second Circuit has not only confirmed what is settled law, but what is common sense," said Anthony Sabino, a business and law professor at St. John's University.
David Sheehan, counsel for Picard, said the ruling buttresses the trustee's clawback cases.
Ron Stein, head of a Madoff investor group, expressed disappointment at the ruling and hoped Congress would act to protect future investors.
Picard contends the fake profits were in effect stolen from other investors in Madoff's Ponzi scheme, Coffee said. Picard has sued the Wilpons to recover $300 million in false profits, as well as $700 million in initial investments.
The Wilpons reiterated in a statement Tuesday they believed Picard's lawsuit was without merit and maintained that the appellate ruling didn't go to the merits of the trustee's case against them.
Picard and the Wilpons are in mediation before former Gov. Mario Cuomo, who told Newsday that the latest decision, and some district court rulings, "have not changed the parties' interest in pursuing a settlement."