Ruling hampers Madoff trustee's lawsuits

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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The trustee in the Bernard Madoff case may have to forgo trying to recover up to $6.2 billion for swindled investors because of a federal judge's ruling in a case involving the owners of the New York Mets, it was disclosed Thursday.

Amanda Remus, a spokeswoman for trustee Irving Picard, also said that as a result of legal uncertainty created by the ruling, further calculations were needed that will delay disbursement of cash already recovered to Madoff victims. The disbursements, originally scheduled to start Friday, could total more than $300 million, court records show.

"We know how difficult this delay is for those who have waited so long to recover the money they lost to Madoff," David Sheehan, Picard's counsel, said in a statement. "We are committed to completing this analysis quickly and moving forward with this important distribution as soon as we possibly can."

The ruling causing so much concern for Picard was an 18-page decision Tuesday by Manhattan federal Judge Jed Rakoff that cut down what could be recovered from the $1-billion lawsuit the trustee brought against the Wilpon family, Saul Katz and other owners of the Mets.

Rakoff said Picard could only try to recover $83 million in profits the Wilpons received in the Ponzi scheme, not the $295 million the trustee sought. Rakoff also limited to about $301 million the amount of principal Picard could recover, not the $700 million sought. The trial is set for March 19.

Picard has filed hundreds of similar lawsuits totaling $100 billion, mainly in bankruptcy court. While Rakoff is only handling a few of the cases, his ruling could set a precedent for the other proceedings and potentially affect what the trustee can recover.

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Sheehan told Rakoff in court Wednesday Picard planned to seek permission to appeal the ruling. A higher court's reversal might allow Picard to pursue his original $1-billion claim and free him to pursue more monies in other suits.

Rakoff's decision turned on whether Picard could seek to recover profits from a two-year period or a six-year time span before the collapse of Madoff's firm in December 2008. Rakoff chose the two-year period and also said Picard could only go after the Wilpons' principal for the two-year period if he proved they acted with "willful blindness" to Madoff's scheme, which cost investors $17 billion.

Picard said that for the entire Madoff case, the difference between the two- and six-year periods amounted to at least $2.7 billion in fictitious profits, which Rakoff's ruling precluded him from recovering from other people who took profits from the scheme.

Since Rakoff's decision also stopped the trustee from seeking preferences -- payments made in the 90 days before Madoff's arrest -- another $3.5 billion could be lost from the recovery process, said Remus.

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