Madoff Trustee Wins Summary Judgment to Clawback $3.8 Million Received by Ken-Wen Family Limited Partnership
March 13, 2022, Southern District of New York – Trustee Irving H. Picard, for the substantively consolidated liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS “) and Bernard L. Madoff (“Madoff”), brought an adversary proceeding against Defendants Ken-Wen Family Limited Partnership and its former general partner, Kenneth Brown (“Brown”). Through its complaint, the Trustee sought to avoid and recover fictitious profits totaling $3,850,000.00 from the Defendants on account of an investment in the infamous Ponzi scheme of BLMIS.
Brown filed a motion for summary judgment, arguing that he cannot be held personally liable for debts incurred by Ken-Wen because he is no longer a general partner of Ken-Wen. The Trustee opposed the motion and cross-moved for summary judgment seeking to have the fictitious profits received by Ken-Wen declared fraudulent and to make Brown liable for those “fraudulent transfers.” The Court found that Brown’s arguments conflicted with his initial summary judgment motion-including that he was never a partner of Ken-Wen.
The Court concluded that the Trustee proved the elements of Section 548(a)(1)(A) of the Bankruptcy Code. The Court found that under 15 USCS 78fff-2(c)(3), the “fraudulent transfer” claims became a liability of the partnership as of the commencement of the case, and Brown, as the general partner became liable for the transfers at issue under Fla. Stat. 620.1607(3). The Court rejected Brown’s “conduit” and “for value” defense. The Court determined that the Trustee provided evidence that Ken-Wen received the money in its own bank accounts and had complete dominion and control over the funds. The only persons with access to the bank accounts of Ken-Wen were its general partners, Brown and his former spouse. Rejecting Brown’s “for value” defense under Sec. 548 (c), the Court held that an investor’s profits from a Ponzi scheme are not ‘for value”.
The Court granted summary judgment in favor of the Trustee.
Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC (In re Madoff), 2022 Bankr. LEXIS 619, B.R.