June 06, 2022, US Bankruptcy Court for the Southern District of New York – In 2010, Irving H. Picard, the Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) brought the adversary proceeding to avoid and recover “fictitious” profits transferred from BLMIS to the Defendant, Estate of James M. Goodman.
James M. Goodman was a customer of the investment advisory business and held BLMIS Account 1G0320 from which $350,000 were withdrawn during the two-years period preceding the commencement of SIPA liquidation.
The Court found that all monies transferred from the 509 Account are “customer property” and are deemed to have been BLMIS’s property for purposes of these SIPA cases. The Court agreed with the reasoning given by the Southern New York Bankruptcy Court in Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC (In re Madoff) and noted that when the Defendants invested their money into the investment advisory business, the deposits were placed into the bank accounts and commingled with all of the “Ponzi scheme” victims’ deposits. The funds held in the bank accounts were meant to be invested legitimately through BLMIS but never were. The Court concluded that these funds were ‘customer property’ and that transfer of this property shall be considered as the transfer of an interest of the debtor in property.
The Trustee successfully established all the elements of avoidance and recovery of fraudulent transfers under Section 548(a)(1)(A) of the Bankruptcy Court to the Court’s satisfaction and was given the benefit of ponzi scheme presumption by the Court.
The Court also awarded the Trustee prejudgment interest in the amount of 4% commencing on the filing date of December 1, 2010 through the date of an entry of judgment.
Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 2022 Bankr. LEXIS 1575