News

Seanna Brown Quoted in Coverage of Appeal by Madoff Investors over Ponzi Profits

News / March 31, 2020

Law360 reporter Frank G. Runyeon’s article on March 31, 2020, “Madoff Investors Ask 2nd Circ. To Keep $41M In Ponzi Profits,” named BakerHostetler Partner Seanna R. Brown, as well as SIPA Trustee and BakerHostetler Partner Irving H. Picard. The article referenced the oral argument before the Second Circuit on whether Ponzi scheme investors can give “value” in exchange for the withdrawal of fictitious profits under section 548(c) of the Bankruptcy Code.

Investors who profited off of Bernard Madoff’s Ponzi scheme told a Second Circuit panel that “…they should be able to keep the tens of millions in proceeds, arguing that bankruptcy law dictates the money is rightfully theirs.” The investors “…argued that their gains from Madoff’s firm were not fraudulent transfers because they were ‘good faith withdrawals from brokerage accounts and the withdrawals satisfied a debt,’ which shields them from having to cough up $41 million in Ponzi scheme proceeds sought by the liquidating estate of Bernard L. Madoff Investment Securities LLC in four clawback cases filed in 2010.”

As Runyeon reported, a federal appellate panel expressed skepticism on the investors’ position that they are entitled to keep the funds they withdrew, with one appellate judge questioning the investors’ attorney’s argument that “…this group of Madoff investors was specifically protected as customers under the Securities Exchange Act of 1934.”

Brown touted her side’s long string of victories on this issue. Quoting Brown’s argument, the article said, “All three judges that considered the value question have recognized that every single circuit court to consider this issue has concluded that an investor’s profits from a Ponzi scheme are not for value under the bankruptcy code. ‘The prevailing view in this district and bankruptcy courts of this circuit is the same: Investors don’t get value for their Ponzi profits. So, the appellants lose under the bankruptcy code, which is the regime that they’re arguing applies here.’”

The appeal is Picard v. Gettinger, et al., case numbers 19-429, 19-443, 19-501, and 19-510, in the U.S. Court of Appeals for the Second Circuit.

Read the article (registration required).