A recent ruling by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York dealt a tremendous blow to court-appointed Securities Investor Protection Act (SIPA) trustee Irving Picard’s efforts to recover billions of dollars for (and from) the victims of Bernard Madoff. The trustee, charged with the liquidation of Bernard L. Madoff Investment Securities LLC (“Madoff Securities”) for the benefit of its victims, commenced more than 1,000 lawsuits seeking to recoup tens of billions of dollars in profit and principal withdrawn by investors before Mr. Madoff’s scheme collapsed in 2008. The trustee pursued an aggressive litigation strategy, suing individuals and institutions for nearly $100 billion, and enjoyed initial success obtaining significant settlements, including a multi-billion dollar settlement with the estate of Madoff associate Jeffry Picower.

As bankruptcy attorneys, many of whom were taken by surprise by the ruling, begin to parse the far-reaching implications of this decision, one fact is certain—this decision will have a profound and adverse effect on the trustee’s efforts to recover and distribute funds to defrauded investors in Madoff Securities. It will also change the game for other SIPA and bankruptcy trustees as they try to recover money for victims of Ponzi schemes.

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