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Bloomberg: Madoff Trustee Says Defendants’ Judge-Shopping Perverts Law

By Linda Sandler

The liquidator of Bernard L. Madoff’s firm said people and companies he sued in 247 actions are “perverting” the law by rushing to find new judges for their cases. Investors say he’s doing the perverting.

Defendants in lawsuits by trustee Irving Picard, including JPMorgan Chase & Co. (JPM) and the New York Mets owners, have asked district judges to decide whether Picard has the right to sue them, and for how much. They seek an “escape hatch” from bankruptcy court, which Congress intended to handle such cases as clawbacks of money withdrawn from a Ponzi scheme, the trustee said yesterday in court papers.

Picard’s filing was a response to the effort by Melvyn Weiss, the disbarred co-founder of the law firm Milberg LLP, to move a case to district court. Higher-court rulings on the power of bankruptcy judges, including one in the Anna Nicole Smith case, enabled Picard’s targets to try to get hearings elsewhere.

“With the floodgates fully flung open, more and more parties are blatantly engaging in forum shopping,” Picard said in the filing in U.S. District Court in New York. “Through this procedural gamesmanship, the Weiss defendants -- along with the defendants in the 246 other actions presently before this court -- are eviscerating the bankruptcy court’s nearly three years of hard work,” he said, referring to the start of the Madoff firm’s liquidation in 2008 after the confidence man’s arrest.

Picard’s targets have a right to defend themselves against “unfair treatment,” said the Network for Investor Action and Protection, a group founded by Madoff investors.

Suing the Innocent

It is the trustee who is perverting investor protection law by suing thousands of innocent investors, Ron Stein, president of the group, said in an e-mailed statement.

“It is absurd that the trustee is complaining about the targets of his lawsuits exercising their right to defend themselves,” he said. “And it should be noted that despite his ‘three years of hard work,’ he has barely begun to return lost money to these innocent investors -- not exactly a swift return of funds that investor protection laws clearly require.”

Picard this month started sending holders of 1,230 Madoff accounts $312 million, or about 4.6 percent of the money he said they lost in the fraud. About $5 billion of the $8.7 billion he said he has recovered to pay principal of $17.3 billion is tied up in court challenges.

U.S. Bankruptcy Judge Burton Lifland, who is handling much of the Madoff case, commented separately from Picard about an attack on his court yesterday.

Cayman Islands Case

Stopping a lawsuit against the trustee in the Cayman Islands, he said Maxam Absolute Return Fund Ltd.’s action was “a clear attack on this court’s exclusive jurisdiction and a blatant attempt to hijack the key issues to another court,” according to a court filing.

Picard sued Maxam for about $100 million.

Ex-Milberg lawyer Weiss asked a district judge last month to take his case from bankruptcy court, saying it raised federal law questions that require a district judge’s ruling.

U.S. District Judge Jed Rakoff cut two-thirds off Picard’s billion-dollar claim against the owners of the New York Mets and threw out about $9 billion of claims against HSBC Holdings Plc (HSBA) and other parties.

Picard and his firm have charged more than $224 million for work since Madoff’s 2008 arrest. Madoff is serving a 150-year sentence in a federal prison in North Carolina.

The Weiss case is Picard v. M&B Weiss Family Limited Partnership, 11-cv-06244, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.