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Madoff Trustee Appeal Brief

Madoff Trustee Appeal Brief

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Categories:Types, Business/Law
Published by: DealBook on Mar 02, 2011
Copyright:Attribution Non-commercial

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03/22/2013

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10-2378
-
bk
(
L
)
IN THE
United States Court of Appeals
FOR THE SECOND CIRCUIT
I
N RE
: B
ERNARD
L. M
ADOFF
I
NVESTMENT
S
ECURITIES
LLC
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF NEW YORK
BRIEFFOR TRUSTEE-APPELLEE IRVINGH. PICARD, AS TRUSTEEFOR THE SUBSTANTIVELYCONSOLIDATED SIPALIQUIDATIONOFBERNARD L. MADOFFINVESTMENT SECURITIES LLCAND BERNARD L. MADOFF
10-2676,10-2677,10-2679, 10-2684, 10-2685, 10-2687,10-2691, 10-2693, 10-2694, 10-2718, 10-2737, 10-3188,10-3579, 10-3675
d
D
AVID
J. S
HEEHAN
, E
SQ
.T
HOMAS
D. W
ARREN
, E
SQ
.W
ENDY
J. G
IBSON
, E
SQ
.S
EANNA
R. B
ROWN
, E
SQ
.B
AKER
& H
OSTETLER
LLP45 Rockefeller PlazaNew York, New York 10111(212) 589-4200
Attorneys for 
Trustee-AppelleeIrving H. Picard, as Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L.Madoff Investment Securities LLC and Bernard L. Madoff 
Case: 10-2378   Document: 283   Page: 1    09/20/2010    109548    70
 
i
 
TABLE OF CONTENTSPAGE
 PRELIMINARY STATEMENT ...............................................................................1
 
JURISDICTIONAL STATEMENT..........................................................................2
 
STATEMENT OF THE ISSUES...............................................................................2
 
STATEMENT OF THE CASE..................................................................................4
 
STATEMENT OF FACTS........................................................................................7
 
A.
 
The Relevant Facts Are Not In Dispute......................................7
 
B.
 
The Structure Of BLMIS And Its Collapse..............................10
 
C.
 
The Fraudulent Scheme. ...........................................................13
 
D.
 
Investments In The BLMIS Fund.............................................15
 
E.
 
Generation Of Customer Statements. .......................................16
 
F.
 
BLMIS Customers’ Investments Were Never ExposedTo The Risks Of Market Trading, And The “Profits”Were Fictional...........................................................................17
 
G.
 
SIPA, SIPC, And Net Equity....................................................18
 
SUMMARY OF THE ARGUMENT......................................................................21
 
ARGUMENT...........................................................................................................22
 
I.
 
STANDARD OF REVIEW. ...............................................................22
 
II.
 
UNDER THE PLAIN LANGUAGE OF SIPA, NET EQUITYSHOULD BE BASED UPON CUSTOMERS’ NETINVESTMENTS, NOT THE FICTITIOUS AMOUNTSSHOWN ON THEIR LAST STATEMENTS. ...................................22
 
A.
 
The Last Statements Did Not Reflect Securities PositionsThat Could Have Been Liquidated As Of The FilingDate...........................................................................................22
 
B.
 
The “Books and Records” Provision Of SIPA SupportsThe Net-Investment Method Of Calculating Net Equity..........27
 
III.
 
THE APPELLANTS HAVE NO LEGITIMATEEXPECTATIONS IN THE PROFITS OF A PONZI SCHEME........30
 
A.
 
Net Equity Is Not Based Upon Customer Expectations...........30
 
Case: 10-2378   Document: 283   Page: 2    09/20/2010    109548    70
 
ii
 
 
B.
 
Customers Have No Legitimate Expectations In TheProceeds Of A Fraud.................................................................34
 
IV.
 
BASING NET EQUITY ON FRAUDULENT CUSTOMERSTATEMENTS WOULD CONFLICT WITH THETRUSTEE’S AVOIDANCE POWERS..............................................37
 
A.
 
Payments Of Fictitious “Profits” In Furtherance Of APonzi Scheme Are Made With The Intent To DefraudAnd Are Not For Reasonably Equivalent Value. .....................38
 
B.
 
Section 546(e) Of The Bankruptcy Code Does NotPrevent The Trustee From Avoiding Ponzi-SchemeTransfers....................................................................................40
 
V.
 
THE COURT SHOULD DEFER TO THEINTERPRETATION OF “NET EQUITY” ADVANCED BYSIPC AND THE SEC..........................................................................44
 
VI.
 
JUDICIAL ESTOPPEL HAS NO APPLICATION HERE................49
 
VII.
 
THE NET INVESTMENT METHOD MIRRORS THESTANDARD JUDICIAL TREATMENT OF PONZISCHEMES...........................................................................................51
 
VIII.
 
BASING NET EQUITY UPON FICTITIOUS CUSTOMERSTATEMENTS WOULD BE INEQUITABLE.................................53
 
CONCLUSION........................................................................................................56
 
Case: 10-2378   Document: 283   Page: 3    09/20/2010    109548    70

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