The movants argued that although Bernard L. Madoff Investment Securities LLC ("BLMIS") is presently being liquidated under SIPA in case 08-1789 in the Bankruptcy Court of the Southern District of New York, no bankruptcy case has yet been commenced against Madoff individually nor has a receiver apparently been appointed for Madoff's individual property. The movants further argued that a bankruptcy proceeding against Madoff individually could be coordinated with the present SIPA case pending in Bankruptcy Court against BLMIS.
The motion was opposed by the SEC, the U.S. Attorney, and the Trustee of Bernard L. Madoff Investment Securities LLC ("BLMIS") under SIPA. These parties questioned the utility of a bankruptcy proceeding as to Madoff's individual assets that are not criminally forfeitable. The SIPA Trustee claimed that he alone could "deliver maximum relief to victims." The U.S. Attorney emphasized that the criminal forfeiture is an independent system of recovery and distribution in which Madoff's general unsecured creditors would not have standing and that the criminal forfeiture processes are not subject to bankruptcy's automatic stay. A criminal forfeiture order divests the defendant of forfeited property and the property does not become part of the defendant's bankruptcy estate. United States v. Pelullo, 178 F.3d 196, 203 (3rd Cir. 1999).
The Court noted that although Madoff's assets have been frozen, they are not subject presently to any form of receivership. The Court further noted the distinction that a distribution under SIPA would be to those who invested in the BLMIS's "customers" rather than to those "whose losses stemmed from investments made through intermediaries."
The Court stated the opponents to the motion did not offer "as familiar, comprehensive, and experienced a regime as does the Bankruptcy Code for staying the proliferation of individual lawsuits against Mr. Madoff individually, marshaling his personal assets other than those criminally forfeitable, and distributing those assets among his creditor according to an established hierarchy of claims." The Court found that the concerns of increased administrative costs or delay were merely speculative and outweighed by a Bankruptcy Trustee's ability for orderly and equitable administration of assets.
The Court ruled that the moving parties should be able to pursue an involuntary bankruptcy against Madoff as to property that is neither criminally forfeitable nor subject to liquidation of BLMIS under SIPA. The Court suggested in a footnote that the Attorney General "might consider delegating forfeited property to the bankruptcy estate."Jordan E. Bublick, Miami, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983
