Madoff Bankruptcy Decision Offers Protection for Foreign Investors

In re Madoff Securities Extends Morrison Framework to Prevent Avoidance of Purely Foreign Transfers under SIPA and the Bankruptcy Code -

Applying the U.S. Supreme Court’s landmark decision in Morrison v. National Australian Bank Ltd., 130 S. Ct. 2869 (2010), to the highest profile and widest-ranging securities fraud case in decades, Judge Jed S. Rakoff of United States District Court for the Southern District of New York ruled Monday, July 7, 2014, that the trustee administering Bernie Madoff’s insolvent estate may not use the U.S. Bankruptcy Code to claw back “purely foreign” transactions between foreign entities. By applying Morrison to such a visible case with a number of foreign defendants, the court recognized an important protection for foreign investors who may not have anticipated that their investments — and their returns — could otherwise be subject to clawback under US law.

Background -

Madoff funded his now-famous Ponzi scheme partly through the investments from so-called “feeder funds” — investment vehicles that pooled investments from outside investors and in turn invested those monies in Madoff’s putative investment company, Bernard L. Madoff Investment Securities LLC (BLMIS). Many of these feeder funds were organized and operated outside of the United States and, not surprisingly, many of their investors were foreign persons or entities.

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