Lost $1 Billion
Harley ended up investing all its money -- more than $2 billion -- in Madoff’s firm, according to the court filings. But as the financial crisis accelerated, Harley withdrew $1.07 billion in the two years before Madoff’s arrest. The remaining $1 billion in Harley’s account went up in smoke, and the fund was forced into liquidation by a Cayman Islands court in 2009.
Picard sued Harley in federal court in Manhattan in 2009 for the return of the entire $1.07 billion it had withdrawn. Picard argued the hedge fund "knew or should have known" that Madoff was a fraud, based on the unrealistic and steady returns it received, according to the complaint against the fund.
U.S. Jurisdiction
Harley now faced a decision: Filing a claim for its $1 billion loss would expose the hedge fund to U.S. jurisdiction and Picard’s suit. That trade-off may not have seemed wise at the time, according to lawyers. Harley could conceivably be forced to cough up the $1.07 billion to Picard -- and recover maybe $50 million on its loss.
So, Harley didn’t file a claim and ignored the suit. In 2010 a federal judge awarded Picard a default judgment for the full amount he sought. Picard still hasn’t collected the money.
Harley “made a strategic decision not to appear in this jurisdiction,” Elizabeth Scully, one of Picard’s lawyers, said in a 2010 court hearing in Manhattan.
“You can envision someone doing the math and thinking the recovery in the bankruptcy process would be only a few pennies on the dollar,” said Matthew L. Schwartz, a former federal prosecutor in Manhattan who worked on the Madoff case.
Geoff Varga, Harley’s court-appointed liquidator with Duff & Phelps LLP in Manhattan, confirmed that Harley didn’t file a claim in the Madoff case. He declined to say why.
"It shouldn’t be too difficult to figure out why Harley didn’t file a claim in the Madoff liquidation," Anthony Inder Rieden, the chief executive officer of Euro-Dutch, which is still in operation, said in an e-mail. He declined to elaborate.