Billionaire brothers Charles and David Koch’s company fought for years to hold on to millions of dollars in profit from Bernard Madoff’s Ponzi scheme. That battle just paid off, and victims won’t like it.
Koch Industries and dozens of other former Madoff customers are poised to keep as much as $2 billion they gleaned from the con man’s bogus securities transactions after U.S. Bankruptcy Judge Stuart Bernstein in Manhattan ruled the cash is out of reach of a trustee recovering money for victims.
The ruling on Monday underscores that even eight years after the collapse of the biggest Ponzi scheme in U.S. history, the litigation stemming from the scam is still being defined by which Madoff customers profited at the expense of others. Many are still waiting for their principal.
Koch Industries and defendants in about 100 other suits argued the profit was beyond U.S. jurisdiction because it had been transferred -- usually from offshore feeder funds to foreign banks -- in the years before Madoff’s December 2008 arrest. Irving Picard, the lawyer who is liquidating the New York-based firm, contended the money could be clawed back because investors and feeder funds must have known they were subject to U.S. law. Bernstein disagreed.
While Picard has had mixed success in court, his combination of settlements and courtroom victories has raised almost $11.5 billion for victims, who lost $17.5 billion in principal. The litigation involving Koch and the other early Madoff investors relied on a legal defense known as extraterritoriality, and held the last large pot of cash that may have been available for victims.
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Koch, an industrial conglomerate and one of the biggest private companies in the U.S., started investing with Madoff in the mid-1990s, according to court records. The company, run by the conservative-activist brothers who are worth a combined $102 billion, has refused Picard’s demands to return the money.
Picard sued Koch to recover $21.5 million that had been sent from Madoff’s firm in 2005 to a fund based in the British Virgin Islands, and then to a Koch entity in the U.K.
The defendants in the related cases initially claimed a victory in 2014 when U.S. District Judge Jed Rakoff said that money transferred overseas is generally out of Picard’s reach, but sent the case back to bankruptcy court for further arguments on how his ruling impacted the individual cases.
Monday’s decision dismisses almost all the claims and denies Picard’s request to amend them, said Franklin Velie, who represented the defendants in all the lawsuits.