(Bloomberg News) The liquidator of Bernard L. Madoff's firm defended a "clawback" lawsuit against a doctor who invested in the Ponzi scheme, saying a U.S. appeals court ruling backed up his claim that fictitious paper profits are an "absurd" measure of investors' holdings.
Gerald Blumenthal, the investor, is asking a U.S. District Court judge to rule on his argument that the Madoff estate owes him the amount reflected on his Madoff brokerage statements, trustee Irving Picard said yesterday in a court filing. The trustee is demanding return of $1.6 million in transfers deemed "fraudulent" under bankruptcy law.
A federal appeals court in New York ruled on Aug. 16 that in calculating what to pay Madoff customers, Picard should ignore fictitious profit, which merely reflected the con man's "machinations." While the court didn't say what Picard can take from investors, his argument for clawing back profit was "bolstered" by the ruling, said Peter Henning, a professor at Wayne State University in Detroit.
"It does not address the clawback suits directly, but that is the basis for assessing the claims and pursuing the suits against the net winners," he said.
Jonathan Landers, a lawyer for Blumenthal, declined to comment on the Picard filing.
Most of the 1,000 suits Picard has filed to gather money for Madoff customers are aimed at taking back profit withdrawn before Madoff's 2008 bankruptcy, the trustee has said.
Mets Owners
New York Mets owners Fred Wilpon and Saul Katz, who are trying to get a $1 billion lawsuit dismissed, are fighting the trustee's demand for $300 million in fictitious profit with federal law governing brokerages.
Under federal regulations, brokerages must issue customer statements and trade confirmations that are "legally enforceable evidence" of a broker's obligation to customers, entitling customers to take out money, they have said in court papers.
The appeals court ruling doesn't apply to clawback suits, a lawyer for the Mets owners told U.S. District Judge Jed Rakoff in Manhattan at a court hearing last week.