Irving H. Picard v. RAR Entrepreneurial Fund, Ltd.

Background

Irving H. Picard, the trustee overseeing the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS), sued RAR Entrepreneurial Fund, Ltd. under the Bankruptcy Code to avoid and recover $12,800,065 allegedly transferred to RAR. The Trustee claimed the transfers represented fictitious profits from Madoff’s investment-advisory business and were fraudulent transfers.

The Trustee and RAR filed cross-motions for summary judgment. Summary judgment is a ruling without a trial when the evidence shows that no important factual dispute requires a factfinder’s decision. The court also addressed RAR’s argument that the Trustee lacked standing, meaning the legal authority to bring the claims.

Standing

RAR argued that the Trustee lacked standing because the bank accounts used for the transfers belonged to Bernard L. Madoff or his earlier sole proprietorship, rather than BLMIS. The court rejected that argument. It explained that the question of who owned the accounts went to the merits of the Trustee’s claims, not to the court’s jurisdiction. The court also found that, even treating ownership as a standing issue, the Trustee had provided enough evidence to establish standing at the summary-judgment stage. RAR’s motion was therefore denied on standing grounds.

Fraudulent-transfer claim

The Trustee’s claim under 11 U.S.C. § 548(a)(1)(A) required proof of three elements: a transfer of BLMIS property, a transfer made within two years before the bankruptcy filing, and an actual intent to hinder, delay, or defraud a creditor.

The court held that the Trustee established the timing element. The Trustee’s experts traced the relevant cash withdrawals and showed that transfers totaling $12,800,065 were made to RAR within the two-year period. The court also rejected RAR’s objections to the admissibility of BLMIS’s books and records and the Trustee’s expert reports, finding that the records qualified as business records and were sufficiently corroborated.

The court also held that the Trustee established actual fraudulent intent. It relied on evidence that Madoff operated a Ponzi scheme and that the transfers to RAR furthered that scheme. The court found that Madoff’s and other former BLMIS employees’ criminal plea statements were admissible and supported the presumption that the transfers were made with actual intent to defraud. It also rejected RAR’s challenges to the credibility and methodology of the Trustee’s expert, Bruce Dubinsky.

The court did not resolve the remaining element: whether the transfers were of an interest of BLMIS in property. The 2001 Securities and Exchange Commission filing provided strong evidence that the sole proprietorship’s assets and liabilities had been transferred to BLMIS. But other evidence could support a finding that the investment-advisory business and the relevant bank accounts remained with Madoff or the sole proprietorship. Because a reasonable factfinder could reach either conclusion, the court held that this issue required a trial.

Affirmative defenses

RAR asserted that it could retain the money because it received the transfers in good faith and gave value in exchange. It also argued that the two-year period in Section 548 barred the Trustee from using earlier obligations to recover the payments. The court rejected both defenses based on the Second Circuit’s decision in a prior related proceeding. It dismissed both affirmative defenses.

Disposition

Under Federal Rule of Civil Procedure 56(g), the Trustee’s motion for summary judgment was granted with respect to two elements of the claim—the transfers’ timing and actual fraudulent intent—and denied with respect to whether the transfers involved BLMIS property. RAR’s cross-motion was denied in full. The court directed that the remaining ownership issue proceed toward trial and directed the Clerk to terminate Russell Oasis and Tamiami Tower Corporation as defendants.