Madoff Investor Argues for Retrial In Ponzi Clawback Effort

Judges were skeptical that RAR Entrepreneurial Fund Ltd. deserves a new trial over $19 million that was clawed back by the trustee in charge of unwinding Bernard L. Madoff Investment Securities.

During trial last year, forensic accountant Bruce Dubinsky shared opinions on issues that RAR argued aren’t relevant to his experience, but Second Circuit Court of Appeals Chief Judge Debra Ann Livingston said she didn’t see what’s wrong with having Dubinsky share his perspective.

“I guess I’m having difficulty seeing what’s wrong with an accounting perspective on the issues that he testified to,” Livingston said during Friday’s oral argument.

Dubinsky’s accounting experience wasn’t relevant to the main issue at trial, which was figuring out which entity owned the bank accounts that were used to fund Madoff’s Ponzi scheme, said RAR’s attorney Matthew Conigliaro, shareholder at Carlton Fields.

“He was testifying not just to as an accounting matter—where I see funds going from place to place—but to actual ownership,” Conigliaro said.

Conigliaro said RAR would’ve secured its own expert witness to counter Dubinsky’s testimony if it would’ve been notified ahead of time that the accountant was going to address the ownership issue.

The trustee’s attorney, Deirdre Farrell, associate at Baker & Hostetler LLP, argued that RAR had two years from the time the trustee’s briefing document was filed in 2020 to prepare for Dubinsky’s testimony at trial in 2022.

“Ambush by trial is not what happened here,” Farrell said.

The Ownership Question

Madoff transferred his Bernard L. Madoff Investment Securities from a sole proprietorship to an LLC in 2001, but RAR argues its investments weren’t transferred over to LLC ownership. Trustee Irving Picard, RAR argues, doesn’t have standing to sue for the money since he’s liquidating the LLC, not the sole proprietorship.

RAR’s transfer requests to BLMIS said the company would like to withdraw money from its account with Madoff. The requests didn’t acknowledge the account was with the LLC, Conigliaro told the Second Circuit judges.

“Does that reflect there were two business going on, or, more plausibly that it was just one business under BLMIS?” Judge Michael Park asked.

The Securities Investor Protection Corp., of which BLMIS was a member firm, argues that RAR’s funds were owned by the LLC and were part of Madoff’s Ponzi scheme. SIPC is a government corporation that oversees the liquidation of member firms, including BLMIS.

Recoupment Efforts

The RAR case is part of a more than decade-long effort to liquidate BLMIS and repay Madoff investors.

Between 1999 and 2008, RAR gave Madoff approximately $32.1 million in investments, and withdrew about $44.9 million. The difference of $12.8 million is what the trustee was trying to recoup.

The US District Court for the Southern District of New York in 2022 ruled in favor of Picard for the principal amount of $12.8 million plus prejudgment interest of $6.1 million for a total of $18.9 million.

The district court, according to RAR, abused its discretion in awarding the interest amount, which it says was the result of years of delay on Picard’s part.

RAR wants the Second Circuit to either reverse the judgment or send it back for a new trial.

Last year, the Second Circuit affirmed that the BLMIS trustee could collect nearly $3 million plus interest from good-faith investors who successfully withdrew funds from Madoff’s brokerage business in the two years before it filed for bankruptcy.

The case is Picard v. RAR Entrepreneurial Fund Ltd., 2d Cir. App., No. 22-3006, oral argument 12/8/23.