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Bankruptcy Court Lawsuit for Bernie Madoff’s Son

January 4, 2012


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Andrew Madoff, son of Ponzi scheme artist Bernard Madoff, now faces a $198 million lawsuit, thanks to the decision of a bankruptcy judge in a Manhattan Bankruptcy Court, according to Bloomberg News. The decision illustrates the power the bankruptcy court has to rule on those who have sought its protection.

In Andrew Madoff’s case, the situation worked like this: he filed a claim against his father’s bankruptcy estate in the fallout around the collapse of the Madoff Ponzi scheme. Because he filed that claim in bankruptcy court, he automatically gave the court the power to rule on the claim.

The bankruptcy judge involved handed down his original decision in October of 2011, but Andrew Madoff reportedly appealed the decision to let the suit go forward, insisting that permitting the suit could open the door to expanding the liability of others facing similarly large bankruptcy cases.

But the bankruptcy judge’s new ruling cites a Supreme Court decision, indicating that the young Madoff has no legal basis to appeal to a decision to a higher court. Further, according to the decision, Madoff submitted to the bankruptcy court’s authority when he submitted his original claim in that venue.

Lawsuit May Not Pan Out

Even though the bankruptcy court has permitted the lawsuit to go forward, there is some dispute as to whether the lawsuit has a decent chance of succeeding. While lawyers on both sides of the issue apparently have plenty to say on the issue, those representing Andrew Madoff have allegedly insisted that he has no liability for the $198 million, because he had no knowledge of his father’s schemes.

And yet another contributor to this issue, another U.S. District Judge, has faulted the bringer of the lawsuit, Irving Picard, for attempting to keep the lawsuit bound to the bankruptcy court when it involved issues beyond those addressed in bankruptcy law.

Picard’s original complaint asserted that members of the Madoff family who held senior positions at the Madoff firm were aware of the fraudulent activity going on, profited from it, and should therefore be responsible for compensating the victims.

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