Retrieving cash from the fraudster’s companies is proving challenging.
The downfall of US fraudster Bernie Madoff, when it finally came, was one of the quickest in financial history, yet for the lawyers working to unravel his $50bn (£33bn) Ponzi Scheme it will be several years before the work is complete.
Madoff was arrested by the FBI on 12 December 2008 for his part in formulating and running the scam. Three days later, federal judge the Honorable Louis L Stanton appointed Irving Picard, a partner at US firm Baker Hostetler, as the trustee responsible for liquidating Bernard L Madoff Investment Securities (BLMIS) in the US.
Under the terms of the US Securities Investor Protection Act (Sipa), any claims from creditors would be determined by Picard in his role as the Sipa trustee, and a written determination of any ’customer’ claim would be mailed by the trustee to the claimant.
To be allowed, an investor’s claim would need to be supported by the books and records of BLMIS or otherwise established to the satisfaction of the trustee.
It was, and still is, Picard’s job to get as much cash out of the scheme to pay back thousands of investors who have between them lost billions of dollars in the scheme.
At the same time as Picard’s appointment, Lee Richards of Richards Kibbe & Orbe was appointed as receiver of Madoff’s assets. This included shares in UK company Madoff Securities International Limited (MSIL).
While this was going on in the US, Dundas & Wilson partner John Verrill received a call from someone on the Madoff investigation who was looking for a firm that could help unravel MSIL, whose accounts had been frozen by Richards on the order of Stanton.
Verrill recommended litigation consultancy AlixPartners, which was appointed to the case in the UK.
Days later, the Financial Services Authority (FSA) appointed Grant Thornton as provisional liquidator after it recognised that the big four accountancy firms were likely to be conflicted out because they audited feeder funds of the Madoff scheme. Verrill was then instructed to advise on the scope of Grant Thornton’s order.
In the US forensic firm FTI Consulting, which had bought PricewaterhouseCoopers’ business recovery services division in 2002, was brought in by Picard. Meanwhile, Phil Stern, a senior director in the FTI’s forensic and litigation group, was appointed and, after he joined FTI from Navigant Consulting, Paul Doxey was asked to work on the UK end of forensics.
Grant Thornton soon instructed Verrill to put together a legal team capable of advising on the UK end of MSIL. Soon after, Grant Thornton and Verrill also instructed 3-4 South Square silks Lexa Hilliard QC and Gabriel Moss QC.
Grant Thornton, whose team is being led by recovery and reorganisation partner Steve Akers, then made contact with US firm Baach Robinson Lewis asking it to work on the US end of its case. Akers had previously worked with Baach Robinson partner Eric Lewis on the BCCI supercase.
Dundas, which was initially instructed to advise Grant Thornton on the scope if its case, has since become instrumental in coordinating the many legal teams working internationally to uncover exactly where Madoff put the missing money.
Wanting to share information with its US counterparts, the firm came up against the Data Protection Act, which severely restricted the firm’s ability to share data with the US. It was forced to go to the High Court for special dispensation to send details of its investigation to the Sipa trustee.
Information also needed to be shared with the US Department of Justice (DoJ) and the Securities and Exchange Commission (SEC).
Meanwhile Picard, through his UK-appointed lawyer, Lovells partner Chris Grierson, and instructed counsel Robin Dicker QC of 3-4 South Square, sought recognition of the US Sipa proceedings in the UK under the Cross Border Insolvency Regulations. This, too, would enable the US investigators to share information with their UK counterparts.
Getting permission for data to be shared assures that those involved will not find themselves liable for distress in the event that anything goes awry while the investigation continues. On a global level, it was a legal first for so many lawyers to come together.
As Verrill recently told The Lawyer: “There are lots of preconceived ideas and we have to break down the barriers.”
The business of chasing the assets for MSIL – and those which it paid for – is already underway. So far, Madoff’s yacht, Bull, has been seized in the South of France and an Aston Martin has been seized in Florida. Taking the Aston involved Baach Robinson getting Chapter 15 Recognition of the joint provisional liquidators process in respect of MSIL.
In order for the firms to work together without compromising their positions, protocols needed to be put in place.
These would not only cover the US and UK firms, but also French firm Gide Loyrette Nouel, which was looking to recover cash for Luxemburg-based vehicle Financière Meeschaert, and Nigel Meeson QC of Cayman-headquartered Conyers Dill & Pearman, who was assisting in trying to get the title deeds to Madoff’s super yacht. French firm Villeneau Rohard Simon & Associes represented the joint provisional liquidators in the Antibes Commercial Court.
It is likely that the case will now be moved from New York to Florida and that the personal bankruptcy of Madoff will be merged with the collapse of the business.
Further work still needs to be done to thrash out the detail, and a framework for cooperation is being put together. “It’s settling into a long old slog,” says one partner connected with the case.
It took Madoff more than 40 years to amass his Ponzi Scheme. The pressure is now on the lawyers to ensure it does not take 40 years to get the money back.