Madoff’s missing millions

Mr Justice Popplewell last week threw out a series of claims against five former Madoff Securities International (MSI) directors, slamming the claimant Grant Thornton for bringing a “unfounded claim” that verged on public humiliation.

In dismissing a multi-million claim against the directors of Bernard Madoff’s European operations Mr Justice Popplewell had some stern words for Grant Thornton, telling the liquidator that its pursuit of the defendant verged on public humiliation.

This was a case that had generated countless headlines, with Grant Thornton pursuing 11 defendants in London, including Madoff’s sons Mark, who killed himself in 2010, and Andrew, who has cancer.

Popplewell J said the defendants had conducted themselves with dignity while struggling to deal with the ongoing fallout from Madoff senior’s $6bn scam.

It was, he said, an “unfounded claim” that had “threatened financial ruin and personal humiliation”.

The ruling will be a blow to the heavyweight legal team put together by Grant Thornton, led by Blackstone Chambers’ Pushpinder Saini QC and Taylor Wessing partners Nick Moser, David de Ferrars and Shane Gleghorn.

Sources suggest that the judgment came as a complete surprise. The case was meant to have brought the liquidators one step closer to recovering some of the money lost as a result of the collapse of Bernard L Madoff Investment Securities (BLMIS).

The court was asked to examine the relationship between the New York operations and UK-incorporated Madoff 
Securities International Limited (MSIL). The claimants alleged multiple breaches of directors’ duties, which included claims of conscious dishonesty. The claims was valued at more than £75m.

There was no suggestion that the defendants, which also included five former Madoff Securities International (MSI) directors, were aware of the scam being run in New York by Madoff senior.

There were, however, allegations that the directors had failed to prevent “improper payments” being made that were used to fund the Madoff’s luxurious lifestyle. That money, the liquidators claimed, had been used to pay for a motor yacht and an Aston Martin amongst many other things.

During the course of the six-week trial, the court heard that defendant Sonja Kohn, the founder of Bank Medici, received payments worth million of dollars between 1992 and 2008 from Madoff for a number of services.

In December 2010 Irving H Picard, the court-appointed trustee seeking to recover more than $15.5bn dollars for victims of Madoff’s fraud, had labelled Kohn Madoff’s “criminal soulmate whose greed and dishonest inventiveness equalled his own”. This became headline news as the case against her and the remaining defendants was launched publicly. According to the judgment this was how the defendants became aware of the case.

Dismissing allegations of dishonesty against Kohn, Popplewell J said she had been the victim of a “poisonous press release”.

The judgment read: “The relationship between Mrs Kohn and Bernard Madoff was purely a business one and they did not meet socially. They were not on close personal terms, and the relationship was one sided, in the sense that Bernard Madoff’s status and reputation meant that he dictated the course and terms of the professional relationship.”

Having been fully vindicated by the judge it would be unsurprising for Kohn to launch her own case for libel and defamation against the claimants.

The judge said that the defendants Leon Flax and Raven were both suffering from poor health. Philip Toop had conducted his own defence, something that had taken a toll on him.

He added: “The stress imposed on them and their families by these proceedings must have been immense, just as it must also have been on Andrew Madoff, seriously ill with cancer, and his and his brother’s families.

“I very much regret that I must have added to their burden by the time it has taken to prepare this judgment. Their honesty and integrity has been vindicated. The resolute and temperate way they have conducted themselves in these proceedings does them great credit.”

There is no doubt that this is a case that will have some serious ramifications for Irving Picard in New York. As for the defendants there was relief.

EMW principal Trevor Jenkin, who was instructed for Raven, said: “We’re delighted that the court has finally put an end to this unnecessary litigation, which should have been dismissed long ago. Its only achievement has been to rack up millions of pounds in legal expenses for the creditors of Madoff Securities International.

“Mr Justice Popplewell’s complete vindication of Mr. Raven and his co-defendants begs the question as to why this meritless claim was allowed to progress so far. The claimant’s virtually-unlimited resources may well have been a major reason.

“Mr Raven has consistently made every effort to avoid this lengthy and entirely needless litigation, but the claimant had clearly decided in advance to pursue this matter to the High Court.”

The question of costs must be high on the agenda.

The legal line-up

For the claimant MSIL:

Blackstone Chambers’ Pushpinder Saini QC leading Robert Weekes, Tom Richards and Shane Sibbel, all of the same set, instructed by Taylor Wessing partners David de Ferrars and Shane Gleghorn

For the defendant (1) Stephen Raven:

1 Chancery Lane’s Nicholas Yell instructed by EMW Law Trevor Jenkin

For the defendant (2) Leon Flax:

Selbourne Chambers Ian Clarke and Lara Kühl instructed by Radcliffes Le Brasseur partner Jill Cheater and Nigel West

The defendants (3) Christopher Dale; (4) Philip John Toop; (5) Malcolm Stevenson; (6) Peter Madoff appeared as litigants in person

For the defendant (7) Andrew Madoff (8) the estate of Mark Madoff:

One Essex Court Zoe O’Sullivan instructed by Pitmans partner David Archer and lawyers Julian Prentice and Alan Shenton

For the defendant (9) Sonja Kohn; (10) Erko Incorporated; and (11) Tecno:

4 Stone Buildings’ Jonathan Crow QC and James Knott instructed by Asserson Law Offices Trevor Asserson.