Irving Picard may lose his home-field advantage.
After recovering some $8 billion in ill-gotten gains, the bankruptcy trustee for victims of Bernie Madoff’s massive fraud may find clawing back nearly $20 billion more from the owners of the Mets, HSBC and JPMorgan Chase, among others, a much tougher task.
That’s because Picard may have to bring some of his claims against banks, feeder funds and investors who profited from the scam in US district court, rather than before a bankruptcy judge where he is on more familiar ground.
Last week, Manhattan federal judge Jed Rakoff delivered a legal setback to Picard, saying he would consider removing certain fraud claims tied to HSBC and Spanish bank Unicredit from bankruptcy court to federal court.
“This is a significant challenge to Picard,” said Bill Singer, a veteran securities lawyer at Gusrae, Kaplan, who is not involved in the Madoff hearings.
To be sure, some lawyers believe that Rakoff’s decision is too narrow for defendants to start cheering just yet.
“I wouldn’t read too much into Rakoff’s decision,” said Douglas Furth, partner at Golenbock Eiseman.
So far, Picard’s claims have been heard by bankruptcy judge Burton Lifland. But that would change if Rakoff determines that certain claims don’t belong in bankruptcy court, according to one New York lawyer who did not want to be identified because he’s involved in the case.
For Picard, bankruptcy court is like a “home game,” the lawyer said.
Picard has clawed back some $7.6 billion on behalf of Madoff victims from those who he charges improperly profited from Madoff.
But some legal experts believe he’s pushing the envelope by going after more than just ill-gotten gains. Picard is also seeking additional funds from banks and investors he claims should have known they were profiting from a fraud, including HSBC, JPMorgan Chase and Mets’ owners Fred Wilpon and Saul Katz.
Picard is looking for $9 billion from feeder funds connected to HSBC, $6.4 billion from JPMorgan Chase, $2 billion from UBS, $1 billion from the Mets’ owners and $425 million from Citigroup, among others.
Sources said the Mets are likely to raise their own motions to dismiss Picard’s fraud suit by questioning his standing and arguing that clients of brokerage firms have a safe harbor from pursuit of certain claims in bankruptcy court.