This is the fifty-fifth in a series of Installments on this blog that are discussing issues arising from the Bernard L. Madoff scandal (“Madoff”). A number of Installments in this series, most recently Installment 54, have highlighted the apparently inconsistent and peremptory approach that Irving Picard, the Trustee in the Madoff bankruptcy (“Mr. Picard”) has taken with respect to the Wilpon/Katz families, the owners of the New York Mets, and their Section 501(c)(3) private foundations (collectively, “Wilpon/Katz”), in contrast to other charitable organizations.
Installment 54 pointed out that there was a new playing field and environment to be confronted by Picard with the entry by Federal District Court Judge Jed S. Rakoff into various lawsuits brought by Mr. Picard. Judge Rakoff has now already indicated that the game in his court will differ from the home field that Mr. Picard has enjoyed for over 2 ½ years in the bankruptcy court. Last week there were two new developments for Mr. Picard, one in the Federal District Court and the other from a new team - the General Accountability Office (the “GAO”).
Diana B. Henriques wrote in a July 29, 2011 article in The New York Times about Judge Rakoff’s ruling that Mr. Picard did not have the right to sue HSBC and other banks on behalf of the victims. Ms. Henriques observed that:
The opinion [in the HSBC case] will most likely be closely read by lawyers for the owners of the New York Mets baseball team, who are also before Judge Rakoff challenging a case Mr. Picard has filed that seeks $1 billion in fictional profits and damages from the team’s owners, the Wilpon family.
At a hearing on the HSBC issue earlier this year, Judge Rakoff indicated that he saw a different set of issues arising in the challenge by the Wilpon family, so it was not clear what effect this new ruling would have on that suit.
On July 29, 2011, Joe Nocera observed in his column in The New York Times entitled “The Madoff Trustee’s Bad Day”:
Ultimately, Picard and Sheehan [one of Mr. Picard’s chief attorneys] were trying to do something that has been sorely lacking in the aftermath of the financial crisis. They were trying to bring about some justice, using the only weapon at their disposal: litigation. That’s not their job, of course, and that is partly why they were handed such a stinging defeat. But at least they were trying, which is more than you can say for the Justice Department.
Mr. Picard can certainly appeal Judge Rakoff’s ruling. Nonetheless, it is clear that Judge Rakoff will be bringing a bold new perspective to issues in the Madoff bankruptcy, perhaps including the Wilpon/Katz matter. Additionally, Mr. Nocera’s article brings to mind the question as to whether the Madoff trustee should be expending millions in legal fees approved by the bankruptcy court for embarking on an adventure “that’s not their job.”
This last week also saw the entry of the GAO as a new player in the Madoff aftermath. An article written by Michael O’Keefe in the NY Daily News on July 28, 2011 reported:
A federal watchdog agency [the GAO] has agreed to investigate allegations that Irving Picard . . . is punishing the Ponzi scheme scammer's victims by filing “clawback”" lawsuits, Rep. Scott Garrett (R-N.J.) announced Wednesday.
The “comprehensive evaluation” of Picard's work as the Madoff trustee will also include a review of the legal investigative costs Picard and his firm, Baker & Hostetler, have incurred during the cost of the investigation.
This development raises a new wrinkle for Mr. Picard in that, for the first time, he and his team will be playing defense. If the review of the GAO is broad enough, then it may get into some of the decisions made by Mr. Picard in pursuing clawback in selected cases and in specific instances, such as Wilpon/Katz, even principal recovery.
Other questions may arise out of the new GAO investigation. For example, who will foot the inevitable legal bills of Mr. Picard and his law firm, potentially both internal and external, in their responses to inquiries by the GAO? Will Mr. Picard seek payment or reimbursement from the bankruptcy court of all or part of the legal time spent as reasonable and necessary costs of the Madoff proceeding? If Mr. Picard were to do so, will the bankruptcy court approve the payments requested, as it has done for his fee applications to date?
One thing is clear. The Madoff bankruptcy is far from over and will continue to generate considerable interest and new legal precedents.
[To be continued in Installment 56]