Jan 5 (Reuters) - The Bernard Madoff bankruptcy trustee has
sued California Attorney General Kamala Harris to stop her from
interfering with his efforts to recover money for the swindler's
Irving Picard, the trustee, won a separate victory as a
federal judge said more than 1,700 investors who sent money
indirectly to Madoff's firm through 16 so-called feeder funds
did not qualify as "customers" who could recover losses from the
firm's bankruptcy estate.
Picard has recovered about $8.7 billion for former customers
of Bernard L. Madoff Investment Securities LLC, but much of that
sum is tied up in litigation.
The developments are the latest arising from Madoff's
estimated $64.8 billion Ponzi scheme, which was uncovered in
December 2008. Madoff is serving a 150-year prison sentence.
Investigations have shown that Madoff and some employees
created fictitious accounts, and paid out consistently high but
made-up returns to customers over three decades.
Picard's lawsuit against Harris and four other defendants
relates to Stanley Chais, a Beverly Hills money manager for
Hollywood elite and longtime Madoff friend who died at the age
of 84 in September 2010.
The trustee and the U.S. Securities and Exchange Commission
in separate 2009 lawsuits accused Chais of sending client money
to Madoff despite red flags about the business, while pocketing
hundreds of millions of dollars for himself and his family.
Chais claimed that he too was a Madoff victim.
In a complaint filed Wednesday night in the U.S. bankruptcy
court in Manhattan, Picard sued to stop Harris and four other
defendants from pursuing five California lawsuits filed in 2009
against Chais' estate, related entities and family members.
Picard said these cases "side-step the trustee's exclusive
right to seek recovery of fraudulently transferred property,"
and might reduce the amount he could recover for customers.
The trustee asked the court to void the lawsuits and to
order an injunction to prevent similar litigation.
Lynda Gledhill, a spokeswoman for the attorney general, said
that office is reviewing Picard's complaint.
The state's lawsuit against Chais' widow, Pamela, was filed
by Harris' predecessor Jerry Brown, who is now governor. It
seeks to recover $270 million of Madoff-related fees that Chais
supposedly collected between 1995 and 2008.
Lawyers for the other defendants said Picard had no basis to
challenge their cases, and that it was "surprising" for him to
wait nearly three years to try.
Barry Weprin, who represents two of the defendants, said his
clients' claims "are based on conduct that Stanley Chais did in
connection with investments by California residents."
Marvin Gelfand, a lawyer for the other defendants, said his
clients "didn't know anything about Bernard Madoff," and that it
was "totally improvident" for Picard to intervene. "He can only
seek claims that Madoff could have sought," Gelfand said.
Picard's spokeswoman Amanda Remus said the trustee "is
obligated to ensure that certain victims are not favored" in a
manner contrary to federal law on brokerage liquidations.
FEEDER FUND INVESTORS LOSE
In the feeder fund case, U.S. District Judge Denise Cote in
Manhattan said in a decision on Thursday investors in 16 funds
that sent much of their money to Madoff, mistakenly believing
that Madoff would invest it, had no property interest in the
Cote said this was because the investors knew they were
buying "ownership shares" of the funds, and had only indirect
ties to Madoff that fell short of making them customers.
Even accepting that the feeder funds conspired to advance
Madoff's Ponzi scheme, the law "simply does not protect against
all cases of alleged dishonesty and fraud," the judge wrote.
Cote's decision upheld a June 2011 ruling by U.S. Bankruptcy
Judge Burton Lifland, who oversees the liquidation of Madoff's
Karl Geercken, a lawyer for the feeder fund customers, did
not immediately respond to requests for a comment. Picard's
spokeswoman said the trustee had no comment on the decision.
The case against Harris and others is Picard v. Hall et al,
U.S. Bankruptcy Court, Southern District of New York, No.
12-01001. The feeder fund case is Aozora Bank Ltd et al v.
Securities Investor Protection Corp et al, U.S. District Court,
Southern District of New York, No. 11-05683.
For Irving Picard: David Sheehan and Marc Hirschfield of
For Douglas Hall: Pro se.
For Aozora Bank: Karl Geercken of Alston & Bird.
For Securities Investor Protection: Christopher LaRosa and
Josephine Wang of Securities Investor Protection Corporation.
(Reporting by Jonathan Stempel; Additional reporting by
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