By Adam J. Goldberg, Christopher Harris, Robert J. Malionek, Kevin L. Mallen (Latham & Watkins)
In In re Picard, Tr. for Liquidation of Bernard L. Madoff Inv. Sec. LLC, No. 17-2992(L), 2019 WL 903978 (2d Cir. Feb. 25, 2019), the Second Circuit held that the trustee administering Bernie Madoff’s insolvent estate could use Section 550(a) of the Bankruptcy Code to claw back purely foreign transactions between foreign entities. The money at issue had been initially transferred by Madoff to foreign funds, then subsequently transferred by the foreign funds to the foreign defendants. The defendants argued that the Madoff trustee’s clawback claims were barred by the presumption against extraterritoriality and the principles of international comity.
While the Southern District of New York had focused its analysis on the subsequent transfers by the foreign funds to the foreign defendants, the Second Circuit focused on the initial transfer from Madoff to the foreign funds when determining whether the subsequent transfers could be recovered. The Second Circuit reasoned that since the initial transfers were from New York-based Madoff, the presumption against extraterritoriality and the principles of international comity did not bar the Madoff trustee’s attempts to recover these foreign subsequent transfers. In so holding, the Second Circuit reversed the Southern District of New York’s prior ruling that such foreign transfers could not be recovered, and removed a protection for foreign investors who may not have anticipated that their investments — and their returns — could otherwise be subject to clawback under US law.
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