Madoff Bankruptcy Court Upholds Trustee’s ‘Net Equity’ Argument; Rejects Customer’s Contentions

Bankruptcy Judge Burton Lifland has upheld the Madoff trustee’s method of calculating net equity claims against the Madoff estate, dashing the hopes of investors who sought to rely on the false documents that Madoff had sent to them. 

The court upheld the trustee’s determination denying customer claims for amounts listed on the final customer statements sent by Madoff’s company, dated November 30, 2008, affirmed the trustee’s determination of net equity, and expunged objections to the trustee’s determinations of net equity claims filed by certain claimants.
 
As the court explained today in its decision, more than 15,000 claims have been filed in the Madoff company liquidation proceedings. Customers’ November 30th Statements reflected $73.1 billion in fictional net investments and related gains. Net of “negative” accounts approximating $8.3 billion, customers purportedly are owed $64.8 billion. The issue before the court was how to define a claimant’s “net equity” under SIPA for purposes of distributing against these sums.
 
The trustee defines Net Equity as the amount of cash deposited by the customer into the customer’s customer account less any amounts already withdrawn by the customer (the “Net Investment Method”). In contrast, claimants define Net Equity as the amounts reflected on customers’ November 30th Statements (the “Last Statement Method”).
 
In its decision, the court endorsed the trustee’s Net Investment Method.
 
The case is In re SIPA LIQUIDATION BERNARD L. MADOFF INVESTMENT SECURITIES LLC, No. 08-01789 (BRL) (Bankr. Ct. S.D.N.Y. March 1, 2010).