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Defrauded Investors May Force Madoff Into Bankruptcy

Bernard Madoff’s investors won a ruling Friday that allows defrauded investors to force him into personal bankruptcy to ensure that all his assets are used to pay the investors. U.S. District Judge Louis Stanton, Southern District of New York, granting a request by victims of Madoff’s Ponzi scheme to allow them to file an involuntary chapter 7 bankruptcy petition against Madoff, over objections from the Securities and Exchange Commission and the Justice Department. Judge Stanton reversed his ruling on December 18, 2008 that prevented the investors from filing such a petition. As of today, no petition has been filed.

In a four-page opinion, Judge Stanton held: “The concern that appointment of a bankruptcy trustee will increase administrative costs or delay recovery by victims is speculative and outweighed by the benefits to Mr. Madoff’s victims.” Judge Stanton further reasoned that bankruptcy may enable creditors to reach Madoff’s assets that are not proceeds of his fraud, increasing the pool of assets beyond those which are forfeitable under criminal statutes and helping investors who unwittingly bought into Madoff’s Ponzi scheme through so-called feeder funds.

The SIPC investigation of the assets of Bernie Madoff’s New York-based firm, Bernard L. Madoff Investment Securities LLC, is ongoing, and investigators have uncovered approximately $1 billion in assets which will be used to compensate investors. Prosecutors have identified over $100 million in real estate, cash, bonds, art, automobiles, boats and other assets owned by Madoff and his wife, Ruth, which prosecutors intend to seize.

On March 12, 2009, Madoff pleaded to defrauding investors by perpetrating a $65 billion Ponzi scheme, and he faces as many as 150 years in prison at his sentencing in June.

By Reno F.R. Fernandez III