Judge Jed S. Rakoff

Law360: Rakoff’s Foreign Fund Clawback Ruling Has Limitations

On July 6, 2014, Jed S. Rakoff, U.S. district judge for the Southern District of New York, declined to extend the reaches of Section 550(a) of the Bankruptcy Code abroad to permit the recovery of funds that were alleged to be fraudulently obtained from Bernard L. Madoff Investment Securities LLC in connection with Bernard Madoff’s Ponzi scheme. Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC (In re Madoff Securities), No. 12-mc-115 (JSR) (SDNY Jul. 6, 2014).  

The decision involves the attempted extraterritorial application of Section 550(a), which allows a trustee to recover “property transferred … to the extent that a transfer is avoided” under bankruptcy law. In essence, Irving Picard, the trustee, sought to not only seek recovery from feeder funds that invested directly into Madoff funds, but also sought to recover from subsequent transferees. The Madoff decision should give comfort to foreign investors that there is a reduced risk that proceeds of their indirect investments in U.S. companies will be clawed back under bankruptcy law — even if such proceeds were obtained fraudulently. There are, however, important limitations to consider.  Read More.

SDNY Holds Trustee Cannot Evade Section 546(g) Safe Harbor by Bringing Avoidance Action Under State Law

On June 11, 2013, Southern District of New York Judge Jed Rakoff dismissed the complaint of the Trustee for the SemGroup estate seeking to avoid a novation made to Barclays pre-bankruptcy under a swap agreement.  The Court held that the pre-bankruptcy transaction constituted a safe harbored transfer made in connection with a swap agreement and thus could not be avoided by the estate.  The Court held further that the safe harbor applied to actions brought under state law fraudulent transfer theories, not just those brought under federal law.  Judge Rakoff stated that to permit the trustee to proceed under state law would allow estates to evade the safe harbor by delaying litigation until post-bankruptcy.  Whyte v. Barclays Bank PLC, 12 Civ. 5318 (JSR), 2013 U.S. Dist. Lexis 82040 (S.D.N.Y. June 11, 2013).  Read More.