Baker & Hostetler LLP 45 Rockefeller Plaza New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 Irving H. Picard Email: [email protected] David J. Sheehan Email: [email protected] Marc Hirschfield Email: [email protected] Alissa M. Nann Email: [email protected]
Attorneys for Irving H. Picard, Esq. Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
TRUSTEE’S SECOND INTERIM REPORT FOR THE PERIOD ENDING OCTOBER 31, 2009
300040417 TABLE OF CONTENTS
I. INTRODUCTION...... 3
II. BACKGROUND...... 5 A. PROCEDURAL HISTORY ...... 5 B. MADOFF CHAPTER 7 LIQUIDATION ...... 7 C. MSIL AND JOINT PROVISIONAL LIQUIDATORS ...... 8 D. CRIMINAL AND CIVIL CASES...... 9 III. LIQUIDATION PROCEEDING...... 15
IV. ADMINISTRATION OF THE ESTATE...... 16 A. RETENTION OF PROFESSIONALS ...... 17 B. MARSHALLING AND LIQUIDATION OF ESTATE ASSETS...... 17 C. WIND-DOWN OF ESTATE OPERATIONS...... 21 V. FINANCIAL CONDITION OF ESTATE ...... 24
VI. GOVERNMENT FORFEITURE...... 25
VII. CLAIMS ADMINISTRATION ...... 26 A. CUSTOMER CLAIMS ...... 26 B. CLAIMS OF GENERAL CREDITORS ...... 34 VIII. TRUSTEE INVESTIGATION...... 35 A. INTERNATIONAL PROCEEDINGS ...... 36 B. DOMESTIC PROCEEDINGS ...... 42 C. BANKS & FEEDER FUNDS ...... 45 D. POTENTIAL INSIDERS AND CORPORATE ASSETS ...... 45 E. EVIDENCE GATHERING...... 47 IX. BANKRUPTCY COURT PROCEEDINGS...... 49 A. NET EQUITY DISPUTE ...... 49 B. THIRD-PARTY ACTIONS AGAINST THE TRUSTEE ...... 51 C. OBJECTIONS TO CLAIMS DETERMINATIONS ...... 54 D. OBJECTION TO FEE APPLICATIONS ...... 55 E. AVOIDANCE ACTIONS BY THE TRUSTEE ...... 56 F. SETTLEMENTS ...... 69 G. MOTIONS TO INTERVENE ...... 70 X. CONCLUSION ...... 72
300040417 2 TO THE HONORABLE BURTON R. LIFLAND, UNITED STATES BANKRUPTCY JUDGE:
Irving H. Picard, Esq. (the “Trustee”), trustee for the substantively consolidated liquidation proceeding of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard
L. Madoff (“Madoff” and together with BLMIS, each a “Debtor” and collectively, the
“Debtors”), respectfully submits his Second Interim Report (this “Report”) pursuant to section
78fff-1(c) of the Securities Investor Protection Act1 and in accordance with the terms of the
Order on Application for an Entry of an Order Approving Form and Manner of Publication and
Mailing of Notices, Specifying Procedures For Filing, Determination, and Adjudication of
Claims; and Providing Other Relief entered on December 23, 2008 (the “Housekeeping Order” or “Claims Procedures Order”) [Dkt. No. 12]. Pursuant to the Housekeeping Order, the Trustee shall file additional interim reports at least every six (6) months hereafter. This Report covers the period ending October 31, 2009, or as otherwise indicated (the “Report Period”).
I. INTRODUCTION
1. The Trustee and his counsel (including, but not limited to, B&H, various international special counsel retained the Trustee as described in ¶ 116 below (“International
Counsel”), Windels Marx Lane & Mittendorf, LLP (“Windels Marx”), special counsel to the
Trustee, and together with International Counsel and B&H, collectively referred to herein as
“Counsel”), made significant headway into the investigation of Madoff’s fraud. To date, the
Trustee has filed fourteen (14) avoidance actions seeking to recover more than $14.8 billion in funds from various feeder funds, Madoff friends and family members and related parties. The
Trustee anticipates filing extensive additional litigation based on investigation conducted by the
1 The Securities Investor Protection Act (“SIPA”) is found at 15 U.S.C. 78aaa et seq. For convenience, subsequent references to SIPA will omit “15 U.S.C. ____.”
300040417 3 Trustee’s counsel and consultants. Because of efforts made by the Trustee and his counsel, as of
November 18, 2009, $1,183,779,811.89 has been recovered for the benefit of customers.
2. During the Report Period, the Trustee and B&H also made substantial progress in processing and determining the claims of customers of BLMIS. As further described in section
VII.A infra, as of October 31, 2009, the Trustee had determined 2,870 claims, allowed 1,561 customers claims ($4.4 billion in allowed claims), and had committed to pay approximately $535 million in SIPC advances, leaving approximately $3.9 billion in over-the-limits claims.2
3. In addition, the Trustee implemented a Hardship Program, which allows customers suffering from the worst financial circumstances to apply to a streamlined program aimed at getting out advances provided by SIPC in a timely manner to those customers who qualify.
4. Given the task of liquidating BLMIS, and in doing so, cooperating with those federal and state authorities investigating the criminal, civil and regulatory matters, the
Trustee and his counsel have also dealt with issues spanning a broad spectrum of legal and administrative specialties and disciplines. The Trustee’s ability to call on the resources of B&H in such areas as corporate, real estate, bankruptcy, securities, employment, tax, banking, litigation (and others) has been of material assistance in pursuing the Trustee’s statutorily- mandated investigations, achieving results, establishing protocols, and directing the efforts of the
Trustee’s financial professionals.
5. During the Report Period, the Trustee and his counsel and staff have met extraordinary challenges, in a manner beneficial to the customers, creditors, and other investors
2 Additional progress has been made in the determination of customer claims since the conclusion of the Report Period. From October 31, 2009 through November 19, 2009, the Trustee determined 151 additional customer claims, and allowed 65 of those claims, for a total of $4,672,030,364.53 in allowed claims, $554,790,758.86 in committed SIPC advances and $4,117,239,605.67 in over-the-limit claims as of November 19, 2009.
300040417 4 of BLMIS. This Report is meant to provide an overview of all the efforts engaged in by the
Trustee and his team of professionals and to summarize all of the results achieved, as well as challenges faced by the Trustee during the Report Period.
II. BACKGROUND
6. BLMIS was founded by Madoff in 1960 and engaged in three primary types of business: market making, proprietary trading and investment advisory services. BLMIS was registered with the SEC as a broker-dealer and beginning in 2006 as an investment advisor.
Pursuant to such registration as a broker-dealer, BLMIS was a member of SIPC. BLMIS was also a member of the Financial Industry Regulatory Authority (“FINRA”), formerly known as the National Association of Securities Dealers, Inc. (“NASD”).
A. PROCEDURAL HISTORY
7. On December 11, 2008, Madoff was arrested by the FBI in his Manhattan home and was criminally charged with a multi-billion dollar securities fraud scheme in violation of 15
U.S.C. §§ 78j(b), 78ff, and 17 C.F.R. 240.10b-5 in the United States District Court for the
Southern District of New York (“District Court”), captioned USA v. Madoff (No. 08-2735).
[That case number was terminated on March 10, 2009, and a new case number, USA v. Madoff
(No. 09 CR 213) was opened and assigned to District Court Judge Denny Chin] (the “Criminal
Case”).
8. Also on December 11, 2008 (the “Filing Date” for the SIPA liquidation proceeding), the SEC filed a complaint in the District Court against defendants Madoff and
BLMIS, captioned Securities and Exchange Commission v. Madoff, et al. (No. 08 CV 10791)
(the “Civil Case”). The complaint alleged that the defendants engaged in fraud through the investment advisor (or “IA”) activities of BLMIS.
300040417 5 9. Based on allegations brought by the SEC against Madoff and BLMIS in the Civil
Case, on December 12, 2008, the Honorable Louis L. Stanton of the District Court entered an order which appointed Lee S. Richards, Esq. as receiver for BLMIS (the “Receiver”).
10. On December 15, 2008, pursuant to section 78eee(a)(4)(A) of SIPA, the SEC consented to a combination of the Civil Case with an application filed by SIPC. Thereafter, pursuant to section 78eee(a)(3) of SIPA, SIPC filed an application in the District Court alleging, inter alia, that the Debtor was not able to meet its obligations to securities customers as they came due and, accordingly, its customers needed the protection afforded by SIPA.
11. On that date, the District Court entered the Protective Decree (Civil Case Dkt. No.
4), to which BLMIS consented, which, in pertinent part:
(a) appointed the Trustee for the liquidation of the business of the Debtor pursuant to section 78eee(b)(3) of SIPA, therefore, effectively replacing the Receiver as to BLMIS;
(b) appointed Baker & Hostetler LLP (“B&H”) as counsel to the Trustee pursuant to section 78eee(b)(3) of SIPA; and
(c) removed the case to the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court” or “Court”) pursuant to section 78eee(b)(4) of SIPA.3
12. On December 18, 2008, the District Court entered the Order on Consent Imposing
Preliminary Injunction, Freezing Assets and Granting Other Relief Against Defendants (the
“Preliminary Injunction Order”). Among other things, the Preliminary Injunction Order clarified that the Receiver’s authority was limited to assets of Madoff’s U.K. entity, Madoff Securities
International Ltd. (“MSIL”).
13. On February 26, 2009, the Receiver submitted a report and application to
Terminate the Receivership to the District Court. After receipt of submissions by the Trustee,
300040417 6 the SEC, and the Department of Justice, and after a hearing on March 23, 2009, the District
Court issued an order discharging the Receiver and terminating the receivership.
B. MADOFF CHAPTER 7 LIQUIDATION
14. On April 10, 2009, the District Court entered an order in the Civil Case modifying article V of the Order on Consent Imposing Preliminary Injunction, Freezing Assets and
Granting Other Relief Against Defendants dated December 18, 2008, to allow the Petitioning
Creditors (as defined below) to file an involuntary bankruptcy petition against Madoff [Civil
Case Dkt. No. 46]. The District Court in its Order noted that:
A Bankruptcy Trustee has direct rights to Mr. Madoff’s individual property, with the ability to maximize the size of the estate available to Mr. Madoff’s creditors through his statutory authority to locate assets, avoid fraudulent transfers, and preserve or increase the value of assets through investment or sale, as well as provide notice to creditors, process claims, and make distributions in a transparent manner under the procedures and preferences established by Congress, all under the supervision of the Bankruptcy Court.
15. On April 13, 2009, Blumenthal & Associates Florida General Partnership, Martin
Rappaport Charitable Remainder Unitrust, Martin Rappaport, Marc Cherno and Steven
Morganstern (collectively, the “Petitioning Creditors”), filed an involuntary chapter 7 bankruptcy petition against Madoff individually in the Bankruptcy Court (Case No. 09-11893 (BRL)) (the
“Chapter 7 Case”).
16. On April 21, 2009, pursuant to an Order of the Bankruptcy Court signed on April
20, 2009 directing the appointment of an interim chapter 7 trustee in the Chapter 7 Case, the
United States Trustee’s Office for the Southern District of New York appointed Alan Nisselson,
Esq. as interim trustee for the Chapter 7 Case (the “Chapter 7 Trustee”).
3 Pursuant to section 78fff(b) of SIPA, “[t]o the extent consistent with [SIPA], [this] liquidation proceeding [is] be[ing] conducted in accordance with, and as though it [is] being conducted under chapter 1, 3, 5 and subchapters I and II of chapter 7 of [the
300040417 7 17. On May 5, 2009, the Trustee and SIPC filed a joint motion for entry of an order pursuant to section 105(a) of the Bankruptcy Code substantively consolidating the Madoff chapter 7 estate into the BLMIS SIPA Liquidation (the “Substantive Consolidation Motion”).
18. On June 9, 2009, this Court approved and entered a Consent Order [Dkt. No. 252] which, among other things, approved the Substantive Consolidation Motion nunc pro tunc to
December 11, 2008.
19. Windels Marx, which had previously been counsel to the Chapter 7 Trustee, was subsequently retained on behalf of the consolidated estate as special counsel to the Trustee and the Chapter 7 Trustee by order dated July 16, 2009, nunc pro tunc as of June 9, 2009 [Dkt. No.
327].
C. MSIL AND JOINT PROVISIONAL LIQUIDATORS
20. On June 9, 2009, the Bankruptcy Court approved two protocols between the
Trustee and the Joint Provisional Liquidators (“JPLs”) for MSIL. The protocols provide for cooperation between the Trustee and the JPLs. Specifically, the Trustee and the JPLs entered into the Cross-Border Insolvency Protocol for the Bernard Madoff Group of Companies (the
“Cross Border Protocol”) and an Information Sharing Protocol (the “Information Protocol”).
21. The Cross Border Protocol provides that the Trustee and the JPLs will keep each other updated with respect to their activities, including any court proceedings and will work together regarding any assets that the representatives locate. The Information Protocol sharing of information regarding the affairs of BLMIS and MSIL, including by their respective agents.
22. On June 9, 2009, the MSIL proceeding also was recognized by the Bankruptcy
Court as a foreign main proceeding pursuant to Chapter 15 of the Bankruptcy Code.
Bankruptcy Code].”
300040417 8 23. The JPLs and the Trustee have had a number of discussions regarding updates on each investigation including on July 30, August 26, and September 10, 2009 and they and their counsel or consultants also have exchanged information of mutual interest. The JPLs have interviewed certain MSIL employees and have expressed an ongoing interest in speaking with certain BLMIS employees. The JPLs have also updated the Trustee on their attempts to recover the yacht "Bull" located in France.
24. FTI has been in attendance at all of the interviews by the JPLs and has also been assisting the JPLs and Grant Thornton with the reconstruction of finances at MSIL.
D. CRIMINAL AND CIVIL CASES
USA v. Madoff, 09-cr-213, SDNY.
25. At a plea hearing (the “Plea Hearing”) on March 12, 2009 in the Criminal Case,
Madoff pled guilty to an 11-count criminal information, which counts included securities fraud, money laundering and theft and embezzlement, filed against him by the United States Attorney’s
Office for the Southern District of New York (“USAO”). At the Plea Hearing, Madoff admitted that he “operated a Ponzi scheme through the investment advisory side of [BLMIS].” (Plea Hr’g
Tr. at 23:14-17.) Additionally, Madoff asserted “[a]s I engaged in my fraud, I knew what I was doing [was] wrong, indeed criminal.” (Id. at 23:20-21.) Madoff filed a plea allocution describing some of the details of his fraud (the “Allocution”) [Criminal Case Dkt. No. 50].
26. Madoff represented to clients and prospective clients that he would invest their money in shares of common stock, options and other securities and would, at their request, return profit and principal. (See Allocution at pg. 1). As the world is now aware, no such securities were purchased by Madoff.
27. In pleading guilty to the crimes he committed, Madoff admitted that since at least the early 1990’s the IA business of BLMIS was used to operate a Ponzi scheme. (See Allocution
300040417 9 at p. 2). Madoff solicited billions of dollars under false pretenses and failed to invest investors’ funds as promised. Instead, he deposited investors funds in a bank account at Chase Manhattan
Bank. (See Allocution at pg. 1). In his Allocution, Madoff also described how he moved funds between this account and other BLMIS accounts in an attempt to conceal the fraud. (See
Allocution at pg. 4).
28. On June 29, 2009, Madoff was sentenced by the District Court to serve, in consecutive terms, the maximum term of incarceration recommended under the U.S. Federal
Sentencing Guidelines on each count to which Madoff pled guilty. The sentence totals 150 years in prison. Madoff is currently serving his sentence at a federal correctional facility in North
Carolina.
SEC v. Madoff, No. 08-cv-10791, SDNY.
29. As described above in ¶ 8, on December 11, 2008, the SEC filed the Civil Case against Madoff and BLMIS. The complaint alleged that the defendants engaged in fraud through investment advisor activities of BLMIS.
USA vs. DiPascali, 09-cr-764, SDNY.
30. In 1975, Frank DiPascali, Jr. (“DiPascali”), who was 18 years old at the time, began working at BLMIS as a stock researcher and as Peter Madoff’s assistant. DiPascali quickly rose within the company ranks to became Director of Options Trading in 1986, and
Chief Financial Officer in 1996. DiPascali eventually became a key lieutenant in Madoff’s operation and oversaw the day-to-day operations of Madoff's investment-advisory business.
DiPascali frequently interacted with investors as they were told that he was the one who executed their trades.
300040417 10 31. In August 2009, DiPascali plead guilty in the District Court to ten criminal counts, including: conspiracy, securities fraud, mail fraud, wire fraud, investment fraud, two counts of falsifying the books of a broker dealer, international money laundering, perjury and federal income tax evasion. He faces a maximum of 125 years in prison. In his statement to the court, DiPascali said that he helped Madoff defraud investors from as early as the late 1980’s until December 2008. DiPascali admitted that, during this time period, BLMIS did not buy or sell securities through its investment advisory business, and that he had fabricated account statements, knowingly lied to investors and committed perjury before the SEC. Said DiPascali:
From at least the early 1990s through December of 2008, there was one simple fact that Bernie Madoff knew, that I knew, and that other people knew but that we never told the clients nor did we tell the regulators like the SEC. No purchases of sales of securities were actually taking place in their accounts. It was all fake. It was all fictitious. It was wrong and I knew it was wrong at the time, sir.
Plea Hr’g Tr. at 46:9-15.
32. According to media reports, DiPascali has been cooperating with federal investigators looking into the Madoff fraud since February. Upon DiPascali’s guilty plea, U.S.
District Judge Richard Sullivan denied the federal prosecutor’s request that DiPascali be released on $2.5M bail. Judge Sullivan commented that he believed that DiPascali was a flight risk and that he could not ignore the years of deception by DiPascali. On October 28, DiPascali appeared again in front of Judge Sullivan under an adjusted bail package negotiated by federal prosecutors. While Judge Sullivan did not agree to release DiPascali on bail, he did agree to receive information under seal from the prosecutors respecting DiPascali’s cooperation with federal authorities and reconsider the matter.
300040417 11 SEC v. DiPascali, 09-cv-7085, SDNY.
33. On August 11, the SEC filed civil charges against DiPascali, citing securities fraud related to his overseeing of a fictitious investment strategy and the creation of millions of fake documents and trading records. The SEC charges indicate that DiPascali sustained the fraud from at least the 1980’s all the way up to firm’s December 2008 collapse. The complaint also states that this level of fraud took great effort due to DiPascali’s ability to hide thousands of
BLMIS investor advisory accounts from SEC registration. To continue the deception, DiPascali even prepared a “cooked” set of books and records to provide regulators false information upon a review of the true scope and size of BLMIS. Finally, the SEC complaint states that DiPascali misappropriated investor funds for his personal gain – from which he withdrew more than $5M between 2002 and 2008.
34. The SEC complaint seeks financial penalties and a court order requiring DiPascali to return all ill-gotten gains.
USA v. Friehling, 09-cr-700, SDNY.
35. Since the late 1970’s, Friehling & Horowitz, a little-known accounting office in
New York City's northern suburb of New City, New York, conducted the independent accounting and auditing work for BLMIS. The tiny firm consisted of one partner, Jerome
Horowitz, an accountant and a secretary. In 1991, Jerome Horowitz began to work part-time and handed the majority of the firm’s accounts to his son-in-law, David Friehling. Friehling held his post until Madoff’s 2008 confession. From 2004 to 2007, Friehling was paid about $13,500 per month by BLMIS - despite never verifying the firm's sources of revenue, assets, bank account statements or alleged stock purchases.
300040417 12 36. On November 3, 2009, Friehling pled guilty in District Court for his role as independent BLMIS auditor. Friehling told District Judge Alvin Hellerstein that he (a) didn’t conduct an independent investigation of BLMIS (b) didn’t follow the generally accepted accounting rules required of his profession and (c) accepted Madoff’s claims about the firm’s finances at “face value”. Friehling pled guilty to nine counts including securities fraud, investment-advisor fraud and obstructing tax law administration. Friehling also admitted that he prepared false returns for Madoff and “others”. It is possible that Friehling is cooperating with federal law enforcement authorities.
37. Friehling was released on a $2.5M bond and is due back in court in late February
2010. He faces up to 114 years in prison.
SEC v. Friehling, 09-cv-2467, SDNY.
38. On March 18, the SEC charged Friehling with committing securities fraud by falsely representing that he had conducted a legitimate audits of BLMIS, when, in fact, he had not. The SEC’s complaint alleges that Friehling enabled the Ponzi scheme by falsely stating in annual audit reports that his accounting firm, Friehling and Horowitz, had conducted annual audit reports pursuant to the Generally Accepted Auditing Standards (GAAP) required by the profession. These statements were materially false as Friehling never performed a meaningful audit nor did he ever perform any auditing procedures to confirm that the securities being held on behalf of BLMIS investors even existed. Finally, in an effort to absolve himself from peer review, Friehling openly lied to the American Institute of Certified Public Accountants by denying that he conducted any audit work whatsoever.
39. The SEC’s complaint seeks permanent injunctions, civil penalties and a court ordering requiring Friehling to return all ill-gotten gains.
300040417 13 USA v. O’Hara, et al., 09-cr-2484 SDNY.
40. On November 13, Jerome O’Hara and George Perez, two BLMIS computer programmers, were arrested and appeared in District Court on federal charges for their role in helping Madoff cover up his fraudulent Ponzi scheme. The USAO complaint allege that, for over a fifteen-year period, Madoff and DiPascali routinely asked O’Hara and Perez to, among other things, create records that combined the actual positions and activity from BLMIS’ market- making and proprietary trading business with the fictional balances on customer accounts. The programmers used this data to manipulate and create false trading documents, DTC reports, trade blotters and stock records. Furthermore, O’Hara and Perez used an out-dated and technologically insufficient computer on the 17th floor (known internally as “House 17”) to print millions of phony customer statements and trade records.
41. The complaint further alleges that, in 2006, O’Hara and Perez had a crisis of conscience and attempted to delete 218 of the 225 special programs on the House 17 computer.
The programmers allegedly decided afterward to cash out hundreds of thousands of dollars from their BLMIS accounts and promptly tell Madoff that they would refuse to create any more false records for BLMIS. Madoff responded by offering them as much money necessary to keep them quiet on the matter and not expose the fraud. Madoff ended up paying both Perez and O’Hara a
25% salary increase and a one-time bonus of more than $60,000 each. In exchange, the programmers modified the House 17 computer so that the trading statements could be easily manipulated by DiPascali.
42. O’Hara and Perez face up to 30 years in prison on conspiracy, 20 years for falsifying books and records of a broker-dealer, and five years for falsifying books and records of an investment adviser.
300040417 14 SEC v. O'Hara and Perez, 09-cv-9425 SDNY.
43. On November 13, the SEC filed civil charges against O’Hara and Perez for their role in helping Madoff cover up his fraudulent Ponzi scheme. The SEC’s complaint is seeking financial penalties and a court order requiring the programmers return their ill-gotten gains
III. LIQUIDATION PROCEEDING
44. On December 23, 2008, this Court approved the Trustee’s Bond (Dkt. No. 11).
Pursuant to an application of the Trustee dated December 21, 2008 (Dkt. No. 8), this Court entered the Housekeeping Order (Dkt. No. 12), which directed, among other things, that on or before January 9, 2009 (a) a notice of the commencement of this SIPA proceeding be published in all editions of The New York Times, The Wall Street Journal, The Financial Times, USA
Today, Jerusalem Post and Ye’diot Achronot; (b) notice of the liquidation proceeding and claims procedure be given to persons who appear to have been customers of BLMIS by mailing to each such person, at the last known address appearing on the books of BLMIS, a copy of the notice, proof of claim form and instructional materials approved by the Court; (c) notice of the liquidation proceeding and a claim form be mailed to all known general creditors of the Debtor; and (d) notice be given of the hearing on disinterestedness of the Trustee and his counsel (see section 78eee(b)(6) of SIPA) scheduled for February 4, 2009 and the meeting of creditors, scheduled for February 20, 2009.
45. As discussed in further detail in ¶ 80 below, the required notice was published on
January 2, 2009, in all required publications [Dkt. No. 57], and a mailing to customers and
300040417 15 general creditors of BLMIS was completed on January 9, 2009 [Dkt. No. 76].4 Potential claimants were advised of the court-approved and statutory time limits for filing claims.
46. On February 4, 2009, this Court entered the Order Regarding Disinterestedness of the Trustee and Counsel to the Trustee (Dkt. No. 69), finding that the Trustee and B&H are disinterested pursuant to section 78eee(b)(6) of SIPA, section 327(a) of 11 U.S.C. §§ 101, et seq.
(the “Bankruptcy Code”) and Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”)
2014(a) and therefore met the disinterestedness standard required by section 78eee(b)(3) of SIPA, section 327(a) of the Bankruptcy Code, and Bankruptcy Rule 2014(a). Accordingly, the Trustee is duly qualified to serve and act on behalf of the Debtor’s estate.
47. On February 20, 2009, a meeting of creditors under section 341(a) of the
Bankruptcy Code was held. No representative of the Debtor appeared for examination at that meeting. The Trustee and his counsel, as well as the SIPC staff, attended the meeting of creditors and reported on the then current state of affairs as well as the process for filing and determining customer claims. The Trustee and counsel then responded to inquiries made by over
150 customers and creditors who attended the meeting and to questions received via email prior to the meeting. In addition, the Trustee made over 1,000 phone lines available for those customers and creditors who could not attend the 341 meeting to listen in live, and also posted a video link to the 341 meeting on the Trustee website.
IV. ADMINISTRATION OF THE ESTATE
48. The Trustee has made every effort to keep customers and other interested parties informed of his ongoing efforts to administer the BLMIS estate, including responding to
4 In addition, materials were mailed in response to requests from customers or general creditors. Furthermore, all claims packages were made available for download on the Trustee’s website, www.madofftrustee.com, and on SIPC’s website, www.sipc.org.
300040417 16 hundreds of phone calls, emails, and letters, establishing a telephone call center to respond to inquiries from claimants and their representatives (see discussion on customer claims process infra at Section VII.A), creating a website to serve as a clearinghouse for information
(www.madofftrustee.com), and meeting with representatives of customers, creditors, regulatory authorities and other interested parties.
A. RETENTION OF PROFESSIONALS
49. In addition to the professionals already retained by the Trustee as described in ¶
23 of the Trustee’s First Interim Report, dated July 9, 2009 (the “First Interim Report”) [Dkt. No.
314], the Trustee has retained Windels Marx as special counsel, Schifferli Vafadar Sivilotti as local counsel in Switzerland, SCA Creque as local counsel in the British Virgin Islands and a number of consultants and expert witnesses.5 The three counsel were retained pursuant to orders of this Court.
B. MARSHALLING AND LIQUIDATION OF ESTATE ASSETS
50. The Trustee and his counsel have worked diligently to investigate, examine and evaluate the Debtor’s activities, assets, rights, liabilities, customers and other creditors. Thus far, the Trustee has been successful in recovering a significant number of assets and in liquidating some of those assets for the benefit of customers, totaling $1,165,756,394.37.6 These assets include: the sale of the Debtor’s market making operations; the settlement of BLMIS’ trades and short positions; cash recoveries from banks and brokerage accounts that held BLMIS’ funds; class action settlement recoveries; the sale of sports tickets; insurance refunds; refunds of
5 A SIPA trustee has authority, subject to approval from the Securities Investor Protection Corporation (“SIPC”) but without need for Court approval, among other things, to “hire and fix the compensation of all personnel (including officers and directors of the debtor and of its examining authority) and other persons (including accountants) that are deemed necessary for all or any purposes of the liquidation proceeding.” 15 U.S.C. §78fff-1(a)(1). Each of the Trustee’s hiring decisions to date has been reviewed and approved by SIPC. 6 This number for recoveries was as of the end of the Report Period. From October 31, 2009 through November 18, 2009, the Trustee recovered an additional $18,023,417.52, for total recoveries of $1,183,779,811.89.
300040417 17 political contributions; tax recoveries; the sale of BLMIS loan participations; the sale of BLMIS
DTCC shares; settlements with various funds and entities for the return of customer property (see
Section IX.F infra); and various other miscellaneous recoveries. For a more detailed discussion of these recoveries, see the First Interim Report, Section V.B. During the Report Period, the
Trustee has made recoveries from the following estate assets:
Earn-out from Surge Trading.
51. Surge Trading Inc. (f/k/a Castor Pollux Inc.) (“Surge”) was deemed the winning bidder of the Debtor’s market making operations, with a total purchase price of up to
$25,500,000. This purchase price included a closing payment of $1,000,000 and a revenue- based earn-out which could total up to $24,500,000.
52. In accordance with section 4.1 (c) of the Second Amended and Restated Purchase
Agreement, dated April 29, 2009, by and between the Trustee and Surge, for the quarter ending
September 30, 2009, the Trustee received an earn-out of $3,385.73 from Surge.
Trustee’s Various Accounts and Recoveries From BLMIS Accounts.
53. The Trustee maintains a regular operating account at Citibank, which is primarily funded by SIPC advances, and from which he pays administrative expenses and customer claims.
54. On August 27, 2009, the Trustee opened a preferred custody interest-bearing account at Citibank, and $800,000,000 was transferred into the account. Out of the funds transferred, an investment of $199,999,256.40 was made in 90-day US Treasury Bills. As of
October 31, 2009, the balance of the preferred custody account was $800,514,256.78.
55. The Trustee has a brokerage account with Morgan Joseph & Co., Inc., clearing through J.P. Morgan Clearing Corp. As of October 31, 2009, the value of the Trustee’s Morgan
300040417 18 Joseph account was $299,840,638.44, consisting of a money market position having a value of
$279,393,278.44 and stock and bond positions valued at $20,447,360.00
56. As described in the First Interim Report, the Trustee had recovered a significant amount of cash from banks at which BLMIS maintained accounts (see First Interim Report,
¶¶ 35-37). Since the date of that Report, the Trustee had received an additional $6,536.52 from
Bank of New York.
Settlement with NETJETS.
57. The Trustee reached a settlement agreement with NETJETS Sales, Inc. (“NJS”),
NETJETS Aviation, Inc. (“NJA”) and NETJETS Services, Inc. (“Services” and together with
NJS and NJA, the “NJ Companies”) regarding the fractional ownership of a Citation X aircraft held by BLM Air Charter LLC (“BLM Air”).
58. BLM Air was formed to acquire, own, hold, sell and otherwise deal with and dispose of interests in aircraft. BLM Air was organized with an effective date of January 12,
2001. Initially, the sole member of BLM Air was Madoff. On January 30, 2001, pursuant to an
Assignment Agreement, Madoff transferred ownership of “all of the economic interest” in BLM
Air to BLMIS and appears to have retained certain non-economic interest. Accordingly, the
Trustee has brought a motion, on behalf of the BLMIS and Madoff estates, as the owner of BLM
Air.
59. Pursuant to a Repurchase Agreement, the NJ Companies agreed to buy back BLM
Air’s 12.5% ownership (the “Interest”) in the aircraft for $752,963. In consideration of this amount the Trustee and the NJ Companies agreed to refrain from making any further claims against each other, including preference claims or claims for contribution, through the bankruptcy process or otherwise.
300040417 19 60. The Bankruptcy Court approved the settlement with the NJ Companies by order dated July 28, 2009. The settlement closed on August 18, 2009, and the Trustee received payment in the amount of $752,963.
Class Action Settlement Recoveries.
61. To date, the Trustee has identified claims that BLMIS had in at least six class action suits. The Trustee received distributions from five of the six class action settlements totaling $54,858.99.
62. In addition, the Trustee has identified claims that BLMIS may have had in 36 other class action suits for which BLMIS had not completed proofs of claim. The Trustee has filed proofs of claim in ten of these cases, supported with necessary and appropriate documentation. The Trustee has received an award from one of those class action settlements in the amount of $34,606.74.
63. The Trustee continues to review this area.
Madoff Assets.
64. During the Report Period, the Trustee and his counsel have advanced in their investigation and efforts to marshal certain assets acquired with BLMIS funds located domestically and internationally that are potentially worth millions of dollars. Among other things, the Trustee and his counsel are in the process of marshalling a fifty-percent co-ownership interest in a luxury private jet, an Embraer Legacy 600, Model EMB-135 BJ (the “Aircraft”) which was acquired in 2008 using $12.4 million of BLMIS funds, and title to which was placed in BLM Air.7
7 In furtherance of that goal, on November 12, 2009, the Trustee commenced a proceeding under chapter 11 of the Bankruptcy Code for BLM Air, which is 100% economically owned by BLMIS. The filing was precipitated by the possibility that one of the more important agreements relating to the maintenance of the Aircraft was going to be unilaterally terminated by the counterparty on November 13, 2009, and that such a termination would have
300040417 20 65. In addition to further investigation and discussions with parties in interest over the past several months, the Trustee and his professionals have consulted with the USAO regarding coordination of recovery efforts with respect to a number of potential assets including, among others, the Aircraft (see Section VI infra). The Trustee believes that the value of a number of assets, including the Aircraft, would best be preserved by him, pursuing legal remedies uniquely afforded him under the Bankruptcy Code.
66. With respect to potential assets located abroad, the Trustee has continued to consult extensively with his counsel and international counsel regarding alternative strategies to maximize asset recovery for the benefit of the consolidated BLMIS estate. The Trustee and his counsel also continue to confer with the USAO and the JPLs in order to maximize efficiency in the coordination of asset recovery efforts.
Miscellaneous Recoveries.
67. In addition to the above, the Trustee has recovered $80,999.27 in miscellaneous recoveries from sources such as cancellation of various subscriptions and memberships.
C. WIND-DOWN OF ESTATE OPERATIONS
Termination of BLMIS Employees.
68. As was described in ¶ 52 of the First Interim Report, as of December 12, 2008,
140 individuals were on the BLMIS payroll. The two largest termination stages took place at the end of January and March, which accounted for 80% of the individuals on payroll. The initial termination stage reduced payroll costs by approximately 42% and the March termination
adversely affected the value of the Aircraft. The filing of the bankruptcy is designed to help preserve the value of the Aircraft, and the Trustee believes that ultimately the Aircraft can be marketed and sold through the bankruptcy proceeding for a significant price pursuant to relevant provisions of the Bankruptcy Code.
300040417 21 increased the reduction of payroll costs to approximately 95% of the total payroll costs at the beginning of January. The remaining three (3) employees on the Trustee’s payroll who were needed to assist in winding down certain aspects of the business were terminated as of June 30,
2009.
Termination and Liquidation of BLMIS-Sponsored Benefit Plans.
69. As part of the process of winding down the business operations of BLMIS and dismissing its many managers and employees in an orderly and equitable fashion, the Trustee
(through counsel) reviewed the many employee benefit plans BLMIS sponsored and maintained for its employees and their dependents, incident to terminating those plans and providing for the orderly resolution and liquidation of all affected individuals’ and vendors’ plan-related rights and claims. Initial efforts by the Trustee, B&H and AlixPartners LLP, the Trustee’s consultant and claims agent (“AlixPartners”), consisted of identifying all such plans; investigating the extent to which those plans had been administered, funded, invested and maintained; identifying and rectifying any problems associated with the communication of terms, the payment or denial of benefits, and the arrangements made with plan fiduciaries and third party service providers; identifying any circumstances under which claims might be made, or actions could be taken by federal or state regulators, against the estate; and protecting the privacy rights of BLMIS’ current and former employees and dependents.
70. As a result of the initial efforts of B&H and AlixPartners, BLMIS was found to have provided health, accident and sickness benefits, retirement-related benefits, and life insurance, disability income and accidental death and dismemberment benefits under as many as six (6) identifiable employee benefit plans; some of those benefits were provided through group insurance contracts and policies, while others were provided on a self-insured basis (including a
300040417 22 group health plan which covered substantially all of BLMIS’ current and former employees and their respective dependents) or were provided through a separately-established trust fund (such as the BLMIS-sponsored 401(k) plan). Substantially all of the benefit plans needed to be brought into compliance with relevant law, including the Employee Retirement Income Security
Act (“ERISA”) prior to termination, and several of the contractual arrangements made with third parties, including third party administrators, trustees and insurance companies, needed to be modified or replaced.
71. On May 27, 2009, the Bankruptcy Court entered an order confirming the
Trustee’s authority to modify, then terminate effective May 31, 2009, and finally liquidate and wind down, all of the BLMIS-sponsored health and welfare plans by collecting and adjudicating all plan-related claims made by employees, covered dependents and third parties; negotiating agreements with vendors to provide for the handling, storage and disposal of plan records
(including medical records subject to federal and state privacy laws); notifying all affected individuals and third parties of their plan-held or plan-related rights; and providing for the payment of meritorious claims and the denial and discharge of ineligible or untimely claims.
The liquidation and wind-down process is expected to be completed by the close of the 2009 calendar year, ending with the submission in 2010 of final reports prepared by the Trustee and tax reports to the federal authorities responsible for plan oversight, including the Internal
Revenue Service and the United States Department of Labor (“DOL”).
72. The Trustee is also seeking a court order confirming the Trustee’s authority under
SIPA and the Bankruptcy Code to first modify, and then terminate effective November 30, 2009, the BLMIS-sponsored 401(k) plan, subject to any restrictions or requirements suggested by the
DOL, which is currently reviewing the plan. A hearing date to approve the Trustee’s motion to
300040417 23 terminate the 401(k) plan is set for November 24, 2009. To the extent that plan participants do not move their contributions out of the BLMIS-sponsored 401(k) plan within a reasonable amount of time subsequent to the plan termination date, the Trustee will select a substitute custodian and assign and transfer the balance of the remaining accounts before year-end.
Winding down the 401(k) plan is expected to be completed by the close of the 2009 calendar year; however, the time required to compile and submit final reports and returns to the federal authorities responsible for plan oversight is will occur after that date.
V. FINANCIAL CONDITION OF ESTATE
73. A summary of the financial condition of the estate as of October 31, 2009 is provided on Exhibit A attached hereto. To date, the Trustee has incurred significant administrative expenses in maintaining the BLMIS office, including rent payments (although since the sale of the market making operation, this has decreased substantially), monthly payment of legal fees and consultant fees (all approved by SIPC), the digitizing of records and costs associated with determining customer claims. All administrative costs to date associated with the liquidation proceeding have been paid from SIPC administrative advances. Since they are chargeable to the general estate, payment has no impact on recoveries that the Trustee has obtained and will obtain, and that will be allocated to the fund of customer property.
74. As of October 31, 2009, the Trustee had requested and SIPC had advanced a total of $557,582,372.35, of which $94,170,118.83 was for administrative expenses and the balance of
$463,412,253.52 was used to pay allowed customer claims up to the maximum SIPA limit
($500,000 per account).8
8 As of October 31, 2009, the Trustee determined and allowed 1,561 claims, committing $535,422,866.60 in SIPC advances. As described below in ¶90, the Trustee must receive an executed assignment and release form before he obtains an advance of funds from SIPC. Thus, the amount of SIPC advances requested by the Trustee to pay allowed customer claims during the Report Period is different than the amount of SIPC advances committed to allowed customer claims that have been determined during the Report Period.
300040417 24 VI. GOVERNMENT FORFEITURE
75. On April 20, upon an ex parte application by the USAO, Judge Chin issued a post-indictment restraining order in the Criminal Action (the “Restraining Order”). In pertinent part, the Restraining Order restrained Madoff and Ruth Madoff from the transfer or dissipation of assets subject to forfeiture. The Restraining Order exempts the USAO from the restraining provisions, and further states that the USAO may provide specific written authorization to third parties to take actions otherwise prohibited by the Restraining Order.
76. In connection with its criminal investigation of Madoff’s fraudulent scheme and the resulting guilty pleas of several co-conspirators, the USAO has criminally forfeited proceeds pursuant to consent orders from Bernard and Ruth Madoff, Frank DiPascali, and David
Friehling.
77. On September 21, 2009, the USAO filed a motion in the District Court pursuant to Title 18, United States Code, Section 3663A(c)(3) for a finding that restitution would be impracticable in light of the large number of identifiable victims and the complex factual analysis required to assess the victims’ losses. Accordingly, the USAO requested that it be able to proceed through the process of remission as authorized under the forfeiture statutes at Title 21,
United States Code, Section 853(9) and the regulations promulgated thereunder. Among other options to maximize the efficiencies of the remission process and return the most value to the victims, the USAO stated in its motion papers that it would consider the possibility of appointing the SIPA Trustee, Irving Picard, as a special master to assess victim claims and distribute the forfeited proceeds in accordance with provisions of 28 CFR Part 9. [Criminal Case Dkt. No.
105]
78. By order dated September 24, 2009, United States District Judge Denny Chin granted the USAO’s motion, finding that restitution is impracticable and the government would
300040417 25 be permitted to proceed by remission. [Criminal Case Dkt. No. 106] Upon a motion dated
September 29, 2009, certain victims of Madoff requested that Judge Chin reconsider his order and condition any order of remission on a net equity calculation based on the November 30,
2008 customer statements. [Criminal Case Dkt. No. 110] The victims also objected to the appointment of Mr. Picard to assist in the remission process. In an order dated October 27, 2009,
Judge Chin denied the motion for reconsideration and ruled that any objections to the resolution of customer claims or appointment and retention of the Trustee should be filed with the
Bankruptcy Court. [Criminal Case Dkt. No. 119]
VII. CLAIMS ADMINISTRATION
A. CUSTOMER CLAIMS
The Claims Processing Order and Notices of the Bar Date.
79. The Trustee sought Court approval for and implemented a customer claims process in accordance with SIPA. As discussed in ¶ 44 above, the Claims Procedures Order approved (i) the form and manner of publication of the notice of the commencement of the liquidation proceeding (the “Notice”) and (ii) specified the procedures for filing, determining and adjudicating customer claims.
80. On January 2, 2009, the Trustee mailed a copy of the Notice and claims filing information to (i) all persons and entities that are or appear from available records to have been a customer of BLMIS at any time, (ii) creditors other than customers or broker-dealers and (iii) broker-dealers who were identified as BLMIS customers based on a review of BLMIS’ books and records. More than 16,000 potential customer, general creditor and broker-dealer claimants were included in the mailing of the Notice. The Trustee published the Notice in all editions of
The New York Times, The Wall Street Journal, The Financial Times, USA Today, Jerusalem
Post and Ye-diot Achronot by January, 2009. The Trustee also posted claim forms and claims
300040417 26 filing information on the Trustee’s website (www.madofftrustee.com) (“Trustee Website”), and
SIPC’s website (www.sipc.org) (“SIPC Website”).
81. Under the Claims Procedures Order, claimants were to mail their claims to the
Trustee at the following address: Irving H. Picard, Esq., Trustee for Bernard L. Madoff
Investment Securities LLC, Claims Processing Center, 2100 McKinney Avenue, Suite 800,
Dallas, Texas 75201. All customers and creditors were notified of the mandatory statutory bar date for filing of claims under section 78fff-2(a)(3) of SIPA, which was July 2, 2009 (the “Bar
Date”). Any claims received after July 2, 2009 are deemed untimely and will not be allowed.
The Notice published in the newspapers, mailed to claimants and posted on the Trustee’s and
SIPC’s websites, stated in boldface that “[n]o claim of any kind will be allowed unless received by the trustee within six (6) months after the date of this Notice.” The Instructions for completing the Customer Claim and general creditor claim forms also included that information.
82. On May 21, 2009, the Trustee mailed a reminder notice to customers who had not yet filed a claim that the statutory bar date was July 2, 2009.
83. On June 22, 2009, the Trustee mailed a final bar date reminder notice (the “Final
Reminder Notice”) to 7,766 known past and present customers of BLMIS from whom a claim had not yet been received. In addition, the Trustee posted the Final Reminder Notice on the
Trustee Website. In the Final Reminder Notice, the Trustee acknowledged that certain litigation had been filed regarding the Trustee’s definition of “net equity” under SIPA and that this Court’s decision on this issue may affect whether or not certain customers have an allowed claim in this proceeding (such litigation is discussed in Section IX.A, infra). The Trustee urged all customers to file a claim by the July 2, 2009 in order to ensure that the Trustee considers their claim. The
Trustee was concerned that some claimants might mistakenly rely on the litigation and not file
300040417 27 claims by July 2, 2009. The mailing of the Final Reminder Notice was unprecedented in SIPA proceedings and represented an extraordinary effort by the Trustee.
84. As noted above, the Bar Date for the filing of claims under section 78fff-2(a)(3) of SIPA was July 2, 2009. By the Bar Date the Trustee had received 16,239 customer claims.
Between the Bar Date and October 31, 2009, the Trustee received 67 untimely filed customer claims. The books and records of BLMIS reflect that there were 8,095 non-administrative IA accounts. As of December 11, 2008, 4,903 accounts were active, i.e, either a monthly customer statement was generated for the account for the period ending November 30, 2008 or the account was opened in December 2008. The Trustee has received multiple claims for many accounts.
Claims Processing.
85. In compliance with the Claims Procedures Order, the Trustee has developed a comprehensive claims administration process for the intake, reconciliation, and resolution of customer claims. The Trustee’s dedicated team of professionals including business consultants, forensic accountants, and attorneys work together through the various levels of review a claim must undergo before it can be determined and allowed.
86. At the initial intake stage, AlixPartners, the Trustee’s claims agent receives and reviews each filed claim to insure they are filled out properly and all relevant information is included. If any information is missing, the claims agent sends a request for supplemental information. As of October 31 2009, AlixPartners had mailed over 590 requests for supplemental information.
87. In the next stage – the research stage - FTI, the Trustee’s forensic accountants, review each claim, information gathered from BLMIS’ books and records regarding the account at issue and information submitted directly by the claimant. The results of this review are noted
300040417 28 on each account and are ultimately used by the Trustee in assessing his determination of the claim.
88. At the third review stage, the claims are moved to SIPC where a SIPC claims review specialist provides a recommendation to the Trustee regarding how each claim should be determined. Once a recommendation has been made by a SIPC reviewer, the Trustee and his counsel then review the recommendation and legal or other issues that have been raised in prior review stages. Once the Trustee has decided upon a resolution of a claim, the Trustee issues a determination letter to the claimant.
89. The Trustee has or will mail a determination letter to every claimant when their claim is determined. The determination letter explains how the customer’s claim has been determined by the Trustee, states the amount of the allowed or denied claim, based on the net equity of the customer’s account on a cash in/cash out basis, and sets forth the amount of SIPC protection available to the customer, if such claim is allowed. Pursuant to the Claims Procedures
Order, if the claimant does not object to the Trustee’s determination within 30 days of the date on which the Trustee mailed the determination letter, the Trustee’s determination will be deemed confirmed by the Court and binding on the claimant.
90. Together with the determination letter, the Trustee mails either a full or partial assignment and release to customers with allowed claims. This agreement states that the claimant agrees with the Trustee’s determination and treatment of the claim as set forth in the determination letter. This agreement must be executed and notarized by the claimant and received by the Trustee before the Trustee seeks a SIPC advance to fully or partially satisfy the claim within SIPA limits.
300040417 29 Interim Results of the Claims Process During the Report Period.9
91. Notwithstanding the monumental and unprecedented task faced by the Trustee, the Trustee has made substantial progress in reviewing and determining customer claims. As of
October 31, 2009, the Trustee had determined 2,870 claims. Out of those determined, the
Trustee allowed 1,561 claims and committed to pay approximately $535 million in cash advances made by SIPC. Based on the committed amount of SIPC advances to date, this is the largest commitment of SIPC funds in any case and exceeds the total aggregate payments made in all SIPA liquidations to date. As of October 31, 2009, the total amount of customer claims allowed was $4,438,101,443.32. The total over-the-limit claim amount on these claims – the amount by which allowed customer claims exceed the $500,000 statutory limit of SIPC protection – was $3,902,678,576.72.
92. As of October 31, 2009, the Trustee had also determined and denied 1,309 claims as having received more money out of the accounts than deposited to the accounts, applying the net investment method (cash in/cash out) to account transactions.
Settlement of Preferences.
93. The Trustee has engaged in settlement negotiations with customers who withdrew funds from their BLMIS Accounts within 90 days of the Filing Date. Such withdrawals are preferential transfers recoverable by the Trustee under 11 U.S.C. §§547(b) and 550(a). To settle potential preference actions against these customers, the Trustee has proposed that the customers agree to authorize the Trustee to deduct the preferential amount from the initial payment advanced by SIPC pursuant to section 78fff-3(a)(1) of SIPA. The allowed claim is thus
9 As noted above, additional progress has been made in the determination of customer claims since the conclusion of the Report Period. As of November 19, 2009, the Trustee had determined 3,201 customer claims, and allowed 1,626 of those claims, for a total of $4,672,030,364.53 in allowed claims, $554,790,758.86 in committed SIPC advances and $4,117,239,605.67 in over-the- limit claims.
300040417 30 calculated based on the amount of money the customer deposited with BLMIS for the purchase of securities, less subsequent withdrawals, plus the preferential amount. The customer will be entitled to receive an additional distribution from the fund of customer property based on the total amount of the allowed claim.
94. The Trustee has been working to reach settlements in connection with claims resolution in accordance with the provisions of the Claims Procedures Order. As of October 31,
2009, the Trustee had reached agreements with 50 customers to settle the Trustee’s claims against them in connection with preferential transfers. These 50 customers agreed to return to the Trustee a combined total of approximately $25.7 million to be added to the fund of customer property and be available for future distribution.10 These settlements allow the Trustee to avoid the costly litigation that would be necessary to obtain and collect judgments from each of these individual customers.
The Hardship Program.
95. In an effort to speed relief to those BLMIS customers who had been hardest hit by the BLMIS Ponzi scheme, the Trustee implemented a Hardship Program in early May 2009 to expedite the determination of eligible customer claims and, therefore, payment of SIPC protection to those individuals facing severe hardship. The types of hardship considered includes, among others, the inability to pay for necessary living expenses (food, housing, utilities and transportation); inability to pay for necessary medical expenses; necessity to return to work, at the age of 65 or older, after having previously retired from former employment; declaring personal bankruptcy; and inability to pay for the care of dependents.
10 As described above, the Trustee must receive an executed assignment and release form before any claim determination is final. Thus, the amount of preferences listed above as committed for future distribution to customers is slightly greater than the amount actually recovered as indicated on Exhibit A.
300040417 31 96. The Trustee’s counsel has evaluated each hardship application to determine whether or not the application should be approved for inclusion in the Hardship Program and provided written notification of the decision within 20 days of receipt of the application. In some instances, rather than deny the application, the Trustee requested further information from the applicants in an effort to make sure the applicants receive full consideration of their hardship status.
97. Once the Trustee accepts an applicant into the Hardship Program, the Trustee endeavors to determine the claim within 20 days of the customer’s entry for the Hardship
Program if the claimant’s account was opened at BLMIS after January 1, 1996. For claims on accounts that were opened at BLMIS prior to 1996, the Trustee is currently working to reconstruct the records for these years (some of which have been completed). The Trustee is committed to determining these accounts as soon as the records are available. As of October 31,
2009, the Trustee had received 314 Hardship Program applications and approved 207 applications. Most of the remaining applications await the reconstruction of the account records.
98. The Trustee has departed from the practice in past SIPC proceedings and has committed to paying the undisputed portion of any disputed or objected-to claims, including
Hardship Claims, even if there is a dispute over the full amount of the claim. The purpose of this procedure is to expedite payment of SIPC protection to claimants while preserving their rights to dispute the total amount of their claim.
The Trustee Has Worked to Keep Customers Informed of the Status of the Claims Process.
99. Throughout the liquidation proceeding, the Trustee has kept customers, other interested parties and the public informed of his efforts by maintaining the Trustee Website, a customer hotline, holding a Section 341(a) meeting of creditors on February 20, 2009, holding
300040417 32 various press conferences regarding the status of customer claims and he and his counsel responding to the multitude of phone calls, e-mails and letters he receives on a daily basis.
100. The Trustee established the Trustee Website for centralized distribution of as much information as possible, including (i) regular press releases and statements on the status and progress of the proceedings; (ii) statistics on the number of claims determined, the dollar amount of the proposed allowed claims, the dollar amount of SIPC protection provided on such claims and the dollar amount by which the proposed allowed claims exceed the statutory limits of SIPC protection (which statistics are generally updated twice a week); (iii) copies of
Bankruptcy Court filings; (iv) claims-related information and claim forms; and (v) details regarding the Hardship Program, including Hardship Program application forms.
101. The Trustee Website also allows claimants to e-mail their questions directly to the
Trustee’s representatives, who follow up with a return e-mail or telephone call to the claimants.
As of October 31, 2009, the Trustee and his professionals have received and responded to more than 2,200 e-mails from BLMIS customers as well as their representatives.
102. In addition, the Trustee established a toll-free hotline for BLMIS customers to call for information. As of October 31, 2009, the Trustee’s professionals have fielded more than
6,000 hotline calls from claimants as well as their representatives, and have provided status updates on claims, addressed claimants’ questions or concerns and offered confirmation to claimants that their claims were received. In addition, the Trustee and B&H have responded to hundreds of phone calls.
103. In sum, the Trustee and his team have endeavored to respond timely to every customer inquiry and to ensure that the customers are as informed as possible about various aspects of the BLMIS proceeding.
300040417 33 Contingencies.
104. As discussed above, the Trustee has made progress in determining claims.
Nevertheless, substantial contingencies remain, and the Trustee must reserve for these contingencies in determining what distributions can be made immediately to customers with allowed net equity claims. The total universe of allowed claims against customer property cannot be determined with precision until all claims have been fully analyzed, a process that will take time, given the complexity of many claims.
105. In addition, as discussed below, as the analysis of the claims population has progressed, disputes have arisen with claimants over the Trustee’s definition of “net equity” as being measured by money deposited, less money withdrawn. This issue is the subject of pending litigation. (See Section IX.A infra).
106. It is the Trustee’s intent, at the earliest practicable time, to seek, pursuant to
§78fff-2(c)(1) and related provisions of SIPA, Bankruptcy Court approval for the allocation of all recoveries already obtained and to be obtained to the “fund of customer property.” The
Trustee anticipates making applications seeking approval for interim allocations and pro rata distributions.
B. CLAIMS OF GENERAL CREDITORS
107. As of October 31, 2009, the Trustee had received 377 timely and 11 untimely secured and priority and non-priority general unsecured claims totaling approximately
$1,735,838,106.73. The claimants include vendors, taxing authorities, employees, and customers filing claims on non-customer proof of claim forms. As of October 31, 2009, the Trustee had received 50 general unsecured broker dealer claims totaling approximately $29,081,878.41.
108. The Trustee does not currently believe that there will be sufficient funds in the
Debtor’s estate from which to make distributions to priority, non-priority general creditors and/or
300040417 34 broker dealers. Accordingly, the Trustee believes that “[no] purpose would be served, [to] examine [such] proofs of claim and to object to the allowance of any [such] claim that is improper” (see Bankruptcy Code § 704(5)). Further, the Trustee does not expect that there will be sufficient funds in the general estate for SIPC to recoup its advances for administrative expenses.
VIII. TRUSTEE INVESTIGATION
109. As required by SIPA, the Trustee is obligated to, among other things, (i) investigate the acts, conduct, property, liabilities, and financial condition of the debtor, the operation of its business, and any other matter, to the extent relevant to the liquidation proceeding, and report thereon to the Court; and (ii) report to the court any facts ascertained by the trustee with respect to fraud, misconduct, mismanagement, and irregularities, and to any causes of action available to the estate. Section 78fff(1)(d) of SIPA.
110. Pursuant to these obligations, during the Report Period the Trustee and his professionals have extensively investigated the Debtor’s financial affairs both inside and outside of the United States. In furtherance of such investigation, the Trustee has sent more than 428 subpoenas pursuant to Bankruptcy Rule 2004 seeking documents from many individuals, funds and banks. Additionally, the Trustee has sent hundreds of letters to these and similar entities, informing them that they may be in possession of BLMIS customer property and demanding the return of such customer property.
111. As a result of the Trustee’s investigation, the Trustee has filed fourteen (14) avoidance actions against funds and individuals who withdrew funds from their IA accounts during the relevant time periods (as further described in Section IX.E infra). Collectively, these fourteen (14) actions seek to recover more than $14.8 billion in principal and fictitious profits.
300040417 35 112. In addition, after extensive investigative efforts and due diligence, the Trustee settled preference claims involving the Optimal Funds, based in the Bahamas, for $235 million, which was an 85% recovery. (See Section IX.F infra). Several other parties are currently in settlement discussions with the Trustee and others are producing documents to the Trustee without the need to resort to formal process.
113. The Trustee is also providing information to and coordinating efforts with the
SEC, Federal Bureau of Investigation (“FBI”), USAO and other regulators on an on-going basis.
114. In addition, as further described below, through B&H and International Counsel, the Trustee has been monitoring all domestic and international third-party actions filed outside of the Bankruptcy Court that may be related to Madoff, BLMIS, any insiders thereof, or any other related parties and/or assets of the estate.
A. INTERNATIONAL PROCEEDINGS
115. The Trustee’s international investigation and recovery of BLMIS estate assets takes place in three stages: (i) investigate the location and movement of estate assets and retain counsel where necessary; (ii) become involved where appropriate, whether by appearance in court or otherwise, to prevent dissipation of funds properly belonging to the estate; and (iii) bring actions before courts and government agencies to recover customer property for the benefit of the customers and creditors of the BLMIS estate. These investigations, which are comprised of a combination of voluntary requests for information and the use of subpoena power, both in the
U.S. and abroad, have focused primarily on international feeder funds, banks, related financial services entities and certain individuals.
116. Since the date of the First Interim Report, the Trustee has continued to actively investigate and seek to recover assets for the BLMIS estate in no fewer than eleven different jurisdictions including England, Gibraltar, Bermuda, the British Virgin Islands (“BVI”), the
300040417 36 Cayman Islands, the Bahamas, Ireland, France, Luxembourg, Switzerland, and Spain.
Accordingly, the Trustee has retained the following International Counsel to assist him in further investigations and to represent him and the BLMIS estate in any foreign proceedings that have or may arise in connection with BLMIS: (i) Lovells - England, Wales and other European jurisdictions; (ii) Higgs Johnson Truman Bodden - Cayman Islands; (iii) Williams Barristers &
Attorneys – Bermuda; (iv) Attias & Levy – Gibraltar; (v) E.F. Collins – Ireland; (vi) Schiltz &
Schiltz – Luxembourg; (vii) Schifferli – Switzerland; and (viii) SCA Creque – BVI. The Trustee will continue to seek court approval to retain professionals to investigate and represent him wherever estate assets may be found across the globe.
117. The Trustee’s international investigations have to date revealed a complex web of tangled investment structures that fed money into the Ponzi Scheme, involving several billion dollars and myriad actors. In connection with that investigation, the Trustee has served no fewer than thirty-five (35) subpoenas against more than twenty-five (25) entities in ten (10) jurisdictions. The investigation is made challenging by the broad array of anti-discovery laws, bank secrecy statutes, and other foreign legislation designed to limit discovery by U.S. entities.
However the Trustee is working closely with International Counsel to utilize local laws to obtain necessary discovery, most recently having a disclosure order approved by the Gibraltar Supreme
Court. See infra at ¶¶ 120-121.
118. To date the Trustee has received significant documentation in response to the many subpoenas and other requests for information that have been filed and the Trustee is actively pursuing legal remedies against those entities and/or persons that have refused to timely respond to the Trustee’s requests for information. Where the Trustee has been able successfully to discover the location of customer property, the Trustee is taking steps to freeze or otherwise
300040417 37 secure such assets, most recently securing the payment of just under $75 million of customer property into the Gibraltar Supreme Court. Below is a brief summary by jurisdiction of the international efforts currently being undertaken by the Trustee. For a further discussion of the actions commenced in the Bankruptcy Court by the Trustee against certain of the international entities mentioned below, see Section IX.E infra.
England.
119. In England, the Trustee, who was granted recognition as a foreign representative authorized to serve disclosure orders for the purpose of gathering evidence, continues to investigate MSIL, a Madoff-affiliated entity and in so doing continues to work with MSIL’s
JPLs. The Trustee either has filed or is preparing to file several disclosure orders in England to further its investigations.
Gibraltar.
120. As noted in the First Interim Report, the Trustee’s investigations into the business and operation of BLMIS revealed numerous Gibraltar-related funds and banks with accounts and affiliations with BLMIS including an account held by Vizcaya Partners Limited (“Vizcaya”), a
BVI fund with approximately $75 million located in Gibraltar. On April 9, 2009, the Trustee filed a complaint in the Bankruptcy Court for the Southern District of New York against Vizcaya and Banque Jacob Safra (Gibraltar) Ltd. (“Safra”), seeking the return of $150,000,000 under
SIPA and the Bankruptcy Code as preferential transfer and also for turnover and accounting in connection with a transfer from BLMIS to Safra for the benefit of Vizcaya.
121. On October 28, 2009, the Supreme Court of Gibraltar (the “Gibraltar Court”) ordered the payment into the Gibraltar Court of the just under $75 million previously held in various accounts at Safra. In addition, the Gibraltar Court also recognized the Trustee as the
300040417 38 U.S. court-appointed Trustee for the liquidation of the business of BLMIS “with such rights as such recognition by the Supreme Court of Gibraltar affords him and entitles him to apply for” and further ordered Bank Safra to produce documents to the Trustee. The actual production of documents has been stayed pending an appeal by Vizcaya of that portion of the Gibraltar Court’s order.
Bermuda
122. Following months of investigation, the Trustee on July 15, 2009 filed a complaint in the Bankruptcy Court against Alpha Prime Fund Ltd. (“Alpha Prime”) as well as HSBC Bank plc and HSBC Securities Services (Luxembourg) S.A. Alpha Prime is a Bermuda-based feeder fund that received more than $49 million in preference payments. Alpha Prime failed to file an answer to the complaint and on August 19, 2009 the Trustee filed a request for an Entry of
Default against Alpha Prime, which request was granted on September 1, 2009.
British Virgin Islands
123. In BVI the Trustee has discovered and is actively investigating the involvement of no fewer than 20 feeder funds that funneled money into the Ponzi scheme. The Trustee is currently engaged in settlement talks with a number of funds and has filed seven actions in the
US Bankruptcy Court against BVI funds, as further discussed in Section IX.E infra. In addition, the Trustee has served no fewer than 15 subpoenas against BVI-based funds.
124. Kingate Euro Fund Ltd. and Kingate Global Fund Ltd. (collectively, “Kingate”) are BVI-based feeder funds that received, collectively, more than $250 million in preference payments. An action was commenced in the Bankruptcy Court against Kingate on April 14,
2009, with a second amended complaint being filed on July 21, 2009. The parties have undertaken settlement negotiations.
300040417 39 125. Thybo Asset Management Ltd, Thybo Global Fund Ltd., Thybo Return Fund Ltd. and Thybo Stable Fund Ltd. (collectively, the “Thybo Funds”), are BVI-based funds that, considered collectively, have received approximately $9 million in preference payments. A complaint was filed against the Thybo Funds on July 15, 2009 asserting preference and fraudulent transfer causes of action. On or about August 25, 2009, an amended complaint was filed to include a count objecting to the SIPA claim filed by the Thybo Funds in the amount of
$217,163,851.
126. For discussion of proceedings commenced against Vizcaya, see ¶ 120 infra.
Cayman Islands
127. In the Cayman Islands the Trustee has discovered and is actively investigating the involvement of no fewer than four feeder funds that fueled the Ponzi scheme. Complaints have been filed against three funds in the Bankruptcy Court and the Trustee is seeking leave to file a
Complaint in the Cayman Islands against another. See Section IX.E infra.
128. Harley International (Cayman) Ltd. (“Harley”) is a Cayman Islands-based feeder fund. The Trustee’s investigation has revealed that Harley has received no less than $425 million in 90-day preference payments. A complaint was filed on May 12, 2009 in the
Bankruptcy Court asserting preference and fraudulent transfer causes of action. The clerk entered a default on July 8, 2009. The Trustee is currently seeking leave to proceed with an action against Harley in the Cayman Islands.
129. Herald USA Segregated One Portfolio is the sole fund of Herald Fund SPC
(“Herald”), a Cayman Islands-based feeder fund. The Trustee’s investigation has revealed that
Herald received at least $537 million in preference payments. The Trustee filed a complaint against Herald initiating an adversary proceeding in the Bankruptcy Court. On October 13,
300040417 40 2009, the Trustee filed a second amended complaint. Herald filed a motion to dismiss the case, to which the Trustee has responded; an argument on the motion to dismiss is scheduled for
December 22, 2009.
130. Primeo Fund (“Primeo”) is a Cayman Islands-based feeder fund that profited by more than $1.5 million dollars from its investment in BLMIS. The fund is currently in liquidation in the Cayman Islands. A Complaint was filed against Primeo in the Bankruptcy
Court on July 15, 2009. Primeo failed to respond to the suit papers, and the Clerk entered a
Default against Primeo on Sept. 1, 2009.
Ireland
131. In Ireland, the Trustee has discovered two feeder funds, which collectively received more than $380 million in preference payments. The Trustee is continuing to investigate these funds and related entities and has issued several subpoenas in connection with that investigation.
Luxembourg
132. In Luxembourg, the Trustee’s investigation has revealed the existence of two feeder funds that collectively fed more than $1.5 billion into BLMIS. One of these funds,
Luxalpha SICAV, is currently in liquidation under Luxembourg law and the Trustee is in discussions with Luxalpha SICAV’s liquidators concerning the disposition of its assets and access to information.
Other Jurisdictions
133. In addition to the jurisdictions and entities identified above, the Trustee is also actively investigating other feeder funds and related institutions connected to BLMIS in Panama,
St. Lucia, and Switzerland.
300040417 41 B. DOMESTIC PROCEEDINGS
Related Civil Third Party Actions
134. The Trustee has been monitoring since last December legal proceedings filed by various third parties who allege to have suffered losses and incurred damages resulting from
Madoff’s Ponzi scheme and their direct or indirect investments with BLMIS (the “Third Party
Actions”). At present, there are over 160 Third Party Actions filed in state and federal courts across the country. The plaintiffs in the Third Party Actions generally consist of: (i) investors whose funds were invested with BLMIS indirectly through feeder funds and other investment vehicles; (ii) investors who were direct customers of BLMIS who invested with BLMIS through
Madoff, Madoff family members and other BLMIS insiders; and (iii) state governmental bodies which seek the return of investment losses by their respective state’s residents.
135. The plaintiffs in the Third Party Actions brought against feeder funds generally allege that these entities negligently – and even fraudulently, and in a breach of their fiduciary duty, convinced them to invest their money in a fund that was invested either fully or partially with BLMIS. Many of these lawsuits, which generally are either private party actions, securities class actions or derivative actions, seek damages against feeder funds and management companies against which the Trustee has also asserted claims in this Court. A majority of these
Third Party Actions are pending in the Southern District of New York, although there are many cases pending nationwide.
Domestic Feeder Funds Investigations
136. The Trustee is also continuing his investigation of the domestic feeder funds that were customers of BLMIS, perhaps facilitated the fraud, or received preferences and fraudulent transfers. Some of the domestic feeder funds investigations are discussed below.
300040417 42 Tremont Group
137. The Tremont Group Holdings companies, based in Rye, New York, comprised both multi manager proprietary funds under the Tremont name and single manager funds under the Rye Select brand name. Five of the Rye Select funds were either entirely or significantly invested through BLMIS. Based on BLMIS records there are over $500 million in preference and fictitious profit claims and $1.4 billion in fraudulent transfer claims that can be asserted against the various Tremont funds. After submission of a demand letter for payment of these amounts, Tremont, through its counsel, presented a settlement proposal in late April 2009 to resolve these potential claims. The Trustee presented a counter-proposal in late October to
Tremont. While the Trustee seeks an amicable resolution, he is prepared to commence action early next year, if one is not forthcoming.
Maxam Capital
138. The Trustee has issued demand letters and Rule 2004 subpoenas for documentation to Maxam Capital. Based upon restrictions placed upon Maxam’s Bank of
America bank account as to the use of funds which the Trustee deemed to be customer property,
Maxam instituted a court action in May 2009 against Bank of America in Connecticut state court for relief and unrestricted use of the Bank of America accounts monies. Shortly thereafter, Bank of America commenced an interpleader action in this Court against the Trustee and Maxam seeking, among other things, a declaration as to the right to the bank account monies and a stay of the Connecticut action. The Trustee joined in seeking a stay of the Connecticut action, the state where Maxim conducted its business. Following oral argument, this Court issued an Order, dated June 17, 2009, staying the Connecticut action and ordering the deposition of Maxam’s founder and the former co-founder of Tremont. Such deposition occurred on July 7, 2009, at
300040417 43 which time questions seeking the identities and financial information of foreign investors was objected to based on claims of statutory privacy obligations under Cayman Islands law.
139. Maxam made an application in August to the court in the Cayman Islands for relief from the local privacy laws to comply with our subpoena and request for foreign investor information. On September 14, 2009, the Cayman Islands court, after submission of a supporting affidavit by the Trustee, granted the application and allowed the disclosure of the information to the Trustee. The Trustee is in the process of receiving and reviewing that information for further investigation.
Beacon/Andover
140. Rule 2004 subpoenas were issued in the summer of 2009 to Beacon and Andover funds and their management companies. Based upon the Trustee’s independent investigation and information received pursuant to bank subpoenas, it was determined that only a portion of these funds’ investments were placed with BLMIS. Moreover, the Beacon fund has sufficient assets to pay a potential $25 million fraudulent transfer claim and Andover has sufficient assets to pay a $500,000 preference claim. With this information, the Trustee sought and obtained a
“standstill” agreement with the funds’ management regarding segregating those amounts while an investigation as to potential liability for the fraudulent transfers predicated upon their lack of good faith was concluded. The investigation of the funds and its sub-advisers, including Ivy
Asset Management (currently owned by Bank of New York) and JP Jeannerett, is continuing.
P&S Partnership/S&P Partnership
141. These two funds were formed shortly after the 1992 SEC enforcement action against Avellino and Bienes, SEC v. Avellino. In light of the amount of monies involved in these funds, it was determined no further investigation of these funds was necessary or cost
300040417 44 effective. Settlement agreements have been prepared and if finalized, will be presented to the
Court for approval.
C. BANKS & FEEDER FUNDS
142. During the Report Period, and primarily as a result of international and domestic feeder fund investigations, the Trustee has identified and commenced investigations of numerous banks involved with various feeder funds and BLMIS. The Trustee’s investigation of these banks is continuing. As mentioned above and as further described in Section IX.E infra, the
Trustee has brought suit against various feeder funds to date.
143. Various banks were involved with the feeder funds in a number of different capacities. For example, some were custodians of the funds, others were administrative agents charged with calculating the net asset value of the funds, others were involved in transactions associated with the BLMIS account at J.P. Morgan Chase. Some banks wore multiple hats, assuming a number of roles. Third party actions have been brought in both the United States and abroad that charge the banks, for instance, with some degree of complicity, money laundering or negligence in connection with the Madoff fraud. The Trustee continues to monitor these actions as he investigates the roles of various banks.
D. POTENTIAL INSIDERS AND CORPORATE ASSETS
144. During the Report Period, one of the many projects that the Trustee and his professionals have focused on is the investigation of potential insiders of BLMIS and Madoff, and the transactions, business investments and ventures they engaged in with BLMIS, Madoff and Madoff family members, to ascertain whether the potential insiders were the unlawful recipients of BLMIS customer property or corporate assets.
145. The on-going nature of the investigation into potential insiders prohibits the
Trustee from disclosing the specific targets, excessive details or preliminary findings of the
300040417 45 investigation. In the course of the investigation into potential BLMIS insiders and their related affiliates, the Trustee and his professionals have:
collected and reviewed hundreds of thousands of documents collected from the
BLMIS premises, including investment account statements of the potential insiders,
bank account statements, wire transfers and other related financial account records,
corporate formation documents, operating agreements, tax returns, emails and other
related correspondence between the potential insiders and BLMIS, Madoff and
Madoff family members;
drafted document requests and issued subpoenas to numerous third party entities, and
reviewed thousands of pages of documents produced in compliance with the
subpoenas;
reviewed notes of interviews with former BLMIS employees;
conferred extensively with FTI regarding the investment advisory accounts and
records of the transactions, business investments and ventures between the potential
insiders and BLMIS, Madoff and Madoff family members;
conducted analyses of the personal and professional relationships between the
potential insiders and BLMIS, Madoff and Madoff family members;
conducted analyses of the corporate structure of affiliates of potential insiders,
including entities in which Madoff or Madoff family members invested;
conducted extensive legal research and analyses relating to, among other things,
potential claims against potential insiders; and
drafted memoranda regarding the status and findings of the investigations of potential
insiders.
300040417 46 146. Many of the potential insiders and their affiliates had dozens, and in some cases, hundreds of IA accounts with BLMIS, each of which are being analyzed. Given the duration and size of Madoff’s fraud, this necessitates the review of several decades’ worth of IA account records, bank account statements and account maintenance files for the hundreds of IA accounts held by the potential insiders.
147. Adding to the scope and complexity of the Trustee’s investigation is the vast number of transactions and business ventures between the potential insiders and Madoff and
Madoff family members. Each transaction, business investment or venture between the potential insiders and Madoff and Madoff family members and the documents related thereto are being analyzed. Furthermore, the flow of funds between the potential insiders and their affiliates and
BLMIS, Madoff and Madoff family members are being analyzed to determine which funds originated from BLMIS customer funds.
148. Upon completion of his investigation, the Trustee intends to seek through litigation recovery of any customer property or corporate assets that were improperly transferred to the potential insiders.
E. EVIDENCE GATHERING
149. Within hours of the appointment of the Receiver, AlixPartners began certain efforts to identify and preserve evidence at the three (3) physical locations used by BLMIS – the main office at 885 Third Avenue in Manhattan, the disaster recovery site at the Bulova Building in Astoria, Queens and a warehouse in Long Island City, Queens. Starting on December 11,
2008, AlixPartners coordinated efforts with the FBI to identify and provide forensic images and server data for review and analysis and conducted numerous forensic analysis of electronic data.
150. In addition, AlixPartners engaged in the following activities to gather and preserve evidence: coordinated the recovery of data from hard drives and other media that were
300040417 47 physically damaged or had failed during the normal course of use; conducted a site survey of the
885 3rd Avenue and Bulova facilities to identify and preserve loose media (i.e. floppy disks,
DVD/CDs, etc.); previewed each collected computer hard drive to document all user profiles; and extracted for analysis and review data identified for relevant custodians, including certain
Madoff family members and employees.
151. With the assistance of AlixPartners, the Trustee has identified and preserved various items of computer media. The preserved data have been forensically imaged allowing analysis and future use as evidence. AlixPartners has identified and collected server data, from both the 885 3rd Avenue and Bulova facilities, and has coordinated the backup of all relevant server data for preservation purposes. This data has been loaded into a secure web-based document review program which B&H attorneys continue to review.
152. The Trustee has engaged AlixPartners to retain BLMIS paper documents and electronic data which were obtained from the main BLMIS office at 885 Third Avenue in
Manhattan, the BLMIS Disaster Recovery site at the Bulova Building in Astoria, Queens and a warehouse in Long Island City, Queens.
153. Through attorneys and consultants the Trustee has organized within a warehouse approximately seven thousand boxes of BLMIS’ paper documents, reviewed those documents to develop an index of boxes containing paper documents at the folder level to identify approximately 8.3 million pages of those documents to scan and a significant portion of those documents to process so as to enable full-text searching.
154. In addition, the Trustee has accumulated and stored in secure and forensically sound formats more than 1.4 million emails, and more than 1,500 sources of electronically stored
300040417 48 information which include but are not limited to desktop computers, laptop computers, AS/400 computers, hard drives, network storage, PDAs, floppy disks, compact discs and memory cards.
155. As a result of this work and under the Trustee’s direction, attorneys and
AlixPartners’ and FTI’s accountants, computer scientists and consultants have indexed, organized and extracted information pertaining to BLMIS’ operations, communications, books and records. This enabled B&H, AlixPartners and FTI to assess many of BLMIS’ paper documents and electronic data. Consequently, the Trustee has assembled in substantial detail and for extensive periods of time BLMIS’ financial history and relationships with BLMIS’ investors, employees, vendors and others.
156. Beyond identifying and analyzing BLMIS documents and electronic documents, the Trustee has accumulated and prepared for review documents received from more than 100 parties in response to subpoenas. The Trustee receives these documents in a variety of formats.
Like the BLMIS documents and electronic data, responses to subpoenas are processed and imported into a litigation support database.
157. Under the Trustee’s direction attorneys, AlixPartners and FTI accountants and consultants have assessed many of these responses to subpoenas and have indexing them with respect to various investigations and current and prospective law suits. Consequently, the
Trustee has grown substantially the Trustee’s understanding of BLMIS’ relationships with
BLMIS’ investor, employees, vendors and others.
IX. BANKRUPTCY COURT PROCEEDINGS
A. NET EQUITY DISPUTE
158. As discussed in Section VII.A supra, as of November 19, 2009 the Trustee had issued 3,021 customer claim determinations in accordance with SIPA and the Claims Procedures
Order. For purposes of determining each customer’s “net equity,” as that term is defined under
300040417 49 SIPA, the Trustee has credited the amount of cash deposited by the customer into his BLMIS account, less any amounts already withdrawn by him from his BLMIS customer account (the
“cash in/cash out approach”).
159. Various customers have filed adversary proceedings, see infra, and objections to the Trustee’s determination of their claims, in which they argue that the Trustee’s cash in/cash out approach is contrary to the statutory definition of “net equity” (the “Net Equity Dispute”).
These customers argue instead that the Trustee is required to allow customer claims in the amount shown on the November 30, 2008 BLMIS customer statements.
160. Because the Net Equity Dispute is an issue of comprehensive application in this
SIPA liquidation, the Trustee filed a motion for a scheduling order on the Net Equity Dispute.
On September 16, 2009, the Court issued an order scheduling adjudication of the “net equity” issue (the “Scheduling Order”), setting forth a briefing schedule and hearing date that permitted customers and other interested parties to participate in the adjudication of this issue. [Dkt. No.
437] In addition, the Court limited the briefing to be submitted pursuant to the Scheduling Order solely to the Net Equity Dispute, and barred briefing on any issues ancillary to that dispute.
161. In accordance with the Claims Procedures Order and the Scheduling Order, on
October 16, 2009, the Trustee submitted his memoranda of law and other papers in support of his motion for an order (a) upholding the Trustee’s determinations denying 78 customer claims for the amounts listed on the last customer statement,11 (b) affirming the Trustee’s determination of
“net equity,” and (c) expunging those objections with respect to the determinations relating to
“net equity.” [Dkt. No. 525] The Trustee argues that the cash in/cash out approach to calculating
“net equity” is the only one consistent with SIPA, bankruptcy law, principles of equity, and
11 As of the date of the Trustee’s Motion, 78 customer claimants had filed an objection to the Trustee’s determination of their claim on the basis of the Net Equity Dispute.
300040417 50 common sense. The briefing schedule concludes on January 15, 2009 and a hearing before this
Court on the Net Equity Dispute is set for February 2, 2009.
B. THIRD-PARTY ACTIONS AGAINST THE TRUSTEE
Rosenman Family LLC v. Picard, et al., Adv. Pro. No. 09-1000 (BRL).
162. On January 1, 2009, Rosenman Family LLC, a BLMIS customer, filed an adversary proceeding seeking the return of $10 million dollars it deposited mere days before
BLMIS collapsed. The Trustee moved to dismiss the complaint under Federal Rule of Civil
Procedure 12(b)(6), arguing that Rosenman Family LLC was a “customer,” as that term is defined under SIPA, and could thus only recover through the customer claims process set forth in that statute. This Court granted the Trustee’s motion, and Rosenman Family LLC appealed the decision to the United States District Court for the Southern District of New York. The appeal was assigned to the Honorable Naomi R. Buchwald. After full briefing, oral argument was held on October 26, 2009. The District Court has not yet issued its decision.
Hadleigh Holdings LLC v. Picard, et. al., Adv. Pro. No. 09-1005 (BRL).
163. A similar complaint was filed on January 7, 2009 against the Trustee by Hadleigh
Holdings LLC (“Hadleigh”), a BLMIS customer which deposited $1 million dollars just a few days before the collapse of BLMIS. The Trustee filed a motion to dismiss the complaint under
Federal Rule of Civil Procedure 12(b)(6). While the motion was pending, Hadleigh Holdings
LLC filed an amended complaint. After the Trustee filed a motion to dismiss the amended complaint, the case was voluntarily dismissed by Hadleigh. The customer claim of Hadleigh has been determined and partially satisfied by the Trustee.
Albanese, et al. v. Picard, Adv. Pro. No 09-1265 (BRL).
164. On June 5, 2009, a class action (“Class Action”) complaint was filed by several
BLMIS customers on behalf of a prospective class against the Trustee regarding the Net Equity
300040417 51 Dispute. Plaintiffs sought a declaratory judgment that the Trustee’s cash in/cash out approach to
“net equity,” as that term is defined under SIPA, is invalid. Instead, they allege that the Trustee should allow claims based on the November 30, 2008 BLMIS customer account statements. The
Class Action seeks to certify a class of customers who “are adversely affected by the Trustee’s definition of ‘net equity’ under SIPA.”
165. The Trustee answered the complaint on July 17, 2009. As discussed above, the
Court issued a Scheduling Order on the Net Equity Dispute on September 16, 2009. Thereafter, the parties entered into a stipulation staying the pendency of the Class Action until a final, non- appealable order regarding the Net Equity Dispute is issued.
Peskin, et al. v. Picard, Adv. Pro. No. 09-1272 (BRL).
166. On June 10, 2009, three BLMIS customers filed an adversary proceeding seeking declarations that the Trustee must allow their customer claims in the amounts shown on their
November 30, 2008 customer statement and that the Trustee is not permitted to deduct preference monies from their SIPC advances. Plaintiffs also sought compensatory damages for breach of fiduciary duty, alleging that the Trustee breached his duties to them by failing to promptly determine their customer claims and by “inventing” a new definition of “net equity.”
167. On July 17, 2009, the Trustee moved to dismiss the Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6), or in the alternative, to strike certain portions thereof. The Trustee moved on several bases, including: (i) Plaintiffs failed to adhere to the Claims Procedures Order; (ii) Plaintiffs lacked standing because the harm they alleged – the
Trustee’s interpretation of “net equity” – would benefit them rather than harm them; and (iii) that, in the alternative, certain paragraphs should be stricken pursuant to Federal Rule of Civil
Procedure 12(f). On August 17, 2009, Plaintiffs filed an opposition to the Trustee’s motion to
300040417 52 dismiss the Complaint. (Peskin, Dkt. No. 30). The Trustee filed a reply on August 28, 2009 and this Court heard oral argument on September 9, 2009.
168. The following day, this Court issued a memorandum decision and order granting the Trustee’s motion to dismiss the complaint. This Court held that the Plaintiffs’ action violated the Claims Procedures Order and that permitting Plaintiffs to litigate their case was fundamentally unfair to other customers. In addition, the Court found that permitting such a course of action would lead to an unwieldy process of adjudicating claims. In light of the
Trustee’s motion for a scheduling order regarding the Net Equity Dispute in which Plaintiffs and all other customers may participate, the Court dismissed the portion of the complaint concerning the Net Equity Dispute.
169. The Court also dismissed the remaining causes of action in Plaintiffs’ complaint.
With regard to the preference issue, the Court held that the dispute was not ripe because the
Trustee did not deduct preference monies from Plaintiffs’ SIPC advances. As for the breach of fiduciary duty claim, the Court found that whether the Trustee breached a fiduciary duty cannot be decided until the appropriateness of the “net equity” methodology is resolved. Thus, the
Court dismissed that portion of the complaint without prejudice with leave to re-file pending the outcome of the Net Equity Dispute.
170. On September 18, 2009, Plaintiffs filed a notice of appeal from the order dismissing their complaint. The appeal was assigned to the Honorable John G. Koeltl in the
Southern District of New York. Plaintiffs’ moving brief is due on November 23, 2009, the
Trustee’s opposition is due on December 23, 2009, and Plaintiffs’ reply is due on January 4,
2010. The District Court will set a date for oral argument after briefing has concluded.
300040417 53 C. OBJECTIONS TO CLAIMS DETERMINATIONS
171. In connection with the determination of customer claims, as of October 31, 2009 there have been 108 objections filed by customers with the Bankruptcy Court to the Trustee’s determination of such claims.12 As required by the Claims Procedures Order, and as described in each Determination Letter sent by the Trustee, customers of BLMIS have thirty (30) days from the receipt of the Determination Letter to object to the Trustee’s determination of their claim.
Notice of and reasons for such objection must be provided to the Trustee and to the Bankruptcy
Court.
172. The 108 objectors have cited, among others, the following reasons for objecting to the Trustee’s determination of their claims: (i) the use of the “cash in, cash out” method for calculating the value of claims is inappropriate and claims should be valued based on the BLMIS
November 30, 2008 statement; (ii) claimants should receive interest on deposited amounts; (iii) the Trustee is required to commence an adversary proceeding as the Trustee is attempting to avoid gains on claimants’ investments; (iv) there is no legal basis for requiring execution of a
Partial Assignment and Release prior to payment of SIPC advance; and (v) claimants are entitled to immediate payment of the $500,000 SIPC advance; (vi) claimants also focus on the obligation of the Trustee to ascertain the payments due to customers from the books and records of the
Debtor (inter alia); (vii) other objectors argue that as a result of their joint account status, each named account holder should be entitled to payment of a SIPC advance.
173. As described in ¶ 98 supra, the Trustee has departed from the practice in past
SIPC proceedings and has committed to paying the undisputed portion of any disputed or objected-to claim, even if there is a dispute over the full amount of the claim. The purpose of
12 As of November 19, 2009, a total of 388 objections to the Trustee’s determination of claims have been filed in the Bankruptcy Court by customers of BLMIS.
300040417 54 this procedure is to expedite payment of SIPC protection to claimants while preserving their rights to dispute the total amount of their claim
D. OBJECTION TO FEE APPLICATIONS
174. On August 3, 2009, the Peskin plaintiffs also filed a fifty-one page objection (the
“Objection”) in the Bankruptcy Court to the first fee applications of B&H and the Trustee (the
“Fee Applications”), which were filed on July 10, 2009 [Dkt. Nos. 320 and 321]. Raising issues ancillary to the services and compensation of the Trustee and B&H, the Objection was essentially a reiteration of the Complaint the Peskin plaintiffs filed. In short, it raised the very same arguments and allegations previously raised by the Peskin plaintiffs regarding the Net
Equity Dispute and certain factual allegations relating to their particular customer accounts. The
Objection attempted to use the Peskin plaintiffs' prior arguments about the Net Equity Dispute as a basis for alleging that the Trustee and B&H have a conflict of interest and should be disqualified from serving.
175. SIPC and the Trustee each filed a reply to the Objection on August 3, 2009, and
August 5, 2009, respectively. A hearing was held before the Bankruptcy Court on the Fee
Applications on August 6, 2009. At the hearing, the Court stated that the Net Equity Dispute was raised in the context of the adversary proceeding, and was not properly before the Court at that time. After consideration of each of the applications and responses, the Court further stated that it found “no merit to the objections.” Ultimately, the Bankruptcy Court found that there was no basis to challenge the Trustee's disinterestedness, and that despite the disagreement of methodology for calculating claims, the Bankruptcy Court held that the services rendered were reasonable, were done responsibly, and had been done with a salutary effect. The Bankruptcy
Court approved the Fee Applications.
300040417 55 176. On August 14, 2009, the Peskin plaintiffs filed a notice of appeal, a motion for leave to appeal, and a related memorandum of law ("Motion for Leave") seeking interlocutory review of the Bankruptcy Court’s order granting the prior Fee Applications. Once again, the
Peskin plaintiffs' motion and supporting papers filed contained the same allegations - alleged bad acts of the Trustee, his alleged improper interpretation and implementation of SIPA with regard to “net equity,” spurious allegations regarding the purposes and history of SIPA and SIPC, as well as ad hominem attacks against the Trustee and SIPC.
177. On August 24, 2009, the Trustee filed his memorandum and supporting documents in opposition to the Motion for Leave detailing multiple grounds as to why the
Motion for Leave is improper and should be denied, including that the Peskin plaintiffs lack standing to appeal and that they filed to meet the necessary requirements for leave to appeal an interlocutory order. The matter thereafter was submitted to the District Court and was assigned to the Honorable George B. Daniels. As of the date of filing of this Report, no decision on the
Motion for Leave has been issued.
E. AVOIDANCE ACTIONS BY THE TRUSTEE
Picard v. Vizcaya Partners Limited and Banque Jacob Safra (Gibraltar) Ltd. Adv. Pro. No 09- 1154 (BRL).
178. On April 9, 2009, the Trustee filed a complaint in the Bankruptcy Court for the
Southern District of New York against Vizcaya Partners Limited (“Vizcaya”) and Banque Jacob
Safra (Gibraltar) Ltd. (“Bank Safra”), seeking return of $150,000,000 under SIPA §§ 78lll(4) and
78fff-2(c)(3), and sections 542, 547, 550(a)(1), and 551 of the Bankruptcy Code as a preferential transfer and also for turnover and accounting in connection with a transfer from BLMIS to Safra for the benefit of Vizcaya.
300040417 56 179. Of that $150 million, approximately $75 million was held in various accounts at
Bank Safra or in a Gibraltar Court, which money was frozen by the Gibraltar authorities and which the Trustee is claiming for the benefit of the estate. The Trustee was added as an interested party to a Gibraltar-based Judicial Review Action, which was filed by Vizcaya against the Gibraltar Attorney General and Bank Safra in order to regain control over frozen funds held in its account at Bank Safra.
180. Following a recent order by the Gibraltar Supreme Court, approximately $75 million frozen at Bank Safra by the Gibraltar authorities was directed to be turned over to the
Gibraltar Supreme Court. The Judicial Action was filed by Vizcaya Partners, Limited on
February 18, 2009. It is Case No. 2009-Misc-13. Interested parties include Bank J. Safra
(Gibraltar) Limited and Irving H. Picard.
Picard v. Kingate Global Fund Ltd., Kingate Euro Fund Ltd. and Bank of Bermuda Limited, Adv. Pro. No 09-1161 (BRL).
181. On April 17, 2009, the Trustee filed a complaint against Kingate Global Fund Ltd.
(“Kingate Global”) and Kingate Euro Fund Ltd. (“Kingate Euro”), seeking return of $395 million under SIPA §§ 78lll(4) and 78fff-2(c)(3), and Bankruptcy Code sections 542, 547,
550(a)(1), and 551 and other applicable law for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants.
182. On July 21, 2009, the Trustee filed a second amended complaint against Kingate
Global and Kingate Euro, seeking return of $874 million under SIPA §§ 78lll(4) and 78fff-
2(c)(3), and Bankruptcy Code sections 105(a), 502(d), 542, 544, 547, 548(a), 550(a), and 551, the New York Fraudulent Conveyance Act (N.Y. Debt. & Cred. §§ 270 et seq. (McKinney
2001)) and other applicable law for turnover, accounting, preferences, fraudulent conveyances
300040417 57 and objection to claim in connection with certain transfers of property by BLMIS to or for the benefit of Kingate Global and Kingate Euro. The complaint also named Bank of Bermuda
Limited as a defendant. The defendants’ answers are currently due on January 8, 2010 and a pretrial conference has been scheduled for January 14, 2010.
183. Kingate Global and Kingate Euro are in liquidation in BVI. The Trustee and the
BVI Court-appointed liquidators have been diligently engaged in negotiations regarding a settlement agreement since July 2009. Any final settlement agreement would have to be approved by the Bankruptcy Court and the BVI Court.
Picard v. Stanley Chais, et al., Adv. Pro. No 09-1172 (BRL).
184. On May 1, 2009, the Trustee filed an adversary complaint against Stanley Chais,
Pamela Chais (the “Chais Defendants”) and a number of related entities (collectively, the “Chais- related entities”) seeking return of more then $1.1 billion under SIPA §§ 78fff(b) and 78fff-
2(c)(3), sections 105(a), 542, 544, 547, 548(a) and 551 of the Bankruptcy Code, N.Y. Debt &
Cred. § 270 et seq. (the “New York Fraudulent Conveyance Act”), and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants.
185. On September 29, 2009, the Chais Defendants filed a motion with the Bankruptcy
Court seeking a declaration that the Chais Defendants should be free to use certain funds they hold at Goldman Sachs. The Trustee had previously requested that Goldman Sachs freeze such assets and not permit the Chais Defendants to withdraw any such amounts. In response to such motion, the Trustee filed a motion seeking a temporary restraining order and preliminary injunction formally freezing all assets of the Chais Defendants. Following a Chambers conference on October 6, 2009, the Chais Defendants consented to the entry of a temporary
300040417 58 restraining order that formally froze their assets but made certain amounts available to them for living and other expenses. After two extensions of the October 7, 2009 order, the Chais
Defendants and the Trustee entered into a stipulation which extends the asset freeze indefinitely.
186. One of the Chais-related entities, Michael Chaslow, filed a motion to dismiss the
Trustee’s complaint. A hearing on the motion is scheduled for January 14, 2010. Other of the
Chais-related entities have filed motions to dismiss. The Chais Defendants answered the complaint and filed counter-claims against the Trustee.
Picard v. Gabriel Capital, L.P., et al., Adv. Pro. No. 09-1182(BRL).
187. On May 7, 2009, the Trustee filed an adversary complaint against Gabriel Capital,
L.P., Ariel Fund, Ltd., Ascot Partners, L.P., Gabriel Capital Corporation and J. Ezra Merkin
(collectively, the “Merkin Funds”) seeking return of more then $557 million under SIPA §§
78fff(b) and 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a) and 551 of the Bankruptcy
Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants.
188. In late June 2009, pursuant to an action commenced by the New York State
Attorney General in the Supreme Court of New York, New York County, Receivers were appointed over each of the funds. Bart Schwartz, Esq., was appointed Receiver of Ariel Fund
Ltd. and Gabriel Capital, L.P., and is utilizing his law firm of Reed Smith. David Pitosky, Esq. was appointed Receiver over Ascot Partners, L.P. and is utilizing his firm of Goodwin Procter.
189. On or about August 6, 2009, the Trustee filed an Amended Complaint. On or about September 4, 2009, Defendants Ariel Fund Ltd. and Gabriel Capital, L.P., through their above-mentioned state court appointed Receiver, filed a Motion to Dismiss the Amended
300040417 59 Complaint. On that same date, J. Ezra Merkin and Gabriel Capital Corporation filed a Motion to
Dismiss the Amended Complaint. On November 2, 2009, the Trustee filed his Memoranda in
Opposition to the foregoing motions to dismiss the Amended Complaint. The Trustee has had ongoing negotiations with the court appointed Receiver for Ascot Partners, L.P., and has extended the time for Ascot Partners, L.P. to respond to the Amended Complaint while those negotiations continue. Replies in support of the motions to dismiss are due to be filed on or before November 23, 2009, and the motions are scheduled for hearing before the Court on
December 17, 2009.
Picard v. Harley International (Cayman) Limited, Adv. Pro. No. 09-1187 (BRL).
190. On May 12, 2009, the Trustee filed a complaint against Harley International
(Cayman) Limited (“Harley”), seeking return of approximately $1.1 billion pursuant to SIPA §§
78fff(b) and 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a), 550(a) and 551 of the
Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of Harley. As Harley failed to answer the Trustee’s complaint, a default was entered against Harley on July 8, 2009 by the
Clerk of the Bankruptcy Court.
Picard v. Jeffry Picower, et al., Adv. Pro. No. 09-1179 (BRL).
191. On May 12, 2009, the Trustee filed an adversary complaint against Jeffry M.
Picower, individually and as trustee for the Picower Foundation, Barbara Picower, individually and trustee for the Trust FBO Gabrielle H. Picower and the Picower Foundation, Capital Growth
Company, Favorite Funds, JA Primary Limited Partnership, JA Special Limited Partnership,
JAB Partnership, JEMW Partnership, JF Partnership, JFM Investment Company, JLN
300040417 60 Partnership, JMP Limited Partnership, Jeffry M. Picower Special Co., Jeffry M. Picower, P.C.,
Decisions Incorporated, The Picower Foundation, The Picower Institute For Medical Research,
The Trust FBO Gabrielle H. Picower and Does 1-25 (collectively, the “Picower-related entities”) seeking return of more then $6.7 billion under SIPA §§ 78fff(b) and 78fff-2(c)(3), sections
105(a), 542, 544, 547, 548(a) and 551 of the Bankruptcy Code, the New York Fraudulent
Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants. The defendants filed a partial motion to dismiss certain claims and parties on July 31, 2009. The Trustee filed his opposition to the defendants’ motion on
September 30, 2009. In his opposition the Trustee, among other things, notified the defendants that the Trustee’s continuing investigation has determined that the fictitious profit withdrawn by the Picower-related entities was in excess of $7.2 billion, which correspondingly increases the recovery sought by the Trustee in this matter. The Trustee also confirmed that the Picower- related entities had withdrawn more of other investors’ money than any other customer of
BLMIS.
192. On October 25, 2009, Mr. Picower was found dead in the swimming pool of his home in Florida. Although the hearing on defendants’ motion has been delayed pending the appointment of a representative for the Picower estate, the Trustee expects the motion to be heard on January 7, 2010. The Trustee will continue to fully pursue the litigation.
Picard v. Fairfield Sentry Limited, et al., Adv. Pro. No 09-1239 (BRL).
193. On May 18, 2009, the Trustee filed a complaint against Fairfield Sentry Limited,
Greenwich Sentry Limited, L.P., and Greenwich Sentry Partners, L.P., (collectively, “the
Fairfield Funds”) seeking return of approximately $3.5 billion pursuant to SIPA §§ 78fff(b) and
300040417 61 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a) and 551 of the Bankruptcy Code, the New
York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances, damages and objection to claim in connection with certain transfers of property by BLMIS to or for the benefit of the Fairfield Funds.
194. Since the commencement of this adversary proceeding, extensive additional investigation pursuant to 2004 subpoenas has focused on subsequent transferees, including certain financial institutions such as JP Morgan Chase, which withdrew over $200 million from one of the Fairfield funds during the summer of 2009.
195. No answers or motions have been filed in the adversary proceeding to date. There have been a series of discussions with the liquidators, who are represented by both BVI counsel and Brown Rudnick in New York, to seek to work cooperatively and most advantageously in the filing of claims against various responsible parties, the individual principals of the Fairfield
Greenwich Group, and the management companies.
196. The individual principals are represented by Simpson Thacher, who have met with the Trustee also to discuss settlement. Thus far, their proposed resolution is deemed inadequate as forming a realistic basis for a settlement at this juncture. Accordingly, it is the
Trustee’s intention to vigorously investigate and litigate this matter. He also intends to amend his complaint, or file a new complaint, as appropriate, as further investigative information develops.
Picard v. Cohmad Securities Corporation, et al., Adv. Pro. No. 09-1305 (BRL).
197. On June 22, 2009, the Trustee filed a complaint in the Bankruptcy Court against
Cohmad Securities Corporation (“Cohmad”), Maurice “Sonny” J. Cohn, Marcia B. Cohn, Robert
Jaffe, Alvin “Sonny” Delaire, Jr., Milton S. Cohn, Stanley Berman, Jonathan Greenberg, Cyril
300040417 62 Jalon, Morton Kurzrok, Linda McCurdy, Richard Spring, Rosalie Buccellato, Marilyn Cohn,
Jane M. Delaire a/k/a Jane Delaire Hackett, Carole Delaire, Gloria Kurzrok, Joyce Berman, S &
J Partnership, Janet Jaffin Revocable Trust, The Spring Family Trust, Jeanne T. Spring Trust,
The Estate of Elena Jalon, The Joint Tenancy of Phyllis Guenzburger and Fabian Guenzburger,
The Joint Tenancy of Robert Pinchou and Fabian Guenzburger and Elizabeth M. Moody.
198. The following defendants filed motions to dismiss the complaint, or portions thereof, pursuant to Fed. R. Civ. P. 12(b)(6): (1) Cohmad, Maurice “Sonny” J. Cohn, Marcia B.
Cohn, Milton Cohn and Marilyn Cohn; (2) Robert Jaffe; (3) Richard Spring, The Spring Family
Trust, Jeanne T. Spring Trust (collectively, the “Spring Defendants”); and (4) Jane M. Delaire a/k/a Jane Delaire Hackett. The following defendants joined in the motion filed by the Spring
Defendants: (1) Cyril Jalon and the Estate of Elana Jalon; (2) Alvin “Sonny” Delaire, Jr. and
Carole Delaire; and (3) Stanley Berman, Joyce Berman, S & J Partnership. These motions were all rendered moot by the Trustee’s amended complaint, discussed in further detail below.
199. The following defendants answered the complaint: Jonathan Greenberg, Linda
McCurdy, Rosalie Buccellato, Moton Kurzrok, Gloria Kurzrok, the Janet Jaffin Revocable Trust, and Elizabeth M. Moody. Gloria Kurzrock also filed a counterclaim seeking recognition of her
SIPA claim.
200. The following defendants moved to dismiss for lack of personal jurisdiction and improper service: The Joint Tenancy of Phyllis Guenzburger and Fabian Guenzburger, The Joint
Tenancy of Robert Pinchou and Fabian Guenzburger (collectively, the “Tenancy Defendants”).
The Trustee opposed these motions, and indicated that it was in the process of serving the complaint on the Tenancy Defendants under the Hague Convention. Oral argument was held on
300040417 63 October 22, 2009, and the on October 26, 2009, the Court issued an order denying the motion filed by the Tenancy.
201. The Trustee filed a motion to dismiss Gloria Kurzrock’s counterclaim. That motion is pending.
202. The following defendants also moved to have the reference to bankruptcy court withdrawn as to the Trustee’s case against them: (1) Cohmad, Maurice Cohn and Marcia Cohn; and (2) Robert Jaffe. The Trustee opposed these motions, which is currently sub judice before
Judge Stanton in the United States District Court.
203. The Trustee continued its investigation against the various defendants, and filed an amended complaint on October 8, 2009. The amended complaint seeks to avoid, pursuant to
SIPA §§ 78fff(b) and 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a) and 551 of the
Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, decades worth of transactions through which BLMIS paid more than approximately $114 million to
Cohmad, Sonny Cohn and other Cohmad related individuals in exchange for Sonny Cohn,
Marcia Cohn, Robert Jaffe and other Cohmad employees introducing victims to BLMIS and knowingly helping Madoff create, fund and maintain his massive Ponzi scheme. Over 90% or more of the income to Cohmad and others came from the referral of customers to Madoff.
204. The amended complaint portrays the unique relationships between Madoff,
Cohmad, Cohn, Jaffe and other Cohmad individuals, who, though ostensibly at different companies, acted as a single enterprise. According to the amended complaint, while Madoff shrouded himself with an unapproachable, Wizard of Oz-like aura eschewing unknown investors, the reality is that Cohn, Jaffe and others were actively recruiting more than 1,000 customer accounts and infusing the Ponzi scheme with billions of dollars. The amended
300040417 64 complaint also adds M/A/S Capital, Inc., a company owned by Robert Jaffe, as a defendant to the action.
205. In addition, the amended complaint seeks to recover all of the fictitious profits that the Cohmad representatives, and their family members, received over the years from their investment advisory accounts at BLMIS, an amount greater than $100 million.
206. The defendants’ response to the amended complaint shall be filed by December 1,
2009.
207. The Trustee continues his investigation into the activities of Cohmad and the other defendants in their participation in and help in propagation of Madoff’s Ponzi scheme.
Picard v. Peter B. Madoff, Mark D. Madoff, Andrew H. Madoff and Shana D. Madoff, Adv. Pro. No. 09-1503 (BRL).
208. On October 2, 2009, the Trustee filed an adversary complaint against Peter B.
Madoff, Mark D. Madoff, Andrew H. Madoff, and Shana D. Madoff (the “Family Defendants”).
Through the complaint, the Trustee is seeking the return of nearly $200 million under SIPA §§
78fff(b), 78fff-2(c)(3), sections 105(a), 502(d), 541, 542, 544, 548(a), 550(a), and 551 of the
Bankruptcy Code, the New York Fraudulent Conveyance Act (N.Y. Debt. & Cred. § 270 et seq.), and common law. The relief sought includes turnover of and accounting for BLMIS funds, property, and assets, the recovery of preferential and fraudulent transfers—both discovered and undiscovered—of BLMIS funds, property, and assets from BLMIS to the Family Defendants, the recovery of subsequent transfers of BLMIS funds, property, and assets from the Family
Defendants to others, the disallowance, or, alternatively, the equitable subordination of the
Family Defendants’ claims against the estate, as well as seeking damages for breach of fiduciary duty, conversion, unjust enrichment, negligence, and the imposition of a constructive trust.
300040417 65 209. Each of the Family Defendants held senior supervisory or compliance roles at
BLMIS: Peter B. Madoff was the Company’s Senior Managing Director and Chief Compliance
Officer, Mark D. Madoff and Andrew H. Madoff were Co-Directors of Trading, and Shana D.
Madoff was Compliance Counsel. The Trustee alleges that the Family Defendants ignored their responsibilities to BLMIS and instead each improperly received tens of millions of dollars in customer funds to which they were not entitled. The Family Defendants’ answers to the complaint are due on January 8, 2010, and a pre-trial conference is scheduled to take place before Judge Lifland on January 14, 2009.
Picard v. Ruth Madoff, Adv. Pro. No. 09-1391 (BRL).
210. On July 29, 2009, the Trustee filed an adversary complaint against Ruth Madoff.
In this action the Trustee is seeking the return of more than $44 million under SIPA §§ 78fff(b),
78fff-1(a), and 78fff-2(c)(3), sections 105(a), 502(d), 541, 542, 544, 548(a), 550(a), and 551 of the Bankruptcy Code, the New York Fraudulent Conveyance Act (N.Y. Debt. & Cred. § 270 et seq.), and New York common law. The relief sought includes turnover of and accounting for
BLMIS funds, property, and assets, the recovery of fraudulent transfers and subsequent transfers, disallowance of Mrs. Madoff’s claims against the estate, as well as damages and the imposition of a constructive trust.
211. Mrs. Madoff’s answer currently is due on December 4, 2009. A pre-trial conference is scheduled to take place before Judge Lifland on December 9, 2009.
Picard v. Alpha Prime Fund Limited, HSBC Bank PLC and HSBC Securities Services (Luxembourg) S.A., Adv. Pro. No. 09-1364 (BRL).
212. On July 15, 2009, the Trustee filed a complaint against Alpha Prime Fund
Limited (“Alpha Prime”) seeking return of $86 million under SIPA §§ 78lll(4) and 78fff-2(c)(3), and Bankruptcy Code sections 105(a), 502(d), 542, 544, 547, 548(a), 550(a), and 551, the New
300040417 66 York Fraudulent Conveyance Act (N.Y. Debt. & Cred. §§ 270 et seq. (McKinney 2001)) and other applicable law for turnover, accounting, preferences, fraudulent conveyances and objection to claim in connection with certain transfers of property by BLMIS to or for the benefit of Alpha
Prime. The complaint also named HSBC Bank PLC and HSBC Securities Services
(Luxembourg) S.A. (collectively “HSBC”) as defendants. HSBC answered the complaint on
August 28, 2009. Alpha Prime failed to answer or move to dismiss before its deadline and the
Clerk of the Court entered a default against Alpha Prime on September 1, 2009. A pretrial conference has been scheduled for December 9, 2009.
Picard v. Herald Fund SPC, HSBC Bank PLC and HSBC Securities Services (Luxembourg) S.A., Adv. Pro. No. 09-1359 (BRL).
213. On July 14, 2009, the Trustee filed a complaint against Herald Fund SPC
(“Herald”) and HSBC Bank PLC and HSBC Securities Services (Luxembourg) S.A.
(collectively “HSBC”) as defendants, seeking return of $578 million under SIPA §§ 78lll(4) and
78fff-2(c)(3), and Bankruptcy Code sections 105(a), 502(d), 542, 544, 547, 548(a), 550(a), and
551, the New York Fraudulent Conveyance Act (N.Y. Debt. & Cred. §§ 270 et seq. (McKinney
2001)) and other applicable law for turnover, accounting, preferences, actual fraudulent conveyances and constructive fraudulent conveyances in connection with certain transfers of property by BLMIS to or for the benefit of Herald. On August 14, 2009, the Trustee filed an amended complaint to add an objection to Herald’s SIPA claim. On October 13, 2009, the
Trustee filed a second amended complaint. The parties filed a case management plan, which the
Court entered on October 21, 2009.
214. HSBC answered the second amended complaint on October 26, 2009. Herald moved to dismiss the second amended complaint for failure to state a claim on October 26, 2009.
300040417 67 The Trustee’s opposition to that motion was filed on November 13, 2009. A hearing on the motion to dismiss is scheduled for December 22, 2009.
Picard v. Primeo Fund, HSBC Bank PLC and HSBC Securities Services (Luxembourg) S.A., Adv. Pro. No. 09-1366 (BRL).
215. On July 15, 2009, the Trustee filed a complaint against Primeo Fund (“Primeo”) seeking return of $145 million under SIPA §§ 78lll(4) and 78fff-2(c)(3), and Bankruptcy Code sections 105(a), 542, 544, 548(a), 550(a), and 551, the New York Fraudulent Conveyance Act
(N.Y. Debt. & Cred. §§ 270 et seq. (McKinney 2001)) and other applicable law for turnover, accounting and fraudulent conveyances in connection with certain transfers of property by
BLMIS to or for the benefit of Primeo. The complaint also named HSBC Bank PLC and HSBC
Securities Services (Luxembourg) S.A. (collectively “HSBC”) as defendants. HSBC answered the complaint on August 28, 2009. Primeo failed to respond to the suit papers before its deadline and the Clerk of the Court entered a default against Primeo on September 1, 2009. A pretrial conference has been scheduled for December 9, 2009. Primeo is in liquidation in the Cayman
Islands. The Trustee and the Cayman Islands court-appointed liquidators (the “Liquidators”) are in negotiations regarding a partial settlement. Any final settlement agreement would have to be approved by the Bankruptcy Court and the Cayman Islands Court.
Picard v. Thybo Asset Management Limited, Thybo Global Fund Limited, Thybo Return Fund Limited, Thybo Stable Fund Ltd., Adv. Pro. No. 09-1365 (BRL).
216. On July 15, 2009, the Trustee filed a complaint against Thybo Asset Management
Limited; Thybo Global Fund Limited; Thybo Return Fund Limited; and Thybo Stable Fund Ltd.
(collectively, the “Thybo Funds”), seeking return of approximately $63 million pursuant to SIPA
§§ 78fff(b) and 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a), 550(a) and 551 of the
Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for
300040417 68 turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the Defendant Thybo Funds. The
Trustee filed an amended complaint on August 25, 2009, adding a claim objecting to Defendant
Thybo Stable Fund’s SIPA claim. The Defendant Thybo Funds’ answers are due on December
18, 2009 and a pretrial conference is scheduled for December 22, 2009.
F. SETTLEMENTS
Optimal Companies
217. On May 22, 2009, the Trustee reached an agreement (the “Settlement
Agreement”) with Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited
(collectively the “Optimal Companies”) to settle the Trustee’s claims against them in connection with the liquidation of BLMIS. The Optimal Companies are indirectly owned by Banco
Santander, S.A., a Spanish banking corporation (“Santander” and together with the Optimal
Companies, collectively “Optimal”). On May 26, 2009, the Trustee filed a motion seeking approval of the Settlement Agreement pursuant to section 105(a) of the Bankruptcy Code and
Fed. R. Bankr. P. 2002 and 9019. This Court approved the Settlement Agreement at a hearing held on June 16, 2009.
218. Pursuant to the Settlement Agreement, Optimal agreed to pay $235 million to settle potential litigation claims by the Trustee. This settlement is significant because it is the first instance where a “feeder fund” has agreed to settle with the Trustee. The Optimal
Companies withdrew about $275 million within 90 days before the collapse of BLMIS. The
$275 million in withdrawals were therefore considered preferences, recoverable by the Trustee pursuant to sections 547 and 550 of the Bankruptcy Code. Optimal agreed to return approximately $235 million, which is 85% of what the Trustee would have sought from Optimal as a 90-day preference claim. The settlement is considered to be a major success because it
300040417 69 allows the Trustee to avoid (1) the anticipated legal battles over determining the judicial plausibility of a US court holding jurisdiction over a foreign bank in Spain and (2) the costly litigation that would be necessary to collect a judgment from the funds.
219. The Trustee conducted a confirmatory investigation, including a review of documents made available to the Trustee by the Optimal Companies that related to, among other things, due diligence conducted by the Optimal Companies and their affiliates on BLMIS. On the basis of that review, the Trustee concluded that the Optimal Companies and their affiliates were not complicit in the fraud perpetrated by BLMIS and Bernard Madoff on BLMIS’s customers and did not have actual knowledge of the fraud, and based on the review, the Trustee did not believe that the conduct, acts and omissions of the Optimal Companies and their affiliates provide grounds to assert any claim against the Optimal Companies or any affiliates (other than avoiding preference claims), or to disallow any claim that the Optimal Companies may have against BLMIS or its estate. If the Trustee obtains new information relating to the BLMIS accounts of the Optimal Companies that materially affects the Trustee’s decision to enter into the
Settlement Agreement, the Trustee may declare the Settlement Agreement void and return the amounts paid by the Optimal Companies.
G. MOTIONS TO INTERVENE
220. The Trustee and his counsel successfully opposed an attempt by Ade Ogunjobi,
Toks, Inc. and its related companies (collectively, "Toks") to intervene in the BLMIS proceedings. Toks proposed to purchase BLMIS through what it described as a purported
"global transaction all stock tax free $100,000,000,000 ($100 Trillion) or 400,000,000,000 shares of Class A Common shares that will be registered with the [SEC] during the closing of the proposed exchange tender offers,” pursuant to which clients of BLMIS purportedly would
300040417 70 receive $75 billion or more in stock, and it proposed to use the funds recovered by the Trustee to fund the plan. The offer was unsolicited, and more importantly, completely unsupported.
221. Based on the papers filed by the Trustee, and after a hearing on the matter held on
June 2, 2009, the Bankruptcy Court found that Toks was not a party in interest, and that Toks failed to demonstrate any ability to complete its proposed tender offer. The Bankruptcy Court denied Toks' motion to intervene,13 and Toks appealed to the District Court. The matter was assigned to District Court Judge Chin (Civil Case No. 09 CV 5877) (the “Toks Appeals”).
222. Counsel for the Trustee prepared a filed a joint appellate brief with SIPC, and along with Toks' appellate brief, the matter was submitted to the District Court on May 30, 2009.
[Toks Appeal Dkt. No. 6]. By order dated October 30, 2009, the District Court dismissed the appeal based on Toks' failure to provide information required pursuant to a prior order issued by the District Court. [Toks Appeal Dkt. No. 12] Toks recently filed a notice of appeal with the
Second Circuit Court of Appeals.
13 Mr. Ogunjobi’s and Tok’s emergency motion seeking a stay of the liquidation proceeding [Dkt. No. 304] was denied by the Bankruptcy Court on July 6, 2009 [Dkt. No. 306].
300040417 71 X. CONCLUSION
The foregoing report represents a summary of the status of this proceeding and the material events that have occurred through October 31, 2009 unless otherwise indicated. This
Report will be supplemented and updated with further interim reports.
Dated: New York, New York Respectfully submitted, November 23, 2009
/s/ Irving H. Picard ______Irving H. Picard c/o Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201
Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and OF COUNSEL14 Bernard L. Madoff
Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Marc Hirschfield Email: [email protected] Alissa M. Nann Email: [email protected]
Attorneys to Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
14 The Trustee would like to recognize the following B&H attorneys and team members who contributed to this Report: Fritz Chockley, Elizabeth Scully, Lauren Resnick, Oren Warshavsky, John Siegel, Brian Bash, Gonzalo Zeballos, Deborah Renner, Marc Powers, Lou Colombo, Thomas Wearsch, Keith Murphy, Maryanne Stanganelli, Henry Bodenheimer, Bik Cheema, Courtni Thorpe, Michael Powell, Seanna Brown, Bill Speros and Jordan Sherman. William Kingsford, Meaghan Schmidt and Vineet Sehgal of AlixPartners also contributed to this Report, as well as Regina Griffin of Windels Marx.
300040417 72
Irving H. Picard Hearing Date: December 17, 2009 c/o Baker & Hostetler LLP Hearing Time: 10:00 am 45 Rockefeller Plaza Objection Deadline: December 14, 2009 New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201
Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
SECOND APPLICATION OF IRVING H. PICARD, TRUSTEE, FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009 AND REQUEST FOR REDUCTION OF HOLDBACK
300039247 TO THE HONORABLE BURTON R. LIFLAND, UNITED STATES BANKRUPTCY JUDGE:
Irving H. Picard as trustee (the “Trustee”) for the substantively consolidated liquidation proceeding of Bernard L. Madoff Investment Securities LLC (“BLMIS” or “Debtor”) and Bernard L. Madoff (“Madoff”), respectfully submits his second application (the
“Application”) for an order pursuant to section 78eee(b)(5) of the Securities Investor Protection
Act, 15 U.S.C. 78eee(b)(5),1 sections 330 and 331 of the Bankruptcy Code, Rule 2016(a) of the
Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the Order Pursuant to
Section 78eee(b)(5) of SIPA, Sections 105, 330 and 331 of the Bankruptcy Code, Bankruptcy
Rule 2016(a) and Local Bankruptcy Rule 2016-1 Establishing Procedures Governing Interim
Monthly Compensation of Trustee and Baker & Hostetler LLP, dated February 25, 2009 (the
“Compensation Order”) [Docket No. 126], allowing and awarding interim compensation for services performed by the Trustee for the period commencing May 1, 2009 through and including September 30, 2009 (the “Compensation Period”) in the amount of $835,605.00 (of which $710,264.25 is to be paid currently and 15%, or $125,340.75, is to be deferred through the conclusion of the Liquidation Proceeding or further order of the Court),2 plus $37,961.44 of the previously deferred portion of interim fees awarded by the Court and reimbursement of actual and necessary expenses incurred during the Compensation Period in the amount of
$921.25; and in support thereof, respectfully represents as follows:
1 The Securities Investor Protection Act (“SIPA”) is found at 15 U.S.C. § 78aaa et seq.. For convenience, subsequent references to SIPA will omit “15 U.S.C. ____.” 2 Pursuant to the Compensation Order, the Trustee’s fees are subject to a 20% holdback to be paid at the conclusion of the liquidation. By the Second Application of Baker & Hostetler LLP for Allowance of Interim Compensation for Services Rendered and Reimbursement of Actual and Necessary Expenses Incurred from May 1, 2009 through September 30, 2009 and Request for Reduction of Holdback (“B&H Fee Application”), filed concurrently herewith, the Trustee and Baker & Hostetler LLP (“B&H”), with the approval and support of the Securities Investor Protection Corporation (“SIPC”), are requesting that the Court amend the Compensation Order to reduce the holdback of the Trustee and B&H’s fees from 20% to 15%, retroactive to the Filing Date (as defined below) and going forward. See section VI of the B&H Fee Application.
2
300039247 I. INTRODUCTION
1. Contrary to what has mistakenly been reported by the news media and on blogs, no administration costs, including the compensation of the Trustee and his Counsel, will be paid out of any recoveries obtained by the Trustee for the benefit of BLMIS customers. The
Trustee has previously made this clarification in this Court (see Disinterestedness Hr’g Tr. at
10:14, 11:4, Feb. 4, 2009; First Interim Fee Hr’g Tr. at 7:19, Aug. 6, 2009) and publicly (see, e.g., Trustee’s website, www.madofftrustee.com, under News/Press Releases (Feb. 6, 2009)).
Trustee compensation is dealt with under section 78eee(b)(5) of SIPA, which provides in pertinent part that, upon appropriate application and after a hearing, “[t]he court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred ... by a trustee ....” The percentage commission schedule for trustees found in section
326(a) of the Bankruptcy Code is not applicable in a SIPA liquidation. (See §78fff(b) of SIPA.)
2. As noted at ¶¶ 54-56, infra, SIPC plays a specific role regarding trustee compensation in a liquidation proceeding such as this one, where the general estate is insufficient to pay trustee compensation and SIPC is required to advance funds to pay costs of administration. See SIPA §§ 78fff(5) and 78fff-3(b)(2). The Trustee’s requested fees and expenses in this Application only include (i) fees at the Trustee’s hourly billable rate to which a public interest discount of 10% has been applied, as described at ¶ 41, infra, and (ii) actual, necessary and reasonable expenses incurred within the Compensation Period. Neither this
Application nor any application filed or to be filed by the Trustee has or will include a fee request equal to three (3%) percent (or any other percentage) of the total amount of recoveries made by the Trustee for the benefit of customers of BLMIS.
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300039247 3. Furthermore, and as noted above and infra, the fees and expenses of the
Trustee and of all Counsel to the Trustee (including, but not limited to, B&H, various international special counsel retained the Trustee as described in ¶ 116 of the Second Interim
Report (“International Counsel”), Windels Marx Lane & Mittendorf, LLP (“Windels Marx”), special counsel to the Trustee, and together with International Counsel and B&H, collectively referred to herein as “Counsel”) are paid from SIPC administrative advances (as are all administrative costs incurred by the Trustee). Since these fees and expenses are chargeable to the general estate and not to customer property, the payment of fees and expenses to the Trustee and/or to any of his Counsel has absolutely no impact on recoveries that the Trustee has obtained and will obtain and that will be allocated to the fund of customer property for pro rata distribution to BLMIS customers whose claims have been allowed by the Trustee.
II. PRELIMINARY STATEMENT
4. No single document could comprehensively set forth all of the tasks engaged in by the Trustee since his appointment on December 15, 2008. The Trustee has expended substantial amount of time in connection with his efforts to liquidate the estate, advance the cause of customer-claimants and initiate litigation and negotiations for the return of customer property for distribution to customer claimants. Accordingly, what is set forth below is a broad overview of the work performed by the Trustee with the support of his Counsel and consultants
(as the Trustee may retain from time to time, including, but not limited to, AlixPartners LLP
(“AlixPartners”), the Trustee’s consultant and claims agent, FTI Consulting (“FTI”), the
Trustee’s forensic consultant and Renaissance Associates, Ltd., an investigative consultant
(“Renaissance”), and together, collectively referred to herein as “Consultants”). Additional information is provided in the Trustee's Second Interim Report (the “Second Interim Report”,
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300039247 which is being filed concurrently herewith) which sets forth in greater detail the activities engaged in by the Trustee and his Counsel during the course of these proceedings. That Report is incorporated herein by reference. These activities include:
5. The Trustee, with the assistance of his Counsel and Consultants, has undertaken a comprehensive investigation of all of the affairs of BLMIS, Bernard L. Madoff and dozens of related individuals. This investigation remains ongoing in that the Ponzi scheme engaged in by
Mr. Madoff was not only vast in scope but long in duration. The many layers of complex financial transactions engaged in by Mr. Madoff and his minions require intensive investigation involving literally hundreds of subpoenas to a variety of individuals and third parties, the analysis of the documentation received and follow up activities by the Trustee to further investigate and then enforce the Trustee's rights to the return of customer property. To this end, the Trustee has engaged not only the services of Counsel but those of several investigative outside agencies, as well as forensic accountants and legal experts. This task is ongoing and will be engaged in for a number of years in order to fully understand the scope and depth of the fraud perpetrated by Mr. Madoff. As noted above, this undertaking will not be at the expense of recoveries of customer property available for distribution to customers with allowed claims.
6. The Trustee has received 16,239 timely claims from customers covering a wide spectrum of the individuals who lost money by virtue of their involvement with BLMIS. These customer claims include those individuals who had active accounts with BLMIS at the time of its demise, as well as those customers who suffered over the course of the years at the hands of Mr.
Madoff. In addition, there are the thousands of individuals who indirectly invested in BLMIS through various feeder funds and other entities who have filed claims against the BLMIS estate as a result of those investments. From the very beginning of this proceeding, the Trustee and
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300039247 B&H, together with the Trustee’s Consultants, have been processing each of the customer claims for the purpose of evaluating those claims, allowing those that have a positive net equity balance, disallowing those not entitled to the coverage SIPA and investigating the balance. Given the duration and complexity of the fraud engaged in here, each of these accounts has a history of its own going back many years and involving multiple transfers in many instances, thereby requiring the Trustee to engage in extensive forensic analysis in order to reach an ultimate determination. The Trustee is required by statute to look at all the books and records of the debtor in order to determine and evaluate each customer claim. As of November 19, 2009, the
Trustee had determined 3,021 customer claims and committed $554,790.758.86 in SIPC advances. The allowed claims totaled $4,672,040,364.53. The Trustee's efforts will be ongoing and will continue into 2010.
7. In addition, the Trustee implemented a Hardship Program, which allows customers suffering from the worst financial circumstances to apply to a streamlined program aimed at getting out advances provided by SIPC in a timely manner to those customers who qualify. As of November 19, 2009, the Trustee had received 317 Hardship Program applications and approved 207. Most of the remaining Hardship applications await the reconstruction of their account records.
8. As a result of the investigative efforts of the Trustee, he has initiated litigation against individuals and feeder funds, most of which are well known to the public through the press and other media. The Trustee is seeking the return of billions of dollars to the estate of BLMIS for the ultimate distribution of those funds to customers with allowed claims who were victims of the fraud perpetrated by Mr. Madoff and others. As with all complex litigation involving sums of this nature, the issues involved are complex, the discovery is wide
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300039247 ranging and deep and the litigation itself is hotly contested. All of this leads to enormous effort by the Trustee and his Counsel in prosecuting this litigation to a successful conclusion for the benefit of the victims. As a result of these efforts, the Trustee has already had a degree of success in returning millions of dollars to the estate by virtue of settlements that he is engaged in with a number of parties. Those efforts are ongoing and will continue throughout the course of the liquidation proceeding. It is the Trustee's purpose to recover all of the dollars that are available to him for the benefit of customers with allowed claims by way of settlement or litigation.
9. To date, the Trustee has filed fourteen (14) avoidance actions seeking to recover over $14.8 billion in funds from various feeders funds, Madoff friends and family members and other Madoff-related parties. The Trustee anticipates that he will file extensive additional litigation based on investigations being conducted by the Trustee’s Counsel and
Consultants. Because of these efforts being made by the Trustee and his Counsel, as of
November 18, 2009, $1,183,779,811.89 has been recovered for the benefit of the customers.
10. The international arena is one in which BLMIS and its investors played a significant role. As is set forth in the Second Interim Report, the Trustee is engaged in a litigation in Europe, Gibraltar and throughout the Caribbean including Bermuda, the Cayman
Islands and the British Virgin Islands. He has retained International Counsel in all of these jurisdictions for the purpose of preserving and protecting customer funds that are being held in those countries, and for the ultimate purpose of having those funds returned to him for distribution to the victims of BLMIS and Mr. Madoff. These international relationships involve both feeder funds, as well as international banking institutions through a variety of complex transactions which are being untangled by the Trustee and his staff with the assistance of his
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300039247 Counsel here in the United States and in each of the foreign jurisdictions. Each of these international matters represents millions of dollars in terms of funds that were diverted wrongfully from the estate of BLMIS, and which the Trustee is seeking to return. This requires an extensive legal effort on the part of the Trustee, for which he has committed the resources of his Counsel and Consultants for the purpose of achieving the best outcome for victims.
11. In support of all of the foregoing efforts, there are daily tasks that must be engaged in to further the investigation, the customer claims process and the litigation. For all of these efforts the Trustee requires the support of Counsel and Consultants. Indeed, the general categories above do not comprehensively describe all of the other work engaged in by the
Trustee, his Counsel and Consultants in support of the liquidation proceeding. As noted, the details associated with these endeavors are set forth in greater detail in the Trustee's Second
Interim Report to which the reader is referred.
12. During the Compensation Period, the Trustee, his Counsel and
Consultants have met extraordinary challenges in their continuing efforts to pursue assets and benefit the customers of BLMIS. The following discussion and the materials attached to this
Application cover the major categories of services for which allowance of compensation is sought by the Trustee.
III. BACKGROUND
13. BLMIS was founded by Madoff in 1960 and engaged in three primary types of business: market making, proprietary trading and investment advisory services. BLMIS was registered with the Securities and Exchange Commission (“SEC”) as a broker-dealer and beginning in 2006 as an investment adviser. Pursuant to such registration as a broker-dealer,
BLMIS was a member of SIPC.
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300039247 14. On December 11, 2008, Madoff was arrested by the FBI in his Manhattan home and was criminally charged with a multi-billion dollar securities fraud scheme in violation of 15 U.S.C. §§ 78j(b), 78ff, and 17 C.F.R. 240.10b-5 in the United States District Court for the
Southern District of New York (“District Court”), captioned USA v. Madoff (No. 08-2735).
That case number was terminated on March 10, 2009 and a new case USA v. Madoff (No. 09 CR
213) was opened and assigned to District Court Judge Denny Chin (the “Criminal Case”).
15. Also on December 11, 2008 (the “Filing Date” for the SIPA liquidation proceeding),3 the SEC filed a complaint in the District Court against defendants Madoff and
BLMIS, captioned Securities and Exchange Commision v. Madoff, et al. (No. 08 CV 10791) (the
“Civil Case”). The complaint alleged that the defendants engaged in fraud through the investment advisor (or “IA”) activities of BLMIS.
16. On December 12, 2008, based on allegations brought by the SEC against
Madoff and BLMIS in the Civil Case, the Honorable Louis L. Stanton of the District Court entered an order which appointed Lee S. Richards, Esq. as receiver (the “Receiver”) for BLMIS.
17. On December 15, 2008, pursuant to section 78eee(a)(4)(A) of SIPA, the
SEC consented to a combination of the Civil Case with an application filed by SIPC. Thereafter, pursuant to section 78eee(a)(3) of SIPA, SIPC filed an application in the District Court alleging, inter alia, that the Debtor was not able to meet its obligations to securities customers as they came due and, accordingly, its customers needed the protection afforded by SIPA.
3 Section 78lll(7) of SIPA states that the filing date for a SIPA liquidation is “the date on which an application for a protective decree is filed under 78eee(a)(3),” except, under subparagraph (B), where the debtor is the subject of a proceeding pending before a United States court “in which a receiver, trustee, or liquidator for such debtor has been appointed and such proceeding was commenced before the date on which such application was filed, the term ‘filing date’ means the date on which such proceeding was commenced.” Thus, even though the Application for a protective decree was filed on December 15, 2008, the Filing Date in this action is on December 11, 2008.
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300039247 18. On that date, the District Court entered the order (the “Protective Decree”)
[District Court Docket No. 4], to which BLMIS consented, which, in pertinent part:
a. appointed the Trustee for the liquidation of the business of the Debtor pursuant to section 78eee(b)(3) of SIPA, therefore, effectively replacing the Receiver as to BLMIS;
b. appointed B&H as Counsel to the Trustee pursuant to section 78eee(b)(3) of SIPA; and
c. removed the case to the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) pursuant to section 78eee(b)(4) of SIPA.4
19. On February 4, 2009, this Court entered the Order Regarding
Disinterestedness of the Trustee and Counsel to the Trustee [Docket No. 69], finding that the
Trustee and B&H are disinterested pursuant to section 78eee(b)(6) of SIPA, section 327(a) of the
Bankruptcy Code, and Bankruptcy Rule 2014(a) and are therefore in compliance with the disinterestedness requirement in section 78eee(b)(3) of SIPA, section 327(a) of the Bankruptcy
Code, and Bankruptcy Rule 2014(a).
IV. TRUSTEE’S EXPERIENCE
20. The Trustee is a member of B&H. He practices principally in the areas of corporate reorganizations, bankruptcy and insolvency. He also has been a contributing author to
Collier on Bankruptcy, 15th Edition Revised.
21. The Trustee was admitted to practice before this Court in 1982. He served as the first United States Trustee for the Southern District of New York in a pilot program from
October 1, 1979, the effective date of the Bankruptcy Code, through May 15, 1982. Prior to his tenure as United States Trustee, Mr. Picard was Assistant General Counsel with the SEC in
4 Pursuant to section 78fff(b) of SIPA, “[t]o the extent consistent with [SIPA], [this] liquidation proceeding [is] be[ing] conducted in accordance with, and as though it [is] being conducted under chapter 1, 3, 5 and subchapters I and II of chapter 7 of [the Bankruptcy Code].”
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300039247 Washington, D.C., for three and a half years during which time his responsibilities included, among other things, disclosure and enforcement matters and bankruptcy reorganizations. Before becoming Assistant General Counsel, he spent approximately four years in various legal positions in the SEC's then Division of Corporate Regulation, where his responsibilities primarily involved bankruptcy reorganizations. Prior thereto, Mr. Picard spent more than six (6) years working in the securities industry.
22. Mr. Picard has previously served as trustee in the following ten (10) SIPA liquidations, which have been concluded: Jay W. Kaufmann & Company (Bankr. S.D.N.Y., No
TP 84¬70064A (BRL)); Norbay Securities, Inc. (Bankr. E.D.N.Y., No. 186-0174-353); Investors
Center Inc. (Bankr. E.D.N.Y., No 089-0017-21); Faitos & Co., Inc. (Bankr. E.D.N.Y., No 191-
1085-260); U.S. Equity Management Corp. (Bankr. S.D.N.Y., No. 95/1284 (CB)); Euro-Atlantic
Securities, Inc., (Bankr. S.D.N.Y. No. 98/9304A (BRL)); Hanover, Sterling & Co., Ltd. (Bankr.
S.D.N.Y. No. 96/8396A (REG)); Klein Maus & Shire, Inc.. (Bankr. S.D.N.Y., No. 00/8193A
(AJG)); Montrose Capital Management Ltd. (Bankr. S.D.N.Y., No. 01/8170A (CB)); and Park
South Securities, LLC (Bankr. S.D.N.Y. No. 03-8024A (RDD)). He also has served as Counsel to SIPC as trustee in two (2) liquidation proceedings.
V. SUMMARY OF SERVICES
23. The services rendered by the Trustee during the five (5) month
Compensation Period (1,198.0 hours) are described below. The Trustee does not wish to burden the Court with an overly detailed recitation of each and every matter with respect to which it has rendered services during the Compensation Period. Accordingly, this Application is intended to serve as a summary description of the more significant services rendered by the Trustee, and to highlight the benefits which have been conferred upon SIPC, customers and creditors of the
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300039247 Debtor’s estate as a result of his efforts. The following section provides an overview of services rendered by the Trustee during the Compensation Period by the task codes in use during the
Compensation Period. 5
24. As mentioned above, the Court is also respectfully referred to the Trustee's
Second Interim Report for further detail regarding the administration of the estate, the investigation into the Debtor, Madoff and related parties, and other progress made by the Trustee and B&H during and subsequent to the Compensation Period.
A. Case Administration – Task Code 01 (176.7 hours)
25. This category is for time expended by the Trustee relating to the wind- down of the Debtor’s business and other administrative matters. Substantial time was expended by the Trustee in this category, as the Trustee was, among other things, able to close the sale of the Debtor’s on-going market making operations and conclude the Trustee’s investigation at
Debtor’s office at 885 Third Avenue in Manhattan. Time in this category relates to various administrative matters, including:
Discussions with B&H regarding matters relating to Surge Trading Inc. (f/k/a Castor
Pollux Inc.) and closing of the sale of the BLMIS market making business.
Review of mail forwarded by AlixPartners received at the BLMIS offices or at the
Claims Processing Center and prepare appropriate response or assign for follow-up.
Discussions with B&H regarding negotiations with landlords of BLMIS properties,
including terminations of lease at Bulova building and renegotiating lease at 885
Third Avenue.
5 The Trustee has seventeen (17) task codes for specific categories of work to permit a more detailed analysis of the fees incurred. Task code 15 (Travel Time) is not described herein as no time was billed to that task code during the Compensation Period.
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300039247 Maintaining brokerage accounts, opening of money management account and
purchase of Treasury bills.
Obtaining SIPC administrative cash advances, communications with accountants
concerning payment of bills rendered to Trustee, reviewing and signing monthly
SIPC-17 cash receipts and disbursements reports, reviewing monthly projected
administrative budgets, and communications with the SIPC staff.
Storage of artwork previously located at BLMIS offices and purchase of insurance
policy to cover such artwork.
Preparing responses to and revising proposed responses to inquiries of various
government agencies regarding BLMIS and the wind-down of the estate, including
the U.S. Department of Labor, Internal Revenue Service, New York State Department
of Tax & Finance, New York State Bureau of Workers Compensation and New York
State Department of Labor Unemployment Division.
Attending to various employee and benefits related issues, including correspondence
with administrators of payroll, 401(k), healthcare and other benefit plans, termination
of remaining BLMIS employees, and wind-down of BLMIS sponsored employee
benefit plans (including healthcare and 401(k) plans).
Reviewing monthly invoices of AlixPartners, FTI, Renaissance, and International
Counsel and communicating with SIPC staff.
Communications with B&H attorneys and Consultants regarding vacating the BLMIS
offices, the return of leased equipment located at BLMIS offices and the negotiating
and resolution of outstanding estate obligations.
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300039247 B. Claims Review and Related Matters – Task Code 02 (385.4 hours)
26. This category is for time expended by the Trustee with respect to customer claims. The Trustee dedicated a substantial amount of time to this task code during the
Compensation Period, as significant headway has been made in reviewing and determining customer claims during the Period. The mandatory six-month statutory bar date expired on July
2, 2009. As of September 30, 2009, the Trustee had received 16,239 timely claims and 66 untimely or late-filed claims for customer protection under SIPA and the Trustee had allowed
1,347 customers claims, for a total of $4,030,806,115.49 in allowed claims. As of September 30,
2009, approximately $465 million in SIPC advances had been paid to, or committed to be paid to claimants and the BLMIS estate; the amount by which the allowed claims exceeded the statutory limits of SIPC protection (or “over-the-limit claims”) was approximately $3.57 billion. The receipt (of late-filed claims) and review of customer claims is on a continuing basis.
27. Included in this category of services by the Trustee were the following:
Implementation of the Trustee’s Hardship Program; creation of and review of Hardship
Applications; regular communications with B&H attorneys, SIPC staff and AlixPartners
regarding the review and determination of Hardship applicants.
Ongoing review of submitted customer claim forms and supplements thereto; reviewing
any additional related BLMIS IA account documentation.
Communications with SIPC staff and B&H regarding revisions to the form of
determination letters and assignment and release forms to be sent to all customers.
Review and revise determinations; advise customers and their representatives of
conclusions reached regarding allowance or denial of their respective claims and review
proposed customer assignments and releases to the extent of claims to be satisfied.
14
300039247 Regular communications with AlixPartners, the SIPC staff and B&H attorneys regarding
the customer claims review process, the customer claims database, reconciliation of IA
accounts and other matters of interest in determining claims.
Regular communications by phone, letters and email with customers or their
representatives regarding claims procedure and process, status of claims review and other
matters of concern to customers and when necessary, communicate with B&H claims
team and/or refer for follow-up and response.
Review, revise and approve the mailing of two (2) reminder notices of statutory bar date
for filing claims sent in May and June 2009 to known past and present customers of
BLMIS.
C. Trustee Investigation – Task Code 03 (124.4 hours)
28. This category relates to time spent with respect to the Trustee’s investigation into BLMIS, Madoff and various assets, including meetings, correspondence and cooperative efforts with B&H, SIPC, AlixPartners, FTI, International Counsel, Windels Marx, the Joint Provisional Liquidators (“JPLs”) investigating the Madoff U.K. entity, Madoff
Securities International Ltd. (“MSIL”), and various other government agencies involved with the on-going investigation. The Trustee expended a substantial amount of time in this task code during the Compensation Period. As further described below in ¶ 32, as a result of these efforts, to date the Trustee has filed a total of fourteen (14) avoidance actions against feeder funds,
Madoff family members, Madoff friends and other Madoff-related insiders for the return of customer property.
29. Included in this category of services by the Trustee were the following:
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300039247 Communications with B&H attorneys, SIPC, Windels Marx, JPLs, AlixPartners and FTI
regarding the IA accounts and records of the transactions, business investments and
ventures between the potential insiders and BLMIS, Madoff and Madoff family
members.
Review of account information and statements of BLMIS IA customers in connection
with various investigatory matters.
Overseeing B&H’s issuance of hundreds of inquiry letters and subpoenas to potentially
related third-parties concerning BLMIS litigation.
Review of certain discovery received from responses to issued subpoenas and from other
third parties.
Discussions and conferences regarding investigation and litigation strategy, both
internally and with SIPC, Windels Marx, JPLs, International Counsel and various
government entities.
D. Banks and Feeder Funds – Task Code 04 (3.1 hours)
30. The Trustee has delegated teams of B&H attorneys to identify, investigate and monitor banks and potential feeder funds, and bring actions against such banks and funds for the recovery of estate assets where possible. This category relates to those efforts during the
Compensation Period.
E. Asset Search, Recovery and Sale – Task Code 06 (43.6 hours)
31. This category relates to time spent with respect to discovery of, recovery of and liquidation of various assets for the benefit of the estate. Included in this category of services are the following:
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300039247 Discussions with B&H and Windels Marx concerning settlement possibilities and
discussions regarding BLMIS’/Madoff’s interest in a shared aircraft.
Discussions with B&H regarding the closing of the sale of the BLMIS market maker to
Surge Trading Inc. (f/k/a Castor Pollux Inc.), and potential recoveries from the negotiated
earn-out fees and various related matters.
Discussions with JPLs, Windels Marx and United States Attorney’s Office for the
Southern District of New York (“USAO”) regarding Madoff personal assets and status of
efforts to sell.
Review claims and affidavits for filing in connection with the settlement of various class
actions involving securities owned by BLMIS in its market making and trading
capacities; and conferences with AlixPartners regarding same.
Discussions with B&H concerning sale of certain loan participations owned by BLMIS
and follow up on other loan participation matters.
Discussions with broker concerning status of securities, including Special Purpose
Acquisition Companies, remaining in Trustee’s account and sale possibilities.
F. Avoidance Actions – Task Code 07 (68.3 hours)
32. Prior to the Compensation Period, the Trustee filed avoidance actions against Vizcaya Partners Limited for the return of $150 million and Kingate Euro Fund Ltd. and
Kingate Global Fund Ltd. for the return of $257 million. During the Compensation Period the
Trustee was involved in discussions with his Counsel that resulted in the filing of the following eleven (11) additional avoidance actions against feeder funds, Madoff friends and family members and other Madoff-insiders for the return of customer property:
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300039247 Stanley Chais, Pamela Chais (the “Chais Defendants”) and a number of related entities
(collectively, the “Chais-related entities”) seeking return of more then $1.1 billion;
Jeffry M. and Barbara Picower, individually and as trustee for various foundations
(collectively, the “Picower-related entities”) seeking return of more then $7.2 billion;
Gabriel Capital, L.P., Ariel Fund, Ltd., Ascot Partners, L.P., Gabriel Capital Corporation
and J. Ezra Merkin (collectively, the “Merkin Funds”) seeking return of more then $557
million;
Ruth Madoff seeking the return of more than $44 million;
Harley International (Cayman) Limited (“Harley”), seeking return of approximately $1.1
billion;
Fairfield Sentry Limited, Greenwich Sentry Limited, L.P., and Greenwich Sentry
Partners, L.P. (collectively, “the Fairfield Funds”), seeking return of approximately $3.5
billion;
Cohmad Securities Corporation (“Cohmad”), the principals of Cohmad, various Cohmad
employees and their family members (the “Cohmad Defendants”) seeking return of over
$132 million;
Herald Fund SPC (“Herald”) seeking return of $578 million;
Alpha Prime Fund Limited (“Alpha Prime”) seeking return of $86 million;
Thybo Asset Management Limited; Thybo Global Fund Limited; Thybo Return Fund
Limited; and Thybo Stable Fund Ltd. (collectively, the “Thybo Funds”), seeking return of
approximately $63 million; and
Primeo Fund (“Primeo”) seeking return of $145 million.
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300039247 For further discussion of these avoidance actions, please see section IX.E of the Second
Interim Report.
33. The time spent in this category relates to various communications, investigation and litigation strategy sessions which the Trustee engaged in with B&H, SIPC,
AlixPartners and FTI; communications with Counsel for the counter-parties to the various avoidance actions; negotiation of potential settlement agreements; and review of documents related to the various avoidance actions.
G. Bankruptcy Court Litigation and Related Matters – Task Code 08 (125.3 hours)
34. This category relates to time spent with respect to reviewing and the filing of various motions and pleadings and the initiation of as well as defense against certain adversary proceedings in the Bankruptcy Court. Included in this category of services were the following:
Defense of adversary proceedings, including a class action complaint and a separate
complaint brought on behalf of certain customers against the Trustee relating to
“customer” status and definition of “net equity” under SIPA.
Involvement with preparation and revision of the Trustee’s memorandum regarding net
equity issue; attendance at Court and discussions with Counsel regarding the briefing
schedule.
Regular communications with the SIPC staff, B&H attorneys and Counsel for various
customers who have filed actions regarding customer claims, the “net equity” definition
and other issues.
19
300039247 Review of and regular communications with the SIPC staff, B&H attorneys and Counsel
for various customers who have filed objections to the Trustee’s determination of their
claim. As of September 30, seventy-nine (79) objections had been filed with the
Bankruptcy Court.6
Participate in negotiation of a consent order substantively consolidating the Madoff
chapter 7 estate with the SIPA liquidation.
Obtaining, through B&H, entry of applications to retain International Counsel in the
British Virgin Islands and Switzerland to monitor assets abroad and, where necessary,
represent the Trustee in foreign proceedings.
Hearing on first fee applications of B&H, Trustee and International Counsel.
Preparation for the filing of the eleven (11) avoidance actions against feeder funds,
Madoff family members, Madoff friends and other Madoff-related insiders, as discussed
above in ¶ 32; the review of all complaints, motions, pleadings, proposed orders and
other documents to be submitted to the Bankruptcy Court in connection with all on-going
avoidance actions.
Retention of Windels Marx as special Counsel to the Trustee to coordinate with B&H
attorneys in conducting investigations of certain insiders and BLMIS related entities and
corporate assets.
Approval of termination and liquidation of certain BLMIS-sponsored benefit plans.
Assumption and rejection of certain BLMIS leases and executory contracts.
Recognition of the Cross Border Protocol with the JPLs regarding their investigation into
6 As of November 19, 2009, a total of 388 objections to the Trustee’s determination of claims have been filed in the Bankruptcy Court by customers of BLMIS.
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300039247 MSIL and the sharing of information between the JPLs and the Trustee.
H. Non-Bankruptcy Court Litigation – Task Code 09 (33.6 hours)
35. The Trustee has formed teams of B&H attorneys to monitor all third-party actions, domestic and international, that may be related to BLMIS or Madoff. This category relates to time the Trustee spent engaging in strategy with the teams, reviewing information related to such matters, and correspondence with the teams regarding their on-going investigations and findings and the status of such third party litigations, as well as discussions with various state attorney generals regarding certain of the third-party litigations. Time in this category also relates to matters in the District Court in the Civil Case and Criminal Case, as well as the civil and criminal cases of Frank DiPascali and David Friehling (as further described in
Section II.D the Second Interim Report), and various appeals of avoidance actions filed by the
Trustee and adversary proceedings against the Trustee.
I. Court Appearance – Task Code 10 (8.0 hours)
36. This category relates to time spent by the Trustee making court appearances for the events described in sections G and H above.
J. Internal Office Meetings with Staff and Out of Office Meetings– Task Codes 11 and 12 (51.3 hours)
37. This category relates to internal strategy meetings and training sessions between the Trustee and his professionals, as well as additional out-of-office meetings between the Trustee and other parties such as the SEC, USAO, Financial Industry Regulatory Authority
(“FINRA”), Federal Bureau of Investigation (“FBI”) and other regulators and government officials (as further described in Section K infra).
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300039247 K. USAO and SEC/FINRA - Task Codes 13 and 14 (39.2 hours)
38. This category relates to time spent with respect to the Trustee’s communications with the various government agencies involved in the investigation into
BLMIS, Madoff and various assets. This includes meetings, correspondence and cooperative efforts with the USAO, the SEC and FINRA. Included in this category of services by the
Trustee were the following:
Coordinating efforts with the SEC, USAO, FINRA, FBI and many other local, federal
and international officials involved in this investigation.
Obtaining copies of records seized by the FBI and SEC, and other information from
USAO, FINRA and other securities regulators.
Communication with the USAO regarding B&H’s issuance of hundreds of inquiry letters
and subpoenas to potentially related third-parties concerning BLMIS litigation.
Discussions and conferences regarding litigation strategy with FINRA, USAO and SEC.
L. Second Interim Report/ Fee Application and Related Matters – Task Code 05 and 16 (46.7 hours)
39. In addition to preparation of the Trustee’s first fee application and this
Application, this section relates to the time spent by the Trustee in reviewing his and B&H’s monthly statements prior to submission to SIPC to correct any errors in time entries and to write off certain time and expenses as agreed to by the Trustee for the benefit of SIPC, and to respond to certain adjustments requested by SIPC after its review of each monthly fee statement, as well as to time spent by the Trustee in preparing his interim Second Interim Reports which are required every 150-180 days and summarize all activities conducted by the Trustee and all his
Counsel within that reporting period.
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300039247 M. Press Inquiries and Responses – Task Code 17 (92.4 hours)
40. This section relates to time spent by the Trustee responding to press inquiries, preparing and issuing press releases, and preparing for and holding press conferences relating to BLMIS, Madoff, customer claims and the recovery of funds. During the
Compensation Period, the Trustee held a press conference together with SIPC on May 14, 2009.
In addition, the Trustee and his Counsel were interviewed in late August and early September
2009 by 60 Minutes regarding the case. The segment aired on Sunday, September 27, 2009.
VI. COMPENSATION REQUESTED7
41. The Trustee expended and billed for 1,198.0 hours at an hourly rate of
$775.00, totaling $928,450.00 in fees. Owing to the quasi-public nature of the Trustee’s appointment and services which he performed, prior to being appointed, the Trustee agreed with
SIPC to discount his normal hourly rate by 10%. This public interest discount has resulted in a voluntary reduction during the Compensation Period of $92,845.00. Thus, the Trustee’s discounted request for fees in this Application is $835,605.00 (at an hourly rate of $697.50), of which 15%, or $125,340.75 is being deferred until the conclusion of this liquidation proceeding, or further order of the Court. In addition to the discount the Trustee has, in consideration of judicious billing practice, either written off or not billed 228.1 hours devoted to this matter during the Compensation Period, thus reducing his discounted fees by $159,099.75 (or
$176,777.50 before the discount).
7 By order entered on August 6, 2009 [Docket No. 363], in respect of his first interim fee application, the Trustee was awarded $759,228.75 in fees and $45.00 in expenses for the period December 15, 2008 through April 30, 2009. In accordance with the Compensation Order, the Trustee received 80% of his approved fees ($607,383.00) and the payment of the remaining 20% ($151,845.75) was deferred until the conclusion of the SIPA Liquidation Proceeding or further order of the Court.
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300039247 42. As discussed in ¶ 1 supra, the commission schedule for trustee compensation under §326(a) of the Bankruptcy Code does not apply in a SIPA liquidation proceeding. See SIPA § 78fff(b). Thus the Trustee’s requested fees in this Application are based solely on the Trustee’s discounted hourly billable rate, as described above, plus actual and necessary expenses. They do not and will not include a fee equal to three (3%) percent (or any other percentage) of the total amount of recoveries made for the benefit of customers of BLMIS.
43. The Trustee submits that his requested discounted fees are reasonable based on the customary compensation charged by practitioners with substantial experience in
SIPA matters and comparably skilled bankruptcy practitioners in comparable bankruptcy and non-bankruptcy cases in a competitive national legal market.
44. Prior to filing this Application, the Trustee provided to SIPC, in accordance with the Compensation Order, (i) monthly fee statements setting forth the Trustee’s fees for services rendered and expenses incurred during the Compensation Period beginning May
1, 2009 through September 30, 2009 and (ii) a draft of this Application.
45. Pursuant to the Compensation Order, on June 22, 2009, the Trustee provided to SIPC his statement of fees and expenses incurred in connection with this case in May
2009 (the “May 2009 Fee Statement”). The May 2009 Fee Statement reflected fees of
$161,122.50 and expenses of $16.00. Accordingly, the Trustee received funds advanced by
SIPC in the amount of $128,898.00 for services rendered after subtracting the Court-ordered
20% holdback8 and $16.00 for expenses incurred in May 2009.
8 As described above in fn. 2, supra, by the B&H Fee Application, the Trustee and B&H, with the approval and support of SIPC, are requesting an amended to the Compensation Order reducing in the amount of holdback from 20% to 15%, retroactive to the Filing Date and going forward. Pursuant to the Compensation Order, the Trustee was paid 80% of his fees for May through September 2009. Upon entry of the proposed order amending the Compensation Order and reducing the holdback to 15%, the Trustee will receive an additional 5% of total fees incurred since the Filing Date, and will receive 85% of fees requested going forward.
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300039247 46. Pursuant to the Compensation Order, on July 21, 2009, the Trustee provided to SIPC his statement of fees and expenses incurred in connection with this case in June
2009 (the “June 2009 Fee Statement”). The June 2009 Fee Statement reflected fees of
$185,883.75 and expenses of $838.55. Accordingly, the Trustee received funds advanced by
SIPC in the amount of $148,707.00 for services rendered after subtracting the Court-ordered
20% holdback and $838.55 for expenses incurred in June 2009.
47. Pursuant to the Compensation Order, on August 20, 2009, the Trustee provided to SIPC his statement of fees and expenses incurred in connection with this case in July
2009 (the “July 2009 Fee Statement”). The July 2009 Fee Statement reflected fees of
$174,793.50 and expenses of $12.00. Accordingly, the Trustee received funds advanced by
SIPC in the amount of $139,834.80 for services rendered after subtracting the Court-ordered
20% holdback and $12.00 for expenses incurred in July 2009.
48. Pursuant to the Compensation Order, on September 22, 2009, the Trustee provided to SIPC his statement of fees and expenses incurred in connection with this case in
August 2009 (the “August 2009 Fee Statement”). The August 2009 Fee Statement reflected fees of $152,194.50 and expenses of $13.50. Accordingly, the Trustee received funds advanced by
SIPC in the amount of $121,755.60 for services rendered after subtracting the Court-ordered
20% holdback and $13.50 for expenses incurred during August 2009.
49. Pursuant to the Compensation Order, on October 16, 2009, the Trustee provided to SIPC his statement of fees and expenses incurred in connection with this case in
September 2009 (the “September 2009 Fee Statement”). The September 2009 Fee Statement reflected fees of $161,610.75 and expenses of $41.20. Accordingly, the Trustee received funds
25
300039247 advanced by SIPC in the amount of $129,288.60 for services rendered after subtracting the
Court-ordered 20% holdback and $41.20 for expenses incurred during September 2009.
50. Exhibit A annexed hereto is a summary by task code of total hours expended and total fees for services rendered by the Trustee during the Compensation Period.
51. Exhibit B annexed hereto provides a schedule of the Trustee’s total expenses incurred during the Compensation Period for which reimbursement is requested. The requested expenses are customarily charged to and paid by B&H’s bankruptcy and non- bankruptcy clients.
52. In seeking payment of interim compensation of (a) $835,605.00, of which
$710,264.25 is to be paid currently and 15%, or $125,340.75, is to be deferred through the conclusion of the Liquidation Proceeding or further order of the Court, (b) $37,961.44 of the previously deferred portion of interim fees awarded by the Court and (c) disbursements of
$921.25, the Trustee will pay over to B&H the full amount of any interim compensation and disbursements awarded to him. In accordance with section 504 of the Bankruptcy Code and Fed.
R. Bankr. P. 2016(a), the Trustee represents that no other agreement or understanding exists or shall be made between him and any other person respecting the sharing of compensation to be received for the services he has rendered and will render in connection with this SIPA proceeding. Furthermore, the Trustee has not entered (and will not enter) into any agreement or understanding prohibited by 18 U.S.C. §155.
53. To the extent that time or disbursement charges for services rendered or disbursements incurred relate to the Compensation Period, but were not classified or processed prior to the preparation of this Application, the Trustee reserves the right to request additional compensation for such services and reimbursement of such expenses in a future application.
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300039247 VII. TRUSTEE’S REQUEST FOR INTERIM COMPENSATION SHOULD BE GRANTED
54. Section 78eee(b)(5)(A) of SIPA provides in pertinent part that, upon appropriate application and after a hearing, “[t]he court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred ... by a trustee ...”.
Section 78eee(b)(5)(C) of SIPA specifically establishes SIPC’s role in connection with applications for compensation and the consideration the Court should give to SIPC’s recommendation concerning fees. That section provides as follows:
In any case in which such allowances are to be paid by SIPC without reasonable expectation of recoupment thereof as provided in this chapter and there is no difference between the amounts requested and the amounts recommended by SIPC, the court shall award the amounts recommended by SIPC. In determining the amount of allowances in all other cases, the court shall give due consideration to the nature, extent, and value of the services rendered, and shall place considerable reliance on the recommendations of SIPC.
55. To the extent the general estate is insufficient to pay such allowances as an expense of administration, section 78eee(b)(5)(E) of SIPA requires SIPC to advance the funds necessary to pay the compensation of the Trustee (see SIPA § 78fff-3(b)(2)).
56. Based on the allocation process set forth in SIPA, at this time the Trustee believes that there is no reasonable expectation that the general estate will be sufficient to make any distribution to general creditors or pay any administrative expenses. That is, the Trustee believes that any assets allocated to the BLMIS general estate will be exhausted prior to his being able to reimburse SIPC fully for its administrative advances. The Trustee has been advised by SIPC that it concurs with this belief of the Trustee. Accordingly, any fees and expenses allowed by this Court will be paid from advances by SIPC without any reasonable expectation by
SIPC of recoupment thereof.
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300039247 57. Therefore, with respect to this Application, the Truste requests that consistent with section 78eee(b)(5)(C) of SIPA, the Court “award [him] the amounts recommended by SIPC.” See In re Bell & Beckwith, 112 B.R. 876 (Bankr. N.D. Ohio 1990).
The Trustee expects that SIPC will file its recommendation to the Court with respect to this
Application prior to the hearing, currently scheduled for December 17, 2009.
58. The Trustee submits that the request for interim allowance of compensation made through this Application is reasonable and complies with the provisions of the Bankruptcy Code governing applications for compensation and reimbursement of expenses, pursuant to section 78eee(b)(5) of SIPA.
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300039247 VIII. CONCLUSION
The Trustee respectfully submits that the services rendered during the
Compensation Period and accomplishments to date merit the approval of the fees and disbursements requested herein, and respectfully requests that the Court enter Orders as follows:
(i) allowing and awarding (a) $835,605.00 (of which $710,264.25 is to be paid currently and
15%, or $125,340.75 is to be deferred through the conclusion of the Liquidation Proceeding or further order of the Court) as an interim payment for professional services rendered by the
Trustee during the Compensation Period, (b) $37,961.44 of the previously deferred portion of interim fees awarded by the Court as an interim payment for professional services rendered by the Trustee and (c) $921.95 as reimbursement of the actual and necessary costs and expenses incurred by the Trustee in connection with the rendition of such services; and (ii) amending the
Compensation Order and allowing the reduction in Holdback from 20% to 15% of fees, as described in the B&H Fee Application; and (iii) granting such other and further relief as the
Court may deem just and proper.
Dated: New York, New York Respectfully submitted, November 23, 2009 BAKER & HOSTETLER LLP
By:/s/ Irving H. Picard______Irving H. Picard, Trustee c/o Baker & Hostetler LLP 45 Rockefeller Plaza New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201
Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
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300039247 Baker & Hostetler LLP Hearing Date: December 17, 2009 45 Rockefeller Plaza Hearing Time: 10:00 am New York, NY 10111 Objection Deadline: December 14, 2009 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Marc E. Hirschfield Email: [email protected]
Attorneys for Irving H. Picard, Esq. Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
SECOND APPLICATION OF BAKER & HOSTETLER LLP FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009 AND REQUEST FOR REDUCTION OF HOLDBACK
300039123 TO THE HONORABLE BURTON R. LIFLAND, UNITED STATES BANKRUPTCY JUDGE:
Baker & Hostetler LLP (“B&H”) as counsel to Irving H. Picard as trustee (the
“Trustee”) for the substantively consolidated liquidation proceeding of Bernard L. Madoff
Investment Securities LLC (“BLMIS” or “Debtor”) and Bernard L. Madoff (“Madoff”), respectfully submits its second application (the “Application”) for an order pursuant to section
78eee(b)(5) of the Securities Investor Protection Act, 15 U.S.C. 78eee(b)(5),1 sections 330 and
331 of the Bankruptcy Code, Rule 2016(a) of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”) and the Order Pursuant to Section 78eee(b)(5) of SIPA, Sections 105, 330 and 331 of the Bankruptcy Code, Bankruptcy Rule 2016(a) and Local Bankruptcy Rule 2016-1
Establishing Procedures Governing Interim Monthly Compensation of Trustee and Baker &
Hostetler LLP, dated February 25, 2009 (the “Compensation Order”) [Docket No. 126], allowing and awarding interim compensation for services performed by B&H for the period commencing
May 1, 2009 through and including September 30, 2009 (the “Compensation Period”) in the amount of $21,279,101.85 (of which $18,087,236.57 is to be paid currently and 15%, or
$3,191,865.28, is to be deferred through the conclusion of the Liquidation Proceeding or further order of the Court),2 plus $1,797,074.52 of the previously deferred portion of interim fees awarded by the Court and reimbursement of B&H’s actual and necessary expenses incurred during the Compensation Period in the amount of $280,681.62; and in support thereof, respectfully represents as follows:
1 The Securities Investor Protection Act (“SIPA”) is found at 15 U.S.C. § 78aaa et seq. For convenience, subsequent references to SIPA will omit “15 U.S.C. ____.” 2 As further described in ¶¶ 90-95 infra, by this Application, B&H and the Trustee are requesting a reduction in the amount of holdback from 20% to 15% of fees.
2
300039123 I. PRELIMINARY STATEMENT
1. No single document could comprehensively set forth all of the tasks engaged in by the Trustee and B&H since their appointment on December 15, 2008. Literally thousands of hours have been expended by B&H in support of the Trustee's efforts to liquidate the estate, advance the cause of all of the customer claimants and initiate litigation and negotiations for the return of customer property for distribution by the Trustee to customer claimants. Accordingly, what is set forth below is a broad overview of the work performed by
B&H in assisting the Trustee. Additional information is provided in the Trustee's Second
Interim Report (the “Second Interim Report”, which is being filed concurrently herewith) which sets forth in greater detail the activities engaged in by the Trustee and his counsel during the course of these proceedings. That Report is incorporated herein. These activities include:
2. The Trustee, with the assistance of his counsel (including, but not limited to, B&H, various international special counsel retained the Trustee as described in ¶ 116 of the
Second Interim Report (“International Counsel”), Windels Marx Lane & Mittendorf, LLP
(“Windels Marx”), special counsel to the Trustee, and together with International Counsel and
B&H, collectively referred to herein as “Counsel”), has undertaken a comprehensive investigation of all of the affairs of BLMIS, Bernard L. Madoff and dozens of related individuals. This investigation remains ongoing in that the Ponzi scheme engaged in by Mr.
Madoff was not only vast in scope but long in duration. The many layers of complex financial transactions engaged in by Mr. Madoff and his minions require intensive investigation involving literally hundreds of subpoenas to a variety of individuals and third parties, the analysis of the documentation received and follow up activities by the Trustee to further investigate and then enforce the Trustee's rights to the return of customer property. To this end, the Trustee has
3
300039123 engaged not only the services of Counsel but those of several investigative outside agencies, as well as forensic accountants and legal experts (as the Trustee may retain from time to time, including, but not limited to, AlixPartners LLP (“AlixPartners”), the Trustee’s consultant and claims agent, FTI Consulting (“FTI”), the Trustee’s forensic consultant and Renaissance
Associates, Ltd., an investigative consultant (“Renaissance”), and together, collectively referred to herein as “Consultants”). This task is ongoing and will be engaged in for a number of years in order to fully understand the scope and depth of the fraud perpetrated by Mr. Madoff. This undertaking will not be at the expense of recoveries of customer property available for distribution to customers with allowed claims
3. The Trustee has received 16,239 timely claims from customers covering a wide spectrum of the individuals who lost money by virtue of their involvement with BLMIS.
These customer claims include those individuals who had active accounts with BLMIS at the time of its demise, as well as those customers who suffered over the course of the years at the hands of Mr. Madoff. In addition, there are the thousands of individuals who indirectly invested in BLMIS through various feeder funds and other entities who have filed claims against the
BLMIS estate as a result of those investments. From the very beginning of this proceeding, the
Trustee and B&H, together with the Trustee’s Consultants, have been processing each of the customer claims for the purpose of evaluating those claims, allowing those that have a positive net equity balance, disallowing those not entitled to the coverage SIPA and investigating the balance. Given the duration and complexity of the fraud engaged in here, each of these accounts has a history of its own going back many years and involving multiple transfers in many instances, thereby requiring the Trustee to engage in extensive forensic analysis in order to reach an ultimate determination. The Trustee is required by statute to look at all the books and records
4
300039123 of the debtor in order to determine and evaluate each customer claim. As of November 19, 2009, the Trustee had determined 3,021 customer claims and committed $554,790.758.86 in advances from the Securities Investor Protection Corporation (“SIPC”). The allowed claims totaled
$4,672,040,364.53. The Trustee's efforts will be ongoing and will continue into 2010.
4. In addition, the Trustee and B&H implemented a Hardship Program, which allows customers suffering from the worst financial circumstances to apply to a streamlined program aimed at getting out advances provided by SIPC in a timely manner to those customers who qualify. As of November 19, 2009, the Trustee had received 317 Hardship
Program applications and approved 207. Most of the remaining Hardship applications await the reconstruction of their account records.
5. As a result of the investigative efforts of the Trustee, he has initiated litigation against individuals and feeder funds, most of which are well known to the public through the press and other media. The Trustee is seeking the return of billions of dollars to the estate of BLMIS for the ultimate distribution of those funds to customers with allowed claims who were victims of the fraud perpetrated by Mr. Madoff and others. As with all complex litigation involving sums of this nature, the issues involved are complex, the discovery is wide ranging and deep and the litigation itself is hotly contested. All of this leads to enormous effort by the Trustee and his Counsel in prosecuting this litigation to a successful conclusion for the benefit of the victims. As a result of these efforts, the Trustee has already had a degree of success in returning millions of dollars to the estate by virtue of settlements that he is engaged in with a number of parties. Those efforts are ongoing and will continue throughout the course of the liquidation proceeding. It is the Trustee's purpose to recover all of the dollars that are
5
300039123 available to him for the benefit of customers with allowed claims by way of settlement or litigation.
6. To date, the Trustee has filed fourteen (14) avoidance actions seeking to recover over $14.8 billion in funds from various feeders funds, Madoff friends and family members and other Madoff-related parties. The Trustee anticipates that he will file extensive additional litigation based on investigations being conducted by the Trustee’s Counsel and
Consultants. Because of these efforts being made by the Trustee and his Counsel, as of
November 18, 2009, $1,183,779,811.89 has been recovered for the benefit of the customers.
7. The international arena is one in which BLMIS and its investors played a significant role. As is set forth in the Second Interim Report, the Trustee is engaged in a litigation in Europe, Gibraltar and throughout the Caribbean including Bermuda, the Cayman
Islands and the British Virgin Islands. He has retained counsel in all of these jurisdictions for the purpose of preserving and protecting customer funds that are being held in those countries, and for the ultimate purpose of having those funds returned to him for distribution to the victims of
BLMIS and Mr. Madoff. These international relationships involve both feeder funds, as well as international banking institutions through a variety of complex transactions which are being untangled by the Trustee and his staff with the assistance of his counsel here in the United States and in each of the foreign jurisdictions. Each of these international matters represents millions of dollars in terms of funds that were diverted wrongfully from the estate of BLMIS, and which the
Trustee is seeking to return. This requires an extensive legal effort on the part of the Trustee and he has committed the resources of his Counsel and Consultants for the purpose of achieving the best outcome for victims.
6
300039123 8. In support of all of the foregoing efforts, there are daily tasks that must be engaged in to further the investigation, the customer claims process and the litigation. For all of these efforts the Trustee requires the support of Counsel and Consultants. Indeed, the general categories above do not comprehensively describe all of the other work engaged in by the
Trustee, his Counsel and Consultants in support of the liquidation proceeding. As noted, the details associated with these endeavors are set forth in greater detail in the Trustee's Second
Interim Report to which the reader is referred.
9. During the Compensation Period, the Trustee, his Counsel and
Consultants have met extraordinary challenges in their continuing efforts to pursue assets and benefit the customers of BLMIS. The following discussion and the materials attached to this
Application cover the major categories of services for which allowance of compensation is sought by B&H.
II. BACKGROUND
10. BLMIS was founded by Madoff in 1960 and engaged in three primary types of business: market making, proprietary trading and investment advisory services. BLMIS was registered with the SEC as a broker-dealer and beginning in 2006 as an investment adviser.
Pursuant to such registration as a broker-dealer, BLMIS was a member of SIPC.
11. On December 11, 2008, Madoff was arrested by the FBI in his Manhattan home and was criminally charged with a multi-billion dollar securities fraud scheme in violation of 15 U.S.C. §§ 78j(b), 78ff, and 17 C.F.R. 240.10b-5 in the United States District Court for the
Southern District of New York (“District Court”), captioned USA v. Madoff (No. 08-2735).
That case number was terminated on March 10, 2009, and a new case USA v. Madoff (No. 09
CR 213) was opened and assigned to District Court Judge Denny Chin (the “Criminal Case”).
7
300039123 12. Also on December 11, 2008 (the “Filing Date” for the SIPA liquidation proceeding),3 the SEC filed a complaint in the District Court against defendants Madoff and
BLMIS, captioned Securities and Exchange Commision v. Madoff, et al. (No. 08 CV 10791) (the
“Civil Case”). The complaint alleged that the defendants engaged in fraud through the investment advisor (or “IA”) activities of BLMIS.
13. On December 12, 2008, based on allegations brought by the SEC against
Madoff and BLMIS in the Civil Case, the Honorable Louis L. Stanton of the District Court entered an order which appointed Lee S. Richards, Esq., as receiver (the “Receiver”) for BLMIS.
14. On December 15, 2008, pursuant to section 78eee(a)(4)(A) of SIPA, the
SEC consented to a combination of the Civil Case with an application filed by SIPC. Thereafter, pursuant to section 78eee(a)(3) of SIPA, SIPC filed an application in the District Court alleging, inter alia, that the Debtor was not able to meet its obligations to securities customers as they came due and, accordingly, its customers needed the protection afforded by SIPA.
15. On that date, the District Court entered the order (the “Protective Decree”)
[District Court Docket No. 4], to which BLMIS consented, which, in pertinent part:
a. appointed the Trustee for the liquidation of the business of the Debtor pursuant to section 78eee(b)(3) of SIPA, therefore, effectively replacing the Receiver as to BLMIS;
b. appointed B&H as counsel to the Trustee pursuant to section 78eee(b)(3) of SIPA; and
3 Section 78lll(7) of SIPA states that the filing date for a SIPA liquidation is “the date on which an application for a protective decree is filed under 78eee(a)(3),” except, under subparagraph (B), where the debtor is the subject of a proceeding pending before a United States court “in which a receiver, trustee, or liquidator for such debtor has been appointed and such proceeding was commenced before the date on which such application was filed, the term ‘filing date’ means the date on which such proceeding was commenced.” Thus, even though the Application for a protective decree was filed on December 15, 2008, the Filing Date in this action is on December 11, 2008.
8
300039123 c. removed the case to the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) pursuant to section 78eee(b)(4) of SIPA.4
16. On February 4, 2009, this Court entered the Order Regarding
Disinterestedness of the Trustee and Counsel to the Trustee [Docket No. 69], finding that the
Trustee and B&H are disinterested pursuant to section 78eee(b)(6) of SIPA, section 327(a) of the
Bankruptcy Code, and Bankruptcy Rule 2014(a) and are therefore in compliance with the disinterestedness requirement in section 78eee(b)(3) of SIPA, section 327(a) of the Bankruptcy
Code, and Bankruptcy Rule 2014(a).
III. COUNSEL’S EXPERIENCE
17. B&H has been engaged in the general practice of law since 1916, and has substantial expertise in such areas as white collar investigation and defense, corporate finance and securities, examinerships, insolvency and creditors rights and commercial and securities litigation.
18. The Trustee, a member of B&H, and an attorney admitted to practice before this Court, has supervised a significant portion of the legal services for which compensation is sought herein. He has an extensive background in the fields of bankruptcy and securities, including SIPA liquidations, all as set forth more fully in the Trustee’s Second Interim
Fee Application (“Trustee Fee Application”), which is being filed contemporaneously herewith.
IV. SUMMARY OF SERVICES
19. The services rendered by B&H during the five (5) month Compensation
Period are described below. In rendering professional services to the Trustee in this SIPA proceeding, B&H’s legal team has been composed of professionals with extensive experience in,
4 Pursuant to section 78fff(b) of SIPA, “[t]o the extent consistent with [SIPA], [this] liquidation proceeding [is] be[ing] conducted in accordance with, and as though it [is] being conducted under chapter 1, 3, 5 and subchapters I and II of chapter 7 of [the Bankruptcy Code].”
9
300039123 among others, bankruptcy, securities, tax, corporate law and litigation. B&H professionals have worked closely with the Trustee and his other professionals to coordinate assignments in order to maximize efficiency and avoid any duplication of effort.
20. B&H does not wish to burden the Court with an overly detailed recitation of each and every matter with respect to which it has rendered services during the Compensation
Period. Accordingly, this Application is intended to serve as a summary description of the significant services rendered by B&H, and to highlight the benefits which have been conferred upon SIPC, customers and creditors of the Debtor’s estate as a result of B&H’s efforts. The following section provides an overview of the services rendered by B&H during the
Compensation Period by the matter numbers and task codes in use during the Compensation
Period.5
21. The Court is also respectfully referred to the Trustee's Second Interim
Report being filed concurrently herewith for further detail regarding the administration of the estate, the investigation into the Debtor, Madoff and related parties, and other progress made by the Trustee and B&H during and subsequent to the Compensation Period (but as a result of investigative efforts during the Compensation Period).
5 Beginning on January 1, 2009, B&H implemented five (5) task codes for specific categories of work to permit a more detailed analysis of the fees incurred. As the case has evolved, B&H has added additional task codes and opened separate matter numbers to ensure that work on a specific issue or matter is billed to the same task code or matter.
10
300039123 MATTER 01 – COUNSEL TO THE TRUSTEE (56,688.15 hours)
A. Trustee Investigation – Task Code 01 (13,035.10 hours)6
22. This category relates to time spent with respect to the investigation into
BLMIS, Madoff and various assets, including meetings, correspondence and cooperative efforts with the SIPC, AlixPartners, FTI, Windels Marx, the Joint Provisional Liquidators (“JPLs”) investigating the Madoff U.K. entity, Madoff Securities International Ltd. (“MSIL”), and the various government agencies involved with the on-going investigation. B&H expended a substantial amount of time in this task code during the Compensation Period. As further described in ¶ 24 infra, as a result of these efforts, to date the Trustee has filed a total of fourteen
(14) avoidance actions against feeder funds, Madoff family members, Madoff friends and other
Madoff-related insiders for the return of customer property.
23. Included in this category of services by B&H were the following:
Investigation of banks, feeder funds, insiders, Madoff friends and family members,
former BLMIS employees and other Madoff-related parties.
The initiation of, participation in, and/or monitoring of over 166 pending and 78 potential
international third-party proceedings and 160 domestic third-party proceedings involving
Madoff and/or BLMIS.
Coordinating efforts with the United States Attorney’s Office for the Southern District of
New York (“USAO”), Federal Bureau of Investigation (“FBI”), Securities and Exchange
Commission (“SEC”), Financial Industry Regulatory Authority (“FINRA”), and many
other local, federal and international officials involved in this investigation.
6 B&H began to open separate matter numbers for each avoidance action initiated by the Trustee starting in May 2009. Many of the additional matter numbers were not opened until well into the Compensation Period. Consequently, thousands of hours that were spent by B&H attorneys and other professionals preparing for and bringing such avoidance actions were billed to Task Code 01.
11
300039123 Communications with the Trustee, SIPC, Windels Marx, JPLs, AlixPartners and FTI
regarding: the IA accounts and records of the transactions, business investments and
ventures between the potential insiders and BLMIS, Madoff and Madoff family members
and discovery from third parties.
Obtaining copies of records seized by the FBI, SEC and other information from USAO
and securities regulators and review of same.
Review of account information and statements of BLMIS IA customers.
Review BLMIS employee interviews.
Drafting and issuing of hundreds of inquiry letters and subpoenas to potentially related
third-parties concerning BLMIS litigation; organizing and reviewing documents sent in
response to such inquiries and subpoenas.
Discussions and conferences regarding investigation and litigation strategy, both
internally and with SIPC, Windels Marx, JPLs, International Counsel and various
government entities.
B. Bankruptcy Court Litigation – Task Code 02 (5,641.00 hours)
24. This category relates to time spent with respect to legal research, drafting and filing various motions and pleadings, the initiation of eleven (11) avoidance actions7 against various feeder funds, and Madoff friends and family members, for the return of more than $14.6 billion to the estate for the benefit of customers, as well as defense against certain adversary proceedings in the Bankruptcy Court. Included in this category of services by B&H were the following:
7 To date, the Trustee has filed a total of fourteen (14) avoidance actions against various parties – two (2) were filed prior to the Compensation Period and one (1) was filed subsequent to such Period.
12
300039123 Defense of adversary proceedings, including a class action complaint and a separate
complaint brought on behalf of certain customers against the Trustee relating to
“customer” status and definition of “net equity” under SIPA.
Preparation and revision of Trustee’s memorandum regarding net equity issue and
discussions with the Court and counsel regarding the briefing schedule.
Entry of applications to retain International Counsel in the British Virgin Islands and
Switzerland to monitor assets abroad and, where necessary, represent the Trustee in
foreign proceedings.
Hearing on first fee applications of B&H, Trustee and International Counsel and defense
of such applications.
As further described below, initiate eleven (11) avoidance actions on behalf of the
Trustee; draft and file various draft complaints, motions, pleadings, proposed orders and
other documents to be submitted to the Bankruptcy Court in connection with all on-going
avoidance actions, including amended complaints, responses to defendants’ answers to
such complaints, motions to dismiss, scheduling orders, and various other motions,
pleadings and stipulations relating to such avoidance actions.
Defense of Motion to Intervene filed on behalf of Toks, Inc.
Approval of termination and liquidation of certain BLMIS-sponsored benefit plans.
Assumption and rejection of certain BLMIS leases and executory contracts.
Approval of a consent order substantively consolidating the Madoff chapter 7 estate with
the SIPA liquidation.
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300039123 Retention of Windels Marx as special counsel to the Trustee to coordinate with B&H in
conducting investigations of certain insiders and BLMIS related entities and corporate
assets.
Recognition of the Cross Border Protocol with the JPLs regarding their investigation into
MSIL and the sharing of information between the JPLs and the Trustee.
C. Feeder Funds – Task Code 03 (8,508.10 hours)
25. The Trustee has delegated teams of B&H attorneys to identify, investigate and monitor potential feeder funds, in the U.S. and abroad, and bring actions against such funds for the recovery of estate assets where possible. This category relates to their efforts during the
Compensation Period. Many of the funds are still under investigation.
26. As mentioned above and further described below, B&H expended a significant amount of time during the Compensation Period preparing and filing avoidance actions against feeder funds (and various other parties). For further discussion, please see ¶¶ 40-
75 infra.
D. Asset Research and Sale – Task Code 04 (844.20 hours)
27. This category relates to time spent with respect to discovery of, recovery of and liquidation of various assets for the benefit of the estate. Included in this category of services by B&H were the following:
Negotiation of a settlement regarding BLMIS’s/Madoff’s interest in a shared aircraft.
Discussions with the purchaser of the BLMIS market maker, Surge Trading Inc. (f/k/a
Castor Pollux Inc.), regarding the closing of the sale, potential recoveries from the
negotiated earn-out fees, and various related matters.
Discussions with JPLs, Windels Marx and USAO regarding Madoff personal assets and
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300039123 status of efforts to sell.
Review claims and affidavits for filing in connection with the settlement of various class
actions involving securities owned by BLMIS in its market making and trading
capacities; and conferences with AlixPartners related to same.
Sale of certain loan participations owned by BLMIS.
E. Internal Meetings with Staff – Task Code 05 (1,319.30 hours)
28. This category relates to internal B&H meetings related to the liquidation proceeding, investigation and litigation strategy, as well as training sessions for attorneys and paraprofessionals.
F. Customer Claims – Task Code 06 (1,621.60 hours)
29. This task code is no longer in use. A separate matter number was opened for work related to customer claims on June 3, 2009, and B&H attorneys and paraprofessionals began to bill to such matter number. See ¶¶ 45-46 infra for a discussion of this time.
G. Billing – Task Code 07 (565.20 hours)
30. In addition to preparation of this Application, this section relates to the time spent by attorneys and paraprofessionals in reviewing the monthly B&H billing statements prior to submission to SIPC to ensure that time was properly billed by B&H, to correct any errors in time entries and to write off certain time and expenses as agreed to by B&H for the benefit of
SIPC, and to respond to certain adjustments requested by SIPC after its review of each monthly invoice. This section also relates to time spent preparing and reviewing the fee applications of the Trustee and various International Counsel.
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300039123 H. Case Administration – Task Code 08 (1,715.40 hours)
31. This category is for time expended by B&H in assisting the Trustee in the wind-down of the Debtor’s business and other administrative matters, including:
Review of mail forwarded by AlixPartners that was received at the BLMIS offices;
discuss with Trustee and prepare appropriate responses.
Negotiations with landlords of BLMIS properties, including terminations of lease at
Bulova building and renegotiating lease at 885 Third Avenue.
Discussions with Surge Trading Inc. (f/k/a Castor Pollux Inc.) regarding the closing
of the sale of the BLMIS market making business.
Assisting the Trustee in responding to inquiries of various government agencies
regarding BLMIS and the wind-down of the estate, including the U.S. Department of
Labor, Internal Revenue Service, New York State Department of Tax & Finance,
New York State Bureau of Workers Compensation and New York State Department
of Labor Unemployment Division.
Consult with AlixPartners regarding various employee and benefits related issues,
including correspondence with administrators of payroll, 401(k), healthcare and other
benefit plans; termination of remaining BLMIS employees, and the wind-down of
BLMIS sponsored employee benefit plans (including healthcare and 401(k) plans).
Discussions with AlixPartners and the Trustee regarding the return of leased
equipment located at BLMIS offices and the negotiating and resolution of outstanding
estate obligations.
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300039123 I. Banks – Task Code 09 (211.30 hours)
32. During the Compensation Period, and primarily as a result of international and domestic feeder fund investigations, the Trustee has identified and commenced investigations of numerous banks involved with various feeder funds and BLMIS. The Trustee’s investigation of these banks is continuing. The time in this category relates to time spent developing investigation teams, identifying certain banks as targets, investigation into the various capacities of such banks and the roll they may have played in Madoff’s Ponzi scheme, preparing letters of inquiry and subpoenas, and reviewing responses to such letters and subpoenas received from such banks and from other third parties.
J. Court Appearances – Task Code 10 (40.20 hours)
33. This category relates to time spent by B&H attorneys making court appearances for the events described in section B above, as well as court appearances in the
District Court for the Civil Case and for various appeals of litigation initiated in the Bankruptcy
Court.
K. Press Inquiries and Responses – Task Code 11 (37.20 hours)
34. This section relates to time spent by B&H attorneys assisting the Trustee in responding to press inquiries, preparing and issuing press releases, and preparing for and holding press conferences relating to BLMIS, Madoff, customer claims and the recovery of funds. During the Compensation Period, the Trustee held a press conference together with SIPC on May 14, 2009. In addition, the Trustee and his counsel were interviewed in late August and early September 2009 by 60 Minutes regarding the case. The segment aired on Sunday,
September 27, 2009.
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300039123 L. Document Review – Task Code 12 (4,775.70 hours)
35. The time in this task code relates to time spent by B&H and other contract attorneys conducting the ongoing review of 1.4 million emails captured from the Debtor’s computer server and more than 1,500 other sources of electronically stored information, and of approximately seven thousand boxes of BLMIS’s paper documents recovered from the Debtor’s office and warehouse locations.
36. In addition, B&H attorneys have accumulated, prepared for review, and begun review of documents received from more than 100 parties in response to letters and subpoenas and received from other third parties.
M. Discovery - Depositions and Document Productions by the Trustee – Task Code 13 (327.90 hours)
37. This task code relates to time spent by B&H attorneys conducting depositions and responding to discovery requests issued by various opposing and third parties involved in the ongoing litigations.
N. International – Task Code 14 (253.40 hours)
38. The Trustee is actively investigating and seeking to recover assets for the
BLMIS estate in no fewer than eleven different jurisdictions including England, Gibraltar,
Bermuda, the British Virgin Islands, the Cayman Islands, the Bahamas, Ireland, France,
Luxembourg, Switzerland, and Spain. These investigations, which are comprised of a combination of voluntary requests for information and the use of subpoena power, both in the
U.S. and abroad, have focused primarily on international feeder funds, banks, related financial services entities and certain individuals. Time in this category relates to this ongoing investigation, the preparation and service of no fewer than thirty-five (35) subpoenas against more than twenty-five (25) entities in ten (10) jurisdictions, and the communication with
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300039123 International Counsel to utilize local laws to obtain necessary discovery. The investigation is made challenging by the broad array of anti-discovery laws, bank secrecy statutes, and other foreign legislation designed to limit discovery by U.S. entities.
MATTER 02 – TRUSTEE TIME
39. This matter number is reserved for billing of time spent by the Trustee.
See the Trustee Fee Application for a summary of this time.
MATTER 03 – CHAIS (433.10 hours)
40. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of and the filing of an avoidance action against Stanley Chais, Pamela Chais and a number of related entities (collectively, the “Chais Defendants”) seeking return of more then
$1.1 billion based on causes of action under SIPA, the Bankruptcy Code, the New York
Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the Chais Defendants. The action was filed on May 1, 2009.
41. Such time includes: conducting legal research; review of documents related to the Chais Defendants; drafting of the complaint; drafting of discovery requests; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy
Court; drafting of internal memoranda; internal meetings with B&H attorneys, and consultants from FTI and AlixPartners regarding investigation and litigation strategy; communications with counsel for the Chais Defendants; and all other time related to the Chais litigation.
MATTER 04 – MERKIN (1,061.50 hours)
42. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Gabriel Capital, L.P., Ariel Fund, Ltd.,
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300039123 Ascot Partners, L.P., Gabriel Capital Corporation (the “Merkin Funds”) and J. Ezra Merkin
(collectively, the “Merkin Defendants”) seeking return of more then $557 million based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the
Merkin Defendants. The action was filed on May 7, 2009. An amended complaint was filed on
August 6, 2009.
43. In the summer of 2009, pursuant to an action commenced by the New
York State Attorney General (“NYAG”) in the Supreme Court of New York, receivers were appointed over each of the Merkin Funds. The receivers for the Merkin Defendants filed motions to dismiss the amended complaint on September 4, 2009.
44. Such time includes: conducting legal research; review of documents received through discovery and from the NYAG related to the Merkin Defendants; drafting and filing of the initial complaint and amended complaint; drafting of discovery requests; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy Court, including responses to the motions to dismiss; drafting of internal memoranda; internal meetings with
B&H attorneys and FTI regarding investigation and litigation strategy; communications with counsel for the Merkin Defendants and the receivers appointed for the Merkin Funds; and all other time related to the Merkin litigation.
MATTER 05 – CUSTOMER CLAIMS (7,565.50 hours)
45. This category is for time expended by B&H with respect to customer claims. B&H expended a considerable amount of time in this category, as significant progress was made during the Compensation Period with respect to Customer Claims. The mandatory
20
300039123 six-month statutory bar date expired on July 2, 2009. As of September 30, 2009, the Trustee had received 16,239 timely claims and 66 untimely or late-filed claims for customer protection under
SIPA and the Trustee had allowed 1,347 customers claims, for a total of $4,030,806,115.49 in allowed claims. As of September 30, 2009, approximately $465 million in SIPC advances had been paid to, or committed to be paid to claimants and the BLMIS estate; the amount by which the allowed claims exceeded the statutory limits of SIPC protection (or “over-the-limit claims”) was approximately $3.57 billion. The receipt (of late-filed claims) and review of customer claims is on a continuing basis.
46. Included in this category of services by B&H were the following:
Implementation of the Trustee’s Hardship Program; creation of and review of Hardship
Applications; regular communications with the Trustee, SIPC and AlixPartners regarding
the review and determination of Hardship applicants.
Communications with the Trustee and SIPC staff regarding revisions to the form of
determination letters and assignment and release forms to be sent to all customers.
Ongoing review of submitted customer claim forms and supplements thereto; reviewing
any additional related BLMIS IA account documentation.
Assisting the Trustee in making determinations regarding customer claims; advising
customers and/or their representatives of conclusions reached regarding allowance or
denial of their respective claims; preparation of the Trustee’s determination letters and
assignment and release forms for execution by customers.
Training of a team of B&H attorneys and paraprofessionals to assist the Trustee in
reviewing and determining customer claims.
21
300039123 Regular communications with the Trustee, SIPC and AlixPartners regarding the customer
claims review process, the customer claims database, reconciliation of IA accounts and
other matters of interest in determining claims.
Review of and regular communications with the Trustee, SIPC, and counsel for various
customers who have filed actions regarding customer claims, the “net equity” definition
and other issues.
Review of and regular communications with the Trustee, SIPC and counsel for various
customers who have filed objections to the Trustee’s determination of their claim. As of
September 30, 2009, seventy-nine (79) objections have been filed with the Bankruptcy
Court.8
Regular communications by phone, letters and email with customers or their
representatives regarding claims procedure and process, status of claims review and other
matters of concern to customers.
Review schedules of information prepared by AlixPartners; preparation of additional
reports for the Trustee and SIPC.
MATTER 06 – VIZCAYA (522.70 hours)
47. On April 9, 2009 (prior to this Compensation Period), the Trustee filed a complaint against Vizcaya Partners Limited (“Vizcaya”) and Banque Jacob Safra (Gibraltar) Ltd.
(“Bank Safra”, and together with Vizcaya, the “Vizcaya Defendants”), seeking return of
$150,000,000 based on causes of action under SIPA, the Bankruptcy Code, the New York
Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences,
8 As of November 19, 2009, a total of 388 objections to the Trustee’s determination of claims have been filed in the Bankruptcy Court by customers of BLMIS.
22
300039123 fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants.
48. A Gibraltar-based Judicial Review Action was filed by Vizcaya on
February 18, 2009 against the Gibraltar Attorney General and Bank Safra in order to regain control over frozen funds held in its account at Bank Safra.
49. Time in this matter includes: conducting legal research; review of documents related to the Vizcaya Defendants; drafting of discovery requests; drafting and review of pleadings, motions and other related documents to be filed with the Bankruptcy Court and in the Gibraltar Supreme Court; drafting of internal memoranda; internal meetings with B&H attorneys, the Trustee’s counsel in Gibraltar and FTI regarding investigation and litigation strategy; correspondence with counsel in Gibraltar regarding the Judicial Review Action; communications with counsel for the Vizcaya Defendants; and all other time related to the
Vizcaya litigation.
MATTER 07 – MADOFF FAMILY (2,042.30 hours)
50. On October 2, 2009 (subsequent to the Compensation Period), the Trustee filed a complaint against Peter B. Madoff, Mark D. Madoff, Andrew H. Madoff, and Shana D.
Madoff (the “Family Defendants”) seeking the return of nearly $200 million based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the defendants.
51. While the complaint was filed subsequent to the Compensation Period, the time in this matter relates to the time B&H attorneys spent investigating and reviewing documents related to Family Defendants, drafting and preparing for the filing of the complaint.
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300039123 MATTER 08 – CONFIDENTIAL (83.70 hours)
52. This matter is currently under investigation. Time relating to this matter is confidential as attorney work-product.
MATTER 09 – FAIRFIELD GREENWICH (1,486.50 hours)
53. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Fairfield Sentry Limited, Greenwich
Sentry Limited, L.P., and Greenwich Sentry Partners, L.P., (collectively, “the Fairfield
Defendants”) seeking return of approximately $3.5 billion based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the Fairfield Defendants. The action was filed on May 18, 2009.
54. Such time includes: conducting legal research; review of documents related to the Fairfield Defendants; drafting of the complaint; drafting of discovery requests; issuance of Rule 2004 subpoenas to the Fairfield Defendants and third parties; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy Court; drafting of internal memoranda; internal meetings with B&H attorneys and FTI regarding investigation and litigation strategy; communications with counsel for the principals of the Fairfield
Defendants and the liquidators who have been appointed to liquidate the Fairfield Defendants; and all other time related to the Fairfield litigation.
MATTER 10 – HARLEY (148.60 hours)
55. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Harley International (Cayman) Limited
24
300039123 (“Harley”), seeking return of approximately $1.1 billion based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of Harley. The action was filed on
May 12, 2009. As Harley failed to answer the complaint, a default was entered against Harley on July 8, 2009 by the Bankruptcy Court.
56. Such time includes: conducting legal research; review of documents related to Harley; drafting of the complaint and other related documents to be filed with the
Bankruptcy Court; issuance of a Rule 2004 subpoena; drafting of internal memoranda; internal meetings with B&H attorneys and FTI regarding investigation and litigation strategy; communications with counsel for Harley; and all other time related to the Harley litigation.
MATTER 11 – COHMAD SECURITIES CORPORATION (1,188.60 hours)
57. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Cohmad Securities Corporation
(“Cohmad”), the principals and certain employees of Cohmad and their family members who held BLMIS IA accounts (collectively, the “Cohmad Defendants”) seeking return of over $132 million based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent
Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances, disallowance of any claims filed against the estate by the Cohmad Defendants and damages in connection with certain transfers of property by BLMIS to or for the benefit of the
Cohmad Defendants. The action was filed on June 22, 2009. An amended complaint was filed on October 8, 2009 (subsequent to the Compensation Period), which added defendants and increased the demand of the complaint.
25
300039123 58. Such time includes: conducting legal research; review of documents related to the Cohmad Defendants; drafting of the complaint and amended complaint; drafting of discovery requests; issuance of Rule 2004 subpoenas to third parties; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy Court and District Court, including responses to counter-claims, motions to dismiss, and motions to withdraw the reference filed by various Cohmad Defendants; drafting of internal memoranda; internal meetings with B&H attorneys, and consultants from FTI and AlixPartners regarding investigation and litigation strategy; communications with counsel for the Cohmad Defendants; and all other time related to the Cohmad litigation.
MATTER 12 – PICOWER (1,639.40 hours)
59. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Jeffry M. Picower and Barbara Picower, both individually and as trustee for various foundations, and other various Picower entities
(collectively, “the Picower Defendants”) seeking return of approximately $7.2 billion based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the
Picower Defendants. The action was filed on May 12, 2009.
60. Such time includes: conducting legal research; review of documents related to the Picower Defendants; drafting of the complaint; drafting of discovery requests; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy
Court, including the Trustee’s opposition to the Picower Defendants’ motion to dismiss the complaint; drafting of internal memoranda; internal meetings with B&H attorneys and FTI
26
300039123 regarding investigation and litigation strategy; communications with counsel for the Picower
Defendants; and all other time related to the Picower litigation.
MATTER 13 – KINGATE (793.30 hours)
61. On April 17, 2009 (prior to this Compensation Period), the Trustee filed a complaint against Kingate Global Fund Ltd. and Kingate Euro Fund Ltd. (the “Kingate
Defendants”), seeking return of $395 million based on causes of action under SIPA, the
Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the Kingate Defendants. An amended complaint was filed on May 8, 2008, also naming Bank of Bermuda Limited as a defendant. A second amended complaint was filed on July 21, 2009, which increased the demand to $874 million.
62. The Kingate Defendants are currently in liquidation in the British Virgin
Islands (“BVI”) and the BVI court has appointed liquidators to manage the Kingate Defendants.
63. Time in this matter includes: conducting legal research; review of documents related to the Kingate Defendants; drafting and filing the initial complaint and amended complaints; drafting of discovery requests to the Kingate Defendants and third parties; drafting and review of pleadings, motions and other related documents to be filed with the
Bankruptcy Court; drafting of internal memoranda; internal meetings with B&H attorneys, the
Trustee’s counsel in BVI and FTI regarding investigation and litigation strategy; correspondence with counsel in BVI regarding the liquidation proceedings and related litigation in BVI and
Bermuda; communications with counsel for the Bank of Bermuda and the BVI court-appointed
27
300039123 liquidators, including settlement communications; and all other time related to the Kingate litigation.
MATTER 14 – RESERVED
MATTER 15 – HERALD (297.60 hours)
64. Time in this matter relates to all time spent by B&H attorneys preparing for the filing of, and filing, an avoidance action against Herald Fund SPC (“Herald”) and HSBC
Bank PLC and HSBC Securities Services (Luxembourg) S.A. (collectively “HSBC”) seeking return of $578 million based on causes of action under SIPA, the Bankruptcy Code, the New
York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of Herald. The action was filed on July 14, 2009. An amended complaint was filed on August 14, 2009, which added an objection to Herald’s SIPA claim. A second amended complaint was filed on October 13, 2009 (subsequent to the
Compensation Period), which dismissed certain causes of action against Herald.
65. Such time includes: conducting legal research; review of documents related to Herald and HSBC; drafting of the initial and amended complaints; drafting of discovery requests to the defendants and other third parties; issuance of Rule 2004 subpoenas; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy
Court; drafting of internal memoranda; internal meetings with B&H attorneys and FTI regarding investigation and litigation strategy; communications with counsel for Herald and HSBC; and all other time related to the litigation against Herald and HSBC.
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300039123 MATTER 16 – ALPHA PRIME (89.60 hours)
66. Time in this matter relates to all time spent by B&H attorneys in preparing for the filing of, and filing, an avoidance action against Alpha Prime Fund Limited, HSBC Bank
PLC and HSBC Securities Services (Luxembourg) S.A. (the “Alpha Prime Defendants”) seeking return of $86 million based on causes of action under SIPA, the Bankruptcy Code, the New York
Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of Alpha Prime Defendants. The action was filed on July 15, 2009.
67. Such time includes: conducting legal research; review of documents related to the Alpha Prime Defendants; drafting of the complaint; drafting of discovery requests; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy
Court; drafting of internal memoranda; internal meetings with B&H attorneys, and consultants from FTI and AlixPartners regarding investigation and litigation strategy; communications with counsel for the Alpha Prime Defendants; and all other time related to the litigation against the
Alpha Prime Defendants.
MATTER 17 – PRIMEO FUND (123.70 hours)
68. Time in this matter relates to all time spent by B&H attorneys in preparing for the filing of, and filing, an avoidance action against Primeo Fund (“Primeo”), HSBC Bank
PLC and HSBC Securities Services (Luxembourg) S.A. (collectively “HSBC”) seeking return of
$145 million based on causes of action under SIPA, the Bankruptcy Code, the New York
Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of Primeo and HSBC. The action was filed on July 15, 2009.
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300039123 69. Primeo is in liquidation in the Cayman Islands. The Trustee and the
Cayman Islands court-appointed liquidators (the “Liquidators”) are in negotiations regarding a partial settlement.
70. Such time includes: conducting legal research; review of documents related to Primeo and HSBC; drafting of the complaint; drafting of discovery requests; issuance of Rule 2004 subpoenas; drafting of pleadings, motions and other related documents to be filed with the Bankruptcy Court; drafting of internal memoranda; internal meetings with B&H attorneys, Trustee’s counsel in the Cayman Islands and FTI regarding investigation and litigation strategy; communications with counsel for the Liquidators and HSBC, including settlement negotiations; and all other time related to the litigation against the Primeo and HSBC.
MATTER 18 – THYBO (47.90 hours)
71. Time in this matter relates to all time spent by B&H attorneys in preparing for the filing of, and filing, an avoidance action against Thybo Asset Management Limited;
Thybo Global Fund Limited; Thybo Return Fund Limited; and Thybo Stable Fund Ltd.
(collectively, the “Thybo Defendants”), seeking return of approximately $63 million based on causes of action under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances and damages in connection with certain transfers of property by BLMIS to or for the benefit of the
Thybo Defendants. The action was filed on July 15, 2009. An amended complaint was filed on
August 25, 2008, adding an objection to Thybo Stable Fund Ltd.'s SIPA claim.
72. Such time includes: conducting legal research; review of documents related to the Thybo Defendants; drafting and filing of the complaint and the amended complaint; issuance of Rule 2004 subpoenas; drafting of internal memoranda; internal meetings
30
300039123 with B&H attorneys, and FTI regarding investigation and litigation strategy; communications with counsel for the Thybo Defendants; and all other time related to the litigation against the
Thybo Defendants.
MATTER 19 – RUTH MADOFF (257.20 hours)
73. Time in this matter relates to all time spent by B&H attorneys in preparing for the filing of, and filing, an avoidance action against Ruth Madoff seeking return of approximately $44 million based on causes of action under SIPA, the Bankruptcy Code, the New
York Fraudulent Conveyance Act, and other applicable law, for turnover, accounting, preferences, fraudulent conveyances, disallowance of Mrs. Madoff’s claims against the estate, imposition of a constructive trust and damages in connection with certain transfers of property by
BLMIS to or for the benefit of Mrs. Madoff. The action was filed on July 29, 2009.
74. Such time includes: conducting legal research; review of documents related to Mrs. Madoff; drafting of the complaint; drafting of and responding to discovery requests; drafting of pleadings, motions and other related documents to be filed with the
Bankruptcy Court; drafting of internal memoranda; internal meetings with B&H attorneys, and consultants from FTI and AlixPartners regarding investigation and litigation strategy; communications with counsel for Mrs. Madoff; and all other time related to the litigation against
Mrs. Madoff.
MATTER 20 –CONFIDENTIAL (11.40 hours)
75. This matter is currently under investigation. Time relating to this matter is confidential as attorney work-product.
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300039123 V. COMPENSATION REQUESTED
76. B&H expended 56,688.20 hours in the rendition of professional and paraprofessional services on behalf of the Trustee during the Compensation Period, resulting in an average hourly rate of $417.08 for fees incurred.
77. Prior to filing this Application, B&H provided to SIPC, in accordance with the Compensation Order, (i) monthly fee statements setting forth B&H’s fees for services rendered and expenses incurred during the Compensation Period beginning May 1, 2009 through
September 30, 2009 and (ii) a draft of this Application. In connection with preparing each of the five monthly statements and this Application, B&H voluntarily adjusted its fees by writing off
$134,622.25 (in addition to the 10% discount, as discussed below) and wrote off expenses in the amount of $165,071.71 customarily charged to other clients.
78. In addition, at SIPC’s request, B&H’s fees in this case reflect a 10% public interest discount from B&H’s standard rates. This discount has resulted in an additional voluntary reduction during the Compensation Period of $2,364,344.65. Such fees are reasonable based on the customary compensation charged by comparably skilled practitioners in the Chapter
11 Cases and comparable bankruptcy and non-bankruptcy cases in a competitive national legal market.
79. Pursuant to the Compensation Order, on June 22, 2009, B&H provided to
SIPC its statement of fees and expenses incurred in connection with this case in May 2009 (the
“May 2009 Fee Statement”). SIPC made certain adjustments and suggestions to the May 2009
Fee Statement, which were adopted by B&H. After such adjustments, the May 2009 Fee
Statement reflected fees of $3,398,555.25 and expenses of $62,955.81. Accordingly, B&H received a payment from the Trustee from funds advanced by SIPC in the amount of
32
300039123 $2,718,844.20 for services rendered after subtracting the Court-ordered 20% holdback9 and
$62,955.81 for expenses incurred during May 2009.
80. Pursuant to the Compensation Order, on July 21, 2009, B&H provided to
SIPC its statement of fees and expenses incurred in connection with this case in June 2009 (the
“June Fee Statement”). SIPC made certain adjustments and suggestions to the June 2009 Fee
Statement, which were adopted by B&H. After such adjustments, the June 2009 Fee Statement reflected fees of $4,226,969.25 and expenses of $42,768.46. Accordingly, B&H received a payment from the Trustee from funds advanced by SIPC in the amount of $3,381,575.40 for services rendered after subtracting the Court-ordered 20% holdback and $42,768.46 for expenses incurred during June 2009.
81. Pursuant to the Compensation Order, on August 20, 2009, B&H provided to SIPC its statement of fees and expenses incurred in connection with this case in July 2009 (the
“July 2009 Fee Statement”). SIPC made certain adjustments and suggestions to the July 2009
Fee Statement, which were adopted by B&H. After such adjustments, the July 2009 Fee
Statement reflected fees of $4,326,562.80 and expenses of $44,588.92. Accordingly, B&H received a payment from the Trustee from funds advanced by SIPC in the amount of
$3,461,250.24 for services rendered after subtracting the Court-ordered 20% holdback and
$44,588.92 for expenses incurred during July 2009.
82. Pursuant to the Compensation Order, on September 22, 2009, B&H provided to SIPC its statement of fees and expenses incurred in connection with this case in
9 As mentioned above and discussed further below, B&H and the Trustee are requesting a reduction in the amount of holdback from 20% to 15%, retroactive to the Filing Date and going forward. Pursuant to the Compensation Order, B&H was paid 80% of its fees for May through September 2009. If the Court grants the requested relief, B&H will receive an additional 5% of fees incurred (for a total of 85% of fees incurred) since the Filing Date.
33
300039123 August 2009 (the “August 2009 Fee Statement”). SIPC made certain adjustments and suggestions to the August 2009 Fee Statement, which were adopted by B&H. After such adjustments, the August 2009 Fee Statement reflected fees of $4,346,061.30 and expenses of
$69,207.24. Accordingly, B&H received a payment from the Trustee from funds advanced by
SIPC in the amount of $3,476,849.04 for services rendered after subtracting the Court-ordered
20% holdback and $69,207.24 for expenses incurred during August 2009.
83. Pursuant to the Compensation Order, on October 16, 2009, B&H provided to SIPC its statement of fees and expenses incurred in connection with this case in September
2009 (the “September 2009 Fee Statement”). SIPC made certain adjustments and suggestions to the September 2009 Fee Statement, which were adopted by B&H. After such adjustments, the
September 2009 Fee Statement reflected fees of $4,980,953.25 and expenses of $61,161.19.
Accordingly, B&H received a payment from the Trustee from funds advanced by SIPC in the amount of $3,984,762.60 for services rendered after subtracting the Court-ordered 20% holdback and $61,161.19 for expenses incurred during September 2009.
84. There is no agreement or understanding among the Trustee, B&H and any other person, other than members of B&H, for sharing of compensation to be received for services rendered in this case.
85. This Application has been prepared in accordance with the Amended
Guidelines for Fees and Disbursements of Professionals in Southern District of New York
Bankruptcy Cases adopted by the Court on April 19, 1995 (the “Local Guidelines”) and the
Compensation Order. Pursuant to the Local Guidelines, the certification of David J. Sheehan,
Esq., regarding compliance with the same is attached hereto as Exhibit A.
34
300039123 86. Exhibit B annexed hereto provides a schedule of B&H professionals and paraprofessionals who have provided services for the Debtors during the Compensation Period, the capacity in which each individual is employed by B&H, the year in which each attorney was licensed to practice law, the hourly billing rate charged by B&H for services provided by each individual and the aggregate number of hours billed by each individual and the total compensation, prior to the 10% discount, requested for each individual. The 10% discount
($2,364,344.65, as described above) is taken off the total cumulative amount billed, as reflected on Exhibit B.
87. Exhibit C annexed hereto provides a schedule of the expenses for which reimbursement is requested. The requested expenses are customarily charged to and paid by
B&H’s bankruptcy and non-bankruptcy clients. B&H has not charged for a number of categories of expenses regularly charged to and paid by B&H’s clients including certain inter- office travel and related expenses (lodging, meals, airfare and other transportation). As mentioned above, these amounts combine to a voluntary reduction of $165,071.71.
88. Exhibit D annexed hereto is a summary of services performed by B&H from during the Compensation Period by B&H task code and matter number.
89. To the extent that time or disbursement charges for services rendered or disbursements incurred relate to the Compensation Period, but were not classified or processed prior to the preparation of this Application, the Trustee and B&H reserve the right to request additional compensation for such services and reimbursement of such expenses in a future application.
35
300039123 VI. REDUCTION OF HOLDBACK
90. By this Application, B&H and the Trustee also seek entry of an order amending the Compensation Order, which Order established an orderly, regular process for the allowance and payment of interim monthly compensation and reimbursement to the Trustee and
B&H, his counsel (collectively, the “Applicants”). By the Compensation Order, the Applicants’ fees are subject to a 20% holdback (the “Holdback”), which is to be deferred through the conclusion of the liquidation period.
91. B&H and the Trustee seek to reduce the Holdback from 20% to 15%, both retroactive to the Filing Date and going forward. To accomplish this, the Application seeks to amend the Compensation Order by modifying, upon the consent and approval of SIPC, paragraph
2(e) thereto to provide that “the Trustee shall promptly pay eighty-five percent (85%) of the fees and one hundred percent of the expenses identified in each Monthly Statement...”. Paragraph 2(e) of the Compensation Order currently provides that the Trustee shall pay eight percent (80%) of fees. The proposed amended Compensation Order is annexed hereto as Exhibit E.
92. The Trustee and B&H request that such reduction in the Holdback be retroactive to the Filing Date, as well as going forward. The Applicants have already received
80% of their approved fees for (i) the period December 15, 2008 through April 30, 2009, in accordance with the order entered by this Court on August 6, 2009 (the “Order Approving Fees”)
[Docket No. 363], and (ii) May through September of 2009 as described in ¶¶ 79-83 supra, and in ¶¶ 45-49 of the Trustee Fee Application (approval of which is requested by this Application and by the Trustee Fee Application). Upon entry of the proposed amended Compensation Order,
Applicants will be entitled to eighty-five percent (85%) of their incurred fees to date.
Accordingly, the Trustee will be authorized to immediately disburse to the Applicants an
36
300039123 additional five percent (5%) of the amounts awarded in the Order Approving Fees, the amounts requested in this Application and in the Trustee Fee Application, and any other amounts the
Applicants have received subsequent to the filing of this Application. The additional 5%, or
$1,797,071.08 is set forth in the proposed amended Compensation Order.
93. SIPC supports the reduction in Holdback, as the Trustee and his counsel have made significant progress into the investigation of Madoff’s fraud and have attained positive results for the benefit of the customers of BLMIS, as summarized in this Application, the Trustee Fee Application, and as further described in the Second Interim Report. As is also described in the Second Interim Report, the work of the Applicants, while already substantial, has only just begun and there is much more work to be done in this matter. Taking into account these accomplishments, and based on the efforts and dedication of the Trustee and B&H to this matter, SIPC has agreed to and fully supports the reduction in the amount of the Holdback requested herein to apply to this and future Applications for fees, as well as retroactively to the
Filing Date. SIPC will be filing a recommendation in support of the fees and expenses requested in this Application, as well as those requested in the Trustee Fee Application. The SIPC recommendation will also support a reduction in the amount of the Holdback from 20% to 15% of fees.
94. Furthermore, as stated in this Application, the Trustee Fee Application, and as further explained by Kevin Bell on behalf of SIPC at the hearing held before this Court on
August 6, 2009, all fee applications, as well as monthly invoices, of the Trustee and B&H are thoroughly reviewed and highly scrutinized by SIPC – not only by Mr. Bell but by the General
Counsel of SIPC as well.
37
300039123 95. In light of the above, the Trustee and B&H respectfully request that the
Compensation Order be amended to reflect the reduction in Holdback from 20% to 15%.
VIII. B&H’S REQUEST FOR INTERIM COMPENSATION SHOULD BE GRANTED
96. Section 78eee(b)(5)(A) of SIPA provides in pertinent part that, upon appropriate application and after a hearing, “[t]he court shall grant reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred ... by a trustee ...”
Section 78eee(b)(5)(C) of SIPA specifically establishes SIPC’s role in connection with applications for compensation and the consideration the Court should give to SIPC’s recommendation concerning fees. That section provides as follows:
In any case in which such allowances are to be paid by SIPC without reasonable expectation of recoupment thereof as provided in this chapter and there is no difference between the amounts requested and the amounts recommended by SIPC, the court shall award the amounts recommended by SIPC. In determining the amount of allowances in all other cases, the court shall give due consideration to the nature, extent, and value of the services rendered, and shall place considerable reliance on the recommendation of SIPC.
97. To the extent the general estate is insufficient to pay such allowances as an expense of administration, section 78eee(b)(5)(E) of SIPA requires SIPC to advance the funds necessary to pay the compensation of B&H (see SIPA § 78fff-3(b)(2)).
98. Based on the allocation process set forth in SIPA, the Trustee has determined at this time that he has no reasonable expectation that the general estate will be sufficient to make any distribution to general creditors or pay any administrative expenses. That is, the Trustee believes that any assets allocated to the BLMIS general estate will be exhausted prior to his being able to reimburse SIPC fully. The Trustee has been advised by SIPC that it concurs in this belief of the Trustee. Accordingly, any fees and expenses allowed by this Court
38
300039123 will be paid from advances by SIPC without any reasonable expectation by SIPC of recoupment thereof.
99. Therefore, with respect to this Application, B&H requests that consistent with section 78eee(b)(5)(C) of SIPA, the Court “shall award the amounts recommended by
SIPC.” See In re Bell & Beckwith, 112 B.R. 876 (Bankr. N.D. Ohio 1990). B&H expects that
SIPC will file its recommendation to the Court with respect to this Application prior to the hearing, currently scheduled for December 17, 2009.
100. B&H submits that the request for interim allowance of compensation and expenses made by this Application is reasonable and complies with the provisions of the
Bankruptcy Code governing applications for compensation and reimbursement of expenses, pursuant to section 78eee(b)(5) of SIPA.
VIII. CONCLUSION
B&H respectfully submits that the services rendered during the Compensation
Period and accomplishments to date merit the approval of the fees and disbursements requested herein, and respectfully requests that the Court enter Orders as follows: (i) allowing and awarding (a) $21,279,101.85 (of which $18,087,236.57 is to be paid currently and 15%, or
$3,191,865.28, is to be deferred through the conclusion of the liquidation period or until further order of the Court) as an interim payment for professional services rendered by B&H during the
Compensation Period, (b) $1,797,074.52 of the previously deferred portion of interim fees awarded by the Court as an interim payment for professional services rendered by the Trustee and (c) $280,681.62 as reimbursement of the actual and necessary costs and expenses incurred by B&H in connection with the rendition of such services; (ii) amending the Compensation
Order substantially in the form of the proposed order attached hereto as Exhibit E, allowing the
39
300039123 reduction in Holdback retroactive to the Filing Date and going forward; and (iii) granting such other and further relief as the Court may deem just and proper.
Dated: New York, New York Respectfully submitted, November 23, 2009 BAKER & HOSTETLER LLP
By:/s/ David J. Sheehan______Baker & Hostetler LLP 45 Rockefeller Plaza New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Marc E. Hirschfield Email: [email protected]
Attorneys for Irving H. Picard, Esq. Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
40
300039123 Baker & Hostetler LLP Hearing Date: December 17, 2009 45 Rockefeller Plaza Time: 10:00 AM New York, New York 10111 Telephone: (212) 589-4200 Objections Due: December 14, 2009 Facsimile: (212) 589-4201 Time: 4:00 p.m. David J. Sheehan Email: [email protected] Marc E. Hirschfield Email: [email protected]
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION CORPORATION, Adv. Pro. No. 08-01789 (BRL) Plaintiff, SIPA Liquidation v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant. In re:
BERNARD L. MADOFF,
Debtor.
NOTICE OF HEARING ON SECOND APPLICATIONS FOR INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED BY APPLICANTS
PLEASE TAKE NOTICE, that on December 17, 2009 at 10:00 a.m., a hearing (the “Hearing”) will be held before the Honorable Burton R. Lifland, United States Bankruptcy Judge, at the United States
Bankruptcy Court, Southern District of New York, One Bowling Green, Courtroom 623, New York, New
York 10004, on the applications for interim compensation for services rendered and reimbursement of actual and necessary expenses incurred (the “Applications”) of the following parties:
300044687 I. FEES REQUESTED
Applicants1 Baker & Hostetler LLP Fees: $21,279,101.85 Counsel to the Trustee 80%: $17,023,281.48 (Period: May 1, 2009 through September 30, 2009) Expenses: $280,681.62
Irving H. Picard, Esq. Fees: $835,605.00 SIPA Trustee 80%: $668,484.00 (Period: May 1, 2009 through September 30, 2009) Expenses $921.25
Lee S. Richards, Receiver & Fees: $300,000.00 Richards Kibbe & Orbe LLP, Counsel to Receiver2 100%: $300,000.00 (Period: December 11, 2009 through February 28, 2009) Expenses: $6,449.08
AlixPartners LLP3 Fees: $316,000.00 Consultant to Receiver 100%: $316,000.00 (Period: December 11, 2009 through February 28, 2009) Expenses: $15,000.00
Windels Marx Lane & Mittendorf Fees: $712,614.00 Special Counsel 80%: $570,091.20 (Period: June 9, 2009 through October 31, 2009) Expenses: $15,072.92
Attias & Levy Fees: $216,793.92 Special Counsel 80%: $173,435.14 (Period: May 1, 2009 through October 31, 2009) Expenses: $14,506.80
Eugene F. Collins Fees: $21,445.82 Special Counsel to the Trustee 80%: $17,156.66 (Period: May 1, 2009 through September 30, 2009) Expenses: $193.63
Lovells LLP Fees: $580,942.62 Special Counsel to the Trustee 80%: $464,754.10 (Period: May 1, 2009 through September 30, 2009) Expenses: $16,613.42
1 All Applicants have agreed to apply a 10% public interest discount to their normal billable rates, except for Attias & Levy, which has agreed to a 20% public interest discount. All Applicants have also agreed to a holdback of 20% of fees, which amount is to be deferred through the conclusion of the liquidation period or until further order of the Court. 2 Applicants are not subject to any holdback of fees as this is Applicant’s final fee application. 3 Applicant is not subject to any holdback of fees as this is Applicant’s final fee application.
300044687 2 Applicants1
Williams Barristers & Attorneys Fees: $262,717.50 Special Counsel to the Trustee 80%: $210,174.00 (Period: May 1, 2009 through October 31, 2009) Expenses: $30,963.00
Schiltz & Schiltz Fees: $85,137.75 Special Counsel to the Trustee 80%: $68,110.20 (Period: May 1, 2009 through September 30, 2009) Expenses: $5,533.96
Higgs Johnson Truman Bodden & Co. Fees: $37,829.25 Special Counsel to the Trustee 80%: $30,263.40 (Period: May 1, 2009 through September 30, 2009) Expenses: $1,049.11
SCA Creque Fees: $106,677.50 Special Counsel to the Trustee 80%: $85,342.00 (Period: May 1, 2009 through October 31, 2009) Expenses: N/A
Schifferli Vafadar Sivilotti Fees: $17,410.00 Special Counsel to the Trustee 80%: $13,928.00 (Period: May 1, 2009 through September 30, 2009 Expenses: N/A
II. REDUCTION IN HOLDBACK4
Applicants Baker & Hostetler LLP Holdback Reduction: $1,797,074.52 Counsel to the Trustee
Irving H. Picard, Esq. Holdback Reduction: $79,741.69 SIPA Trustee
4 Baker & Hostetler LLP (“B&H”) and the Trustee are requesting a reduction in the amount of holdback applied to their fees from 20% to 15%, nunc pro tunc to December 15, 2008. Should the Court approve the reduction in holdback, the holdback reduction payment will be 5% of the total fees requested by Baker & Hostetler LLP and the Trustee to date, including (i) the fees requested by B&H and the Trustee in Section I of this Notice and (ii) amounts awarded for the period December 15, 2008 through April 30, 2009, which were approved by the Order entered by this Court on August 6, 2009 [Dkt. No. 363]. The Trustee and B&H will be entitled to eighty-five percent (85%) of their incurred fees going forward.
300044687 3 III. AMOUNTS OWED FROM PRIOR COMPENSATION PERIOD5
Applicants Attias & Levy Compensation: $2,895.07 Special Counsel
Eugene F. Collins Compensation: $16,374.35 Special Counsel to the Trustee
Lovells LLP Compensation: $149,908.13 Special Counsel to the Trustee
Schiltz & Schiltz Compensation: $10,140.10 Special Counsel to the Trustee
Higgs Johnson Truman Bodden & Co. Compensation: $2,152.08 Special Counsel to the Trustee
PLEASE TAKE FURTHER NOTICE, that copies of the Applications will be on file with, and may
be reviewed and downloaded from, the United States Bankruptcy Court website www.nysb.uscourts.gov by
registered users of PACER. Copies may also be obtained by contacting counsel to the Trustee in writing at
Baker & Hostetler LLP, 45 Rockefeller Plaza, New York, New York 10111, Attn: David J. Sheehan, Esq.
PLEASE TAKE FURTHER NOTICE, that objections or answering papers to the Applications, if
any, shall be in writing, shall conform to the requirements of the Bankruptcy Code, Bankruptcy Rules, and the
Local Rules of this Court, and shall be filed with the Clerk of the Bankruptcy Court with a courtesy copy
delivered to the Chambers of the Honorable Burton R. Lifland, United States Bankruptcy Judge, and a copy
served upon and received by (a) Baker & Hostetler LLP, 45 Rockefeller Plaza, New York, New York 10111,
Attn: David J. Sheehan; and (b) the Securities Investor Protection Corporation, 805 Fifteenth Street, NW,
5 B&H incorrectly extrapolated the amount of fees requested for certain of the Trustee’s international special counsel (“International Counsel”) from their fee applications to this Court, dated July 17, 2009 [Dkt. Nos. 328-333], for the compensation period (December 15, 2008 – April 30, 2009, the “Prior Compensation Period”). As a result, the order awarding such fees mistakenly listed only eighty percent (80%) of those International Counsels’ discounted fees instead of one hundred percent (100%) of discounted fees that had been incurred during the applicable Prior Compensation Period. As a twenty percent (20%) holdback in fees is required pursuant to and agreement with SIPC, those International Counsel were thus awarded only sixty-four percent (64%) of their actual discounted fees, as opposed to the eighty percent (80%) they are entitled to receive. The Applications of International Counsel seek to correct this by awarding the difference between the proper amounts that should have been awarded and paid to International Counsel for the fees incurred during the Prior Compensation Period, and what was actually paid.
300044687 4 Suite 800, Washington, DC 20005, Attn: Kevin H. Bell, Esq., no later than 4:00 p.m. on December 14, 2009.
PLEASE TAKE FURTHER NOTICE, that the hearing to consider the Applications may be adjourned without further notice other than by announcement of such adjournment in open Court.
PLEASE TAKE FURTHER NOTICE, that you need not appear at the Hearing if you do not object to the relief requested in the Applications.
Dated: New York, New York Respectfully submitted, November 20, 2009 s/David J. Sheehan Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Marc E. Hirschfield Email: [email protected]
Attorneys for Irving H. Picard, Esq. Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff
300044687 5 BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Marc E. Hirschfield Email: [email protected]
Attorneys for Irving H. Picard, Esq., Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC And Bernard L. Madoff
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Adv. Pro. No. 08-01789 (BRL) Plaintiff-Applicant, SIPA Liquidation v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant. In re:
BERNARD L. MADOFF,
Debtor.
CERTIFICATE OF SERVICE
I, NIKKI M. LANDRIO, hereby certify that on November 23, 2009, I caused true copies of the Notice of Hearing on Second Applications For Interim Compensation For Services
Rendered and Reimbursement of Actual and Necessary Expenses Incurred by Applicants to be served upon the interested parties who receive electronic service through ECF, by emailing the interested parties true and correct copies via electronic transmission to the email addresses
300044920 designated for delivery and/or by placing true and correct copies thereof in sealed packages designated for regular U.S. Mail to those parties as set forth on the attached Schedule A.
Dated: New York, New York November 23, 2009 s/Nikki M. Landrio NIKKI M. LANDRIO
300044920 - 2 - SCHEDULE A
Internal Revenue Service District Director 290 Broadway, 5th Floor New York, New York 10008
Internal Revenue Service Centralized Insolvency Operation Post Office Box 21126 Philadelphia, PA 19114
U.S. Department of Justice, Tax Division Box 55 Ben Franklin Station Washington, DC 20044
Chapter 7 Trustee Alan Nisselson, Esq. Windels Marx Lane & Mittendorf, LLP 156 West 56th Street New York, NY 10019
Securities Investor Protection Corporation Kevin Bell – [email protected] Josephine Wang – [email protected]
Securities and Exchange Commission Alistaire Bambach – [email protected] Alexander Mircea Vasilescu – [email protected] Terri Swanson – [email protected] Israel E. Friedman – [email protected] Preethi Krishnamurthy – [email protected]
United States Attorney for SDNY Marc Litt – [email protected] Lisa Baroni – [email protected] Natalie Kuehler - [email protected]
Counsel to the JPL Eric L. Lewis – [email protected]
Notices of Appearance Service via Electronic Notification through ECF Filing
300044920 - 3 - UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF WILLIAMS, BARRISTERS & ATTORNEYS AS SPECIAL COUNSEL TO THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH OCTOBER 31, 2009
Williams, Barristers & Attorneys (“Williams”), Bermuda special counsel to Irving H. Picard
(the “Trustee”), Trustee for the liquidation of the business of Bernard L. Madoff Investment
Securities LLC (“BLMIS”) and Bernard L. Madoff under the Securities Investor Protection Act of
1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”), submits this Application for Interim Allowance of
Fees and Reimbursement of Expenses (the “Application”) for compensation of legal fees in the amount of $262,717.50 (of which 20% is to be deferred through the conclusion of the liquidation period) and reimbursement of expenses in the amount of $30,963.00 for the period from May 1,
2009 through October 31, 2009 (the “Compensation Period”). In support of this Application,
Williams respectfully represents as follows:
1 I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the
Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor’s liquidation proceeding was removed to this Court pursuant to SIPA §
78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the United
States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. On April 1, 2009, Williams was retained as special counsel for the Trustee.
4. On April 21, 2009, this Court entered an order approving the Trustee's motion for authority to retain Williams as special counsel to the Trustee in matters pertaining to Bermuda.
5. The Trustee's motion to retain Williams established a fee arrangement pursuant to which Williams agreed to a fee reduction in the amount of 10%. Williams also agreed to an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY WILLIAMS
6. Throughout the Compensation Period, Williams has represented the Trustee in
Bermuda. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
12. Throughout the Compensation period Williams has attended on the Trustee's behalf in the Supreme Court of Bermuda and Court of Appeal for Bermuda on the various
Causes before the Bermuda Courts related to the Madoff litigation. In particular Williams has
2 represented the Trustee in relation to the Trustee's potential claim to recovery of approximately
$120,000,000.00 in the accounts of Kingate Euro Limited and Kingate Global Limited as well as other considerable amounts of monies in custodian accounts of Madoff related entities in
Bermuda involving not inconsiderable sums.
13. Throughout the Compensation Period Williams researched and advised upon matters of Bermuda law in relation to recognition of the Trustee in the Bermuda Courts; have participated in and advised in conference telephone calls with UK Solicitors for the Trustee and
New York Counsel for the Trustee; participated in telephone calls with UK Solicitors for the
Trustee; conducted research into matters of Bermuda and Commonwealth law relating to the
Trustee's rights, remedies and position in Bermuda and in relation to the various Madoff related monies transferred to or in Bermuda. Williams’ research included, but was not limited to, research into MLAT Treaties applicable to Bermuda, the provisions of the Hague Convention as they apply to the Trustee's claims and service of process in the Islands of Bermuda, International
Criminal Cooperation Legislation and The Bermuda Proceeds of Crime Legislation.
14. Williams has prepared pleadings and Declarations for the Federal Court for the
Southern District of New York; reviewed the Law of Bermuda regarding various Bermuda
Proceedings; answered the questions of UK solicitors and Queen's Counsel for the Trustee in relation to matters of Bermuda law; negotiated with local Bermuda counsel for the Liquidators of the Kingate entities, counsel for the Fund companies and the Bank of Bermuda Limited holding the subject monies; advised on possible courses of action for the Trustee in Bermuda, has researched proprietary claims asserted by the Trustee under US Federal Bankruptcy Law and
SIPA claims under Bermuda statutory and common law; responded to Kingate's Bermuda counsel; conducted frequent periodical searches in the Bermuda courts for applications pending and for new Madoff actions filed before the Bermuda Courts; conducted discussions with UK
Queen’s Counsel for the Trustee and discussed issues touching upon Bermuda law as they have
3 arisen with UK solicitors; received served and ensured compliance with local and international rules of process emanating out of the Federal Bankruptcy Court upon a large number of Funds and entities in Bermuda to include Siam Management Company Limited and Alpha Prime Fund; attended upon Kingate Bermuda Counsel regarding service of Madoff proceedings; prepared memoranda of law; general advice and conduct of the Trustee in the business and position in
Bermuda generally.
III. COMPENSATION REQUESTED
15. The Application demonstrates how Williams has both added value to the Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
16. Williams has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism. To that end, Williams has staffed this matter leanly and has endeavored to eliminate duplication of effort by giving primary responsibility of the case to
Damien Justin Williams and involving other attorneys only when necessary.
17. From May 1, 2009 through October 31, 2009, Williams provided a total of 502.2 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $291,908.33 and the total blended hourly rate for professional services was $581.26. After the 10% discount, the total amount of fees incurred is $262,717.50 and the total blended hourly rate is $523.13. Williams has agreed to a further 20% holdback of fees in the amount of $52,543.50 resulting in the present request for compensation in the amount of
$210,174.00.
18. A breakdown of the total number of hours performed by each Williams timekeeper is provided on Exhibit A annexed hereto.
19. Williams seeks reimbursement for incurred out-of-pocket expenses in connection with its representation of the Trustee during the Compensation Period in the amount of $30,963.00. An
4 itemized list of these expenses is detailed on Exhibit B attached hereto.
20. Williams typically charges its clients $0.50 per page printed. Williams does not charge for incoming faxes. Charges for telephone calls are based on the actual amounts paid by
Williams for those services.
IV. GENERAL MATTERS
21. All of the professional services for which compensation is requested herein were performed by Williams for and on behalf of the Trustee and not on behalf of any other person or entity.
22. No agreement or understanding exists between Williams and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide Williams with compensation for the legal services described herein.
23. This Court is authorized by SIPA to award to the attorneys for a SIPA Trustee
“reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a SIPA
Trustee. Id.
24. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment.
SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by this Application, and that this Court shall place considerable reliance on the recommendation of
SIPC. SIPA § 78eee(b)(5)(C). Williams expects that SIPC's recommendation shall be filed with this
Court separately.
WHEREFORE, Williams respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to Williams for interim compensation of legal fees,
5 after (a) a reduction of 10% (in the amount of $29,190.83) and (b) a holdback of 20% (in the
amount of $52,543.50) pending final approval of Williams’ fees in this case, in the
aggregate amount of $210,174.00 for professional services rendered to the Trustee from
May 1, 2009 through October 31, 2009;
c. Allowing payment to Williams in the amount of $30,963.00 for
reimbursement of expenses incurred by Williams from May 1, 2009 through October 31,
2009; and
d. Granting Williams such other and further relief as this Court deems just and
proper.
Respectfully submitted, Dated: November 23, 2009 WILLIAMS, Barristers & Attorneys
By: __s/Justin Williams______Justin Williams LOM Building 27 Reid Street Hamilton, Bermuda Telephone: +1(441) 536-0000 Fax: +1(441) 295-4720 Email: [email protected]
6 EXHIBIT A
SUMMARY OF SECOND INTERIM FEE APPLICATION OF WILLIAMS, BARRISTERS & ATTORNEYS FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH OCTOBER 31, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Damien Justin 1988 $583.23 493.4 $287,766.67 Williams Paul A. Harshaw 1995 $583.33 6.7 $3,908.33 Faith Gilkes Legal Assistant $111.11 2.1 $233.33 Total: 502.2 $291,908.33 Total minus 10% $523.13 $262,717.50 Discount Total Net of 20% $210,174.00 Holdback:
7 EXHIBIT B
EXPENSE SUMMARY OF WILLIAMS, BARRISTERS & ATTORNEYS FOR THE SECOND INTERIM PERIOD OF MAY 1, 2009 THROUGH OCTOBER 31, 2009
EXPENSES AMOUNTS Communication Expenses $5,830.00 Stationary 110.00 Travel $19,590.00 Service $30.00 Court Search $320.50 Postage/Freight $702.50 Administration Fee $2,100.00 IT Charges $1,100.00 Associated Meeting Expenses $380.00 Outside Temps/Paralegals $800.00 Total Expenses Requested: $30,963.00
8 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF SCA CREQUE AS SPECIAL COUNSEL TO THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED FROM MAY 1, 2009 THROUGH OCTOBER 31, 2009
SCA Creque (“SCAC”), special counsel for Irving H. Picard (the “Trustee”), Trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and
Bernard L. Madoff under the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”), submits this Application for Interim Allowance of Fees and Reimbursement of
Expenses (the “Application”) for compensation of legal fees in the amount of $106,677.50 (of which 20% is to be deferred through the conclusion of the liquidation period) for the period from
May 1, 2009 through October 31, 2009 (the “Compensation Period”).
In support of the Application, SCAC respectfully submits as follows:
I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for
1 the Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA
§ 78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the
United States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. Beginning on June 5, 2009, SCAC has served as special counsel for the
Trustee.
4. On July 14, 2009, this Court entered an order approving the Trustee's motion for authority to retain SCAC as special counsel to the Trustee in matters pertaining to the British
Virgin Islands.
5. The Trustee's motion to retain SCAC established a fee arrangement pursuant to which SCAC agreed to a fee reduction in the amount of 10%. SCAC also agreed to an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY SCAC
6. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
7. Throughout the Compensation Period, SCAC has represented the Trustee in the British Virgin Islands (“BVI”). The BVI is a relevant jurisdiction since several of the customers / brokerage clients of BLMIS were large investment funds domiciled in BVI, e.g., the
Kingate and Fairfield funds. A number of these funds are the subject of Court supervised liquidation proceedings in the BVI. We have been instructed to advise on issues related to those
2 proceedings, and on options which the Trustee has in the BVI for recovering monies, as set out in further detail below.
Advice related to Kingate funds
8. We were asked to advise in relation to Kingate Global Fund Ltd. and Kingate
Euro Fund Ltd. (together “Kingate”), both funds domiciled in the BVI and the subject of BVI
Court supervised liquidations, in particular on whether the BVI Court might be used to assist the
Trustee in recovering monies (amounting to approximately US$485 million) currently in the
Kingate accounts of the Bank of Bermuda. Those monies are already the subject of proceedings issued by the Trustee in the United States Bankruptcy Court for the Southern District of New
York against Kingate and Bank of Bermuda – in those proceedings the Trustee has claimed the monies are returnable as a matter of US insolvency law as recoverable preferences or fraudulent transfers.
9. Our advice included a consideration of the applicable cross-border insolvency provisions, the relevant BVI legal provisions, the relationship between the US and potential BVI proceedings, comments on the chances of success of obtaining a helpful order from the BVI Court in respect of the disputed sums at the Bank of Bermuda and details of the possible Court orders that might be obtained. The advice was also applicable more generally to assistance which the BVI Court might be able to give to the Trustee in relation to other claims.
10. We were also asked to assist Lovells' London office in relation to advice they were giving to the Trustee on the Kingate proceedings in Bermuda.
Advice related to Fairfield funds
11. We were asked to advise in relation to (i) possible claims which Fairfield
Sentry Limited (“Sentry”) might have against Fairfield Sigma Limited (“Sigma”) under BVI law, and (ii) possible claims which the Trustee may have against Sigma in relation to the same subject matter. The potential claims arose since Sentry was a brokerage client of BLMIS and
3 BLMIS made payments of approximately $1.1 billion to Sentry in the 90 days prior to December
11, 2008, the date of commencement of the initial SEC action against BLMIS. In addition claims arise from the fact that in the same 90 day period we understand that $450 million was paid out by Sentry to Sigma.
12. We advised on the merits of the above claims, considering both the relevant
BVI insolvency provisions relating to voidable transactions (including unfair preferences and undervalue transactions) as well as claims relating to restitution, tracing and “assistance to foreign office holder” provisions applicable in the BVI. Our advice was encapsulated in a detailed memorandum dated October 8, 2009.
13. We were also asked to advise in relation to the position of investors in Sentry who subscribed for shares in late November and early December 2008 but never received their shares. In particular we were asked to consider whether a trust would exist under BVI law over the subscription monies.
14. The above advice has enabled the Trustee to be aware of the BVI ramifications of the ongoing steps which it is taking in the US, Bermuda and other jurisdictions and the potential assistance which the Trustee might obtain from the BVI Court.
III. COMPENSATION REQUESTED
15. SCAC’s Application demonstrates how SCAC has both added value to the
Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
16. SCAC has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism.
17. From June 5, 2009 through October 30, 2009, SCAC provided a total of 206.3 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $118,530.56 and the total blended hourly rate for professional
4 services was $574.55. After the 10% discount, the total amount of fees incurred is $106,677.50 and the total blended hourly rate is $517.10. SCAC has agreed to a further 20% holdback of fees in the amount of $21,335.50 resulting in the present request for compensation in the amount of $85,342.00.
18. A breakdown of the total number of hours performed by each SCAC timekeeper is provided on Exhibit A annexed hereto.
IV. GENERAL MATTERS
19. All of the professional services for which compensation is requested herein were performed by SCAC for and on behalf of the Trustee and not on behalf of any other person or entity.
20. No agreement or understanding exists between SCAC and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide SCAC with compensation for the legal services described herein.
21. This Court is authorized by SIPA to award to the attorneys for a SIPA
Trustee “reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a SIPA Trustee. Id.
22. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by this Application, and that this Court shall place considerable reliance on the recommendation of SIPC. SIPA § 78eee(b)(5)(C). SCAC expects that SIPC's recommendation shall be filed with this Court separately.
5 WHEREFORE, SCAC respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to SCAC for interim compensation of legal fees, after (a) a
reduction of 10% (in the amount of $11,853.06) and (b) a holdback of 20% (in the amount
of $21,335.50) pending final approval of SCAC's fees in this case, in the aggregate
amount of $85,342.00 for professional services rendered to the Trustee from June 5, 2009
through October 30, 2009; and
c. Granting SCAC such other and further relief as this Court deems just and proper.
Respectfully submitted, Dated: November 23, 2009 SCAC Creque
By: ___s/Seamus Andrew______
Seamus Andrew P.O. Box 2344 Mandar House, Johnson’s Ghut Road Town Tortola VG1110 British Virgin Islands Telephone: +1(284) 494-0075 Fax: +1(284) 494-0854
6 EXHIBIT A
SUMMARY OF FIRST INTERIM FEE APPLICATION OF SCA CREQUE FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Seamus Andrew 1991 $694.44 41.2 $28,611.11 Niki Olympitis 1980 $694.44 41.8 $29,027.78 Steven Mash 1997 $694.44 0.6 $416.67 Chris Alderton 2002 583.33 64.2 $37,450.00 Alexander Madgwick 2003 583.33 25.2 $14,700.00 Laura Jenkins Trainee 250.00 33.3 $8,325.00 Total: 206.3 $118,530.56 Total minus 10% $517.10 $106,677.50 Discount Total Net of 20% $85,342.00 Holdback:
7 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF HIGGS JOHNSON TRUMAN BODDEN & CO. AS SPECIAL COUNSEL TO THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
Raymond Davern, together with other members and associates at the law firm of Higgs
Johnson Truman Bodden & Co. (collectively, “HJTBCo”), special counsel for Irving H. Picard (the
“Trustee”), Trustee for the liquidation of the business of Bernard L. Madoff Investment Securities
LLC (“BLMIS”) and Bernard L. Madoff under the Securities Investor Protection Act of 1970, 15
U.S.C. §§ 78aaa et seq. (“SIPA”), submits this Application for Interim Allowance of Fees and
Reimbursement of Expenses (the “Application”) for compensation of legal fees in the amount of
$37,829.25 (of which 20% is to be deferred through the conclusion of the liquidation period), plus an additional $2,152.08 in respect of amounts that are owed to HJTBCo for services rendered during the Prior Compensation Period (as defined below), as further described in ¶16 infra, and 1 reimbursement of expenses in the amount of $1,049.11 for the period from May 1, 2009 through
September 30, 2009 (the “Compensation Period”). In support of the Application, HJTBCo respectfully submits as follows:
I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the
Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA §
78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the United
States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. Beginning on April 1, 2009, HJTBCo has served as special counsel to the Trustee.
4. On April 21, 2009, this Court entered an order approving the Trustee's motion for authority to retain HJTBCo as special counsel to the Trustee in matters pertaining to the Cayman
Islands.
5. The Trustee's motion to retain HJTBCo established a fee arrangement pursuant to which HJTBCo agreed to a fee reduction in the amount of 10%. HJTBCo also agreed to an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY HJTBCo
6. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
7. During the Compensation Period HJTBCo assisted as Special Counsel on Cayman
2 matters in providing advice sought by the Trustee on various points including service of U.S. process and enforcement of a U.S. judgment in relation to a hedge fund in liquidation in the
Cayman Islands which had invested in the Debtor and which had received preferential payments from it in the six year, two year and 90 day periods prior to the Filing Date of December 11,
2008 and liaised throughout with Lovells LLP in London, the Trustee's Special Counsel on matters of English law.
8. HJTBCo further advised in relation to the same fund on the prospects of an action to recover preferential payments under Cayman law and, in particular, part XVI of the
Companies Law (2009 Revision). HJTBCo also gave advice as requested by the Trustee on
Cayman law and procedure in relation to another Cayman hedge fund which had had similar dealings with the Debtor and which was the subject of interpleader proceedings in London.
HJTBCo also gave advice in relation to and arranged for service of proceedings in Cayman on a third Cayman hedge fund and gave advice in relation to a fourth Cayman hedge fund concerning its ability, if any, to withhold information from the Trustee on the ground of claimed criminal liability under the Cayman Confidential Relationships (Preservation) Law (2009 Revision).
9. In all of these ways HJTBCo provided services of value to the Trustee which has allowed him to take strategic decisions in relation to and with the aim of maximizing recovery from a number of Cayman hedge funds to the benefit of those entitled to distributions from the
Debtor's estate.
III. COMPENSATION REQUESTED
10. The Application demonstrates how HJTBCo has both added value to the Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
11. HJTBCo has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism. To that end, HJTBCo has staffed this matter leanly 3 and has endeavored to eliminate duplication of effort by giving primary responsibility of the case to one associate, Raymond Davern and involving a partner, Christopher Narborough only when necessary. Mr. Narborough’s involvement was not necessary during the Compensation Period.
12. From May 1, 2009 through September 30, 2009, HJTBCo provided a total of 80.1 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $42,032.50 and the total hourly rate for professional services was $525.00. After the 10% discount, the total amount of fees incurred is $37,829.25 and the total hourly rate is $472.50. HJTBCo has agreed to a further holdback of 20% of its fees in the amount of $7,565.85, resulting in the present request for compensation in the amount of $30,263.40.
13. A breakdown of the total number of hours performed by each HJTBCo timekeeper is provided on Exhibit A annexed hereto.
14. HJTBCo seeks reimbursement for out-of-pocket expenses incurred in connection with its representation of the Trustee during the Compensation Period in the amount of $1,049.14. An itemized list of these expenses is detailed on Exhibit B attached hereto.
15. HJTBCo typically charges its clients $0.50 page printed. HJTBCo does not charge for incoming faxes. Charges for telephone calls are based on the actual amounts paid by HJTBCo for those services.
IV. COMPENSATION OWED FROM PRIOR COMPENSATION PERIOD
16. HJTBCo’s fees for the period April 1, 2009 through April 30, 2009 (“Prior
Compensation Period”) were correctly detailed in its application to this Court, dated July 17,
2009 (the “Prior Application”) [Docket No. 333] and in SIPC’s recommendation in support of
Foreign Counsels’ fees, dated August 3, 2009 [Docket No. 355]. However, Baker & Hostetler
LLP, counsel to the Trustee, incorrectly extrapolated the amount of fees requested for HJTBCo.
As a result, Exhibit A to the Order Approving Applications for Allowance of Interim
4 Compensation for Services Rendered and Reimbursement of Expenses, dated August 6, 2009
(the “Order”) [Docket No. 363] mistakenly listed only eighty percent (80%) of HJTBCo’s discounted fees as “Interim Compensation Requested” instead of one hundred percent (100%) of the discounted fees that had been incurred during the Prior Compensation Period. Pursuant to an agreement with SIPC, a twenty percent (20%) holdback in fees until the end of the liquidation is required. HJTBCo was thus awarded only sixty-four percent (64%) of its actual discounted fees, or $8,608.32, as opposed to the eighty percent (80%), or $10,760.40 it was entitled to receive.
The Application seeks to correct this error; thus an additional $2,152.08 should granted to
HJTBCo in respect of compensation for services rendered during the Prior Compensation Period.
V. GENERAL MATTERS
17. All of the professional services for which compensation is requested herein were performed by HJTBCo for and on behalf of the Trustee and not on behalf of any other person or entity.
18. No agreement or understanding exists between HJTBCo and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide HJTBCo with compensation for the legal services described herein.
19. This Court is authorized by SIPA to award to the attorneys for a SIPA Trustee
“reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a SIPA Trustee. Id.
20. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by
5 this Application, and that this Court shall place considerable reliance on the recommendation of
SIPC. SIPA § 78eee(b)(5)(C). HJTBCo expects that SIPC's recommendation shall be filed with this Court separately.
WHEREFORE, HJTBCo respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to HJTBCo for interim compensation of legal fees, after (a) a reduction of 10% (in the amount of $4,203.25) and (b) a holdback of 20% (in the amount of
$7,565.85) pending final approval of HJTBCo' fees in this case, in the aggregate amount of
$30,263.40 for professional services rendered to the Trustee from May 1, 2009 through
September 30, 2009;
c. Allowing payments to HJTBCo in the amount of $2,152.08 in respect of compensation for services rendered during the Prior Compensation Period.
d. Allowing payment to HJTBCo in the amount of $1,049.14 for reimbursement of expenses incurred by HJTBCo from May 1, 2009 through September 30, 2009; and
d Granting HJTBCo such other and further relief as this Court deems just and proper.
Respectfully submitted, Dated: November 23, 2009 HIGGS JOHNSON TRUMAN BODDEN & CO.
By: ___s/Raymond Davern______
Raymond Davern P.O. Box 866 Anderson Square Building Grand Cayman KY1-1103 Cayman Islands Telephone: +1(345) 949-7555 Fax: +1(345) 949-8492
6 EXHIBIT A
SUMMARY OF SECOND INTERIM FEE APPLICATION OF HIGGS JOHNSON TRUMAN BODDEN & CO. FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
TOTAL YEAR HOURLY HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Raymond Davern 1988 (England & Wales); 2009 $525.00 80.1 $42,032.50 (Cayman Islands) Total minus 10% $472.50 80.1 $37,829.25 Discount Total Net of 20% $30,263.40 Holdback:
7 EXHIBIT B
EXPENSE SUMMARY OF HIGGS JOHNSON TRUMAN BODDEN & CO. FOR THE SECOND INTERIM PERIOD OF MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
EXPENSES AMOUNTS Communication 33.71 Stationary 879.51 Mail/Postage 87.14 Court Search 48.78 Total Expenses Requested: $1049.14
8 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF ATTIAS & LEVY AS SPECIAL COUNSEL FOR THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH OCTOBER 31, 2009 Keith Azopardi, together with other members and associates at the law firm of Attias &
Levy, special counsel for Irving H. Picard (the “Trustee”), Trustee for the liquidation of the business
of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff under the
Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”), submits this
Application for Interim Allowance of Fees and Reimbursement of Expenses (the “Application”)
for compensation of legal fees in the amount of $216,793.92 (of which 20% is to be deferred
through the conclusion of the liquidation period) plus an additional $2,895.07 in respect of
amounts that are owed to Attias & Levy for services rendered during the Prior Compensation Period
(as defined below), as further described in ¶ 34 infra, and reimbursement of expenses in the amount
1 of $14,506.80 for the period from May 1, 2009 through October 31, 2009 (the “Compensation
Period”). In support of the Application, Attias & Levy respectfully submits as follows:
I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the
Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA §
78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the United
States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. Beginning on March 13, 2009, Attias & Levy has served as special counsel for the
Trustee.
4. On April 7, 2009, this Court entered an order approving the Trustee's motion for authority to retain Attias & Levy as special counsel to the Trustee in matters pertaining to
Gibraltar.
5. The Trustee's motion to retain Attias & Levy established a fee arrangement pursuant to which Attias & Levy agreed to a fee reduction in the amount of 20% as well as an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY ATTIAS & LEVY
6. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
7. In general terms the work conducted during the period was aimed at pursuing a
2 claim by the Trustee for disclosure of information, freezing orders, payment into Court and the eventual turnover of a transfer of $150 million (the “Transfer”) made on or about October 31,
2008 to Vizcaya Partners Limited (“Vizcaya”) through Bank J Safra (Gibraltar) Limited (“Bank
Safra”). Some of the monies derived from the Transfer were also transferred into the accounts of other parties, namely Zeus Partners Limited (“Zeus”), Asphalia Fund Limited (“Asphalia”) and
Siam Capital Management Limited (“Siam”). All the above parties are parties to Gibraltar litigation.
8. There are four related Gibraltar actions in which Gibraltar Special Counsel for the
Trustee has been involved, namely (i) a judicial review brought by Vizcaya against the decision by the Gibraltar Financial Intelligence Unit1 to issue “no consent” orders, freezing monies held at
Bank Safra in the names of Vizcaya, Zeus, Asphalia and Siam (the “Vizcaya judicial review”);
(ii) an action brought by Siam against the Attorney General and the Bank seeking the release of the sums held in its account (the “Siam action”); (iii) an action brought by Bank Safra to pay into
Court approximately $63 million held by it in the accounts of Zeus and Asphalia pending determination of the claims (the “Safra claim”); and (iv) an action brought by the Trustee against
Vizcaya, Zeus, Asphalia, Siam and Bank Safra for assistance from the Gibraltar Court relating to the transfer of $150 million and seeking orders for disclosure of information, freezing orders, payment into Court and turnover of the monies to the Trustee and/or the US Bankruptcy Court.
9. During the invoice period Attias & Levy conducted significant work in relation to the Gibraltar actions.
10. Initial instructions were received from the Trustee on the nature of the proposed action. Letters had been written in April of a pre-action nature to Vizcaya, Zeus, Asphalia, Siam and Bank Safra. There was substantial correspondence during this period and an evidence- gathering process was engaged in.
3 11. There were discussions between counsel for all parties and the US Trustee on the
claims of the respective parties. There was also discussion with Crown Counsel for the Attorney
General in respect of the Vizcaya judicial review.
12. There was a Court appearance on May 19th when an application was made for the
Court to make the US Trustee an interested party in the Vizcaya judicial review. This application
was granted by Mr Justice Dudley after a hearing that involved counsel for the Attorney General
and for Vizcaya, Bank Safra and Siam.
13. On May 28th, after intensive discussions between the parties an application was
heard by the Supreme Court who ordered the payment into Court of approximately $10.02 million
in the Vizcaya judicial review. These sums were held by Bank Safra in an account in the name of
Vizcaya. The funds currently remain in the Supreme Court pending further order in that action or
in any other action in the Gibraltar Courts.
14. Correspondence ensued between the parties to establish whether voluntary
undertakings would be given as to the non-removal of monies from Gibraltar and voluntary
disclosure as to the whereabouts of the transferred monies. These discussions and correspondence
did not achieve the necessary undertakings or disclosure at that stage.
15. Siam had discussions with counsel for the Trustee in respect of the monies
received by it derived from the transfer of the October 31, 2008. By June counsel for the Trustee
had been able to establish the provenance and flow of funds through the Siam account. However
Vizcaya, Zeus and Asphalia refused to provide information at that stage. It became increasingly
clear that an action would need to be launched for general assistance seeking for disclosure,
freezing orders, payment in and turnover of the funds to the Trustee/Court pending determination
of the claims to the monies.
16. A Letter of Request was issued by the Hon. Burton Lifland to the Supreme Court
1 A unit of the Royal Gibraltar Police and represented in the proceedings by the Attorney General. 4 of Gibraltar seeking the assistance of the Gibraltar Court in respect of certain matters detailed in that letter in the context of the bankruptcy proceedings being administered by the US Court and the adversary action issued by the Trustee in New York against Safra and Vizcaya. Siam also issued its own action described above to seek the release of monies in its account at Safra.
17. On the 26th of June, Safra issued its action seeking the payment into Court of the funds located in the Zeus and Asphalia accounts. The Trustee had to respond to the Safra action.
On his behalf an acknowledgment of service was filed in connection with the same and all the relevant papers filed in that action were considered. The information provided in the Safra action assisted in identifying the extent of funds and the location of the funds held in Gibraltar at Safra
Bank.
18. Significant amendments were made to the claim for assistance brought by the
Trustee. This was issued on the July 9, 2009 and served on all parties, namely Safra, Vizcaya,
Zeus, Asphalia and Siam. A Part 8 Claim Form was issued out of the Supreme Court backed by an Affidavit of Irving Picard which described the nature of the claim for assistance and the claim brought in the United States Bankruptcy Court against Safra and Vizcaya. Draft orders for freezing relief and disclosure were prepared.
19. After service of proceedings most of the activity in that month concentrated on discussions between Counsel for all parties as to how best to take forward the four Gibraltar actions that had been issued. Significant correspondence, telephone calls and meetings were dedicated to this.
20. On the July 27, 2009 Vizcaya filed another application for the release of funds to it from monies held in Court for the purposes of defending the Gibraltar proceedings and for taking legal advice in the British Virgin Islands and New York. Supporting papers were considered.
21. Additionally papers were filed seeking a case management conference before one of the Supreme Court Judges.
5 22. Significant work was done to progress the civil action issued by Irving Picard against Vizcaya, Zeus, Asphalia, Siam and Safra. There were discussions between counsel for all the parties on a without prejudice basis to try to agree directions for a prospective hearing.
23. In late July GFIU had partially lifted its “no consent” in respect of Siam’s account.
This led to the potential release of funds. Steps were taken to file an application for urgent consideration of injunctive relief by the Court. This led to discussions between Safra, Siam and counsel for the Trustee. Eventually undertakings were provided which were embodied into the form of an order to preserve the funds in the accounts held by Safra in the name of Zeus, Asphalia and Siam up to specified levels until trial. This in effect managed to freeze another approximately
$64 million until trial or further order.
24. Intensive discussions were held between the parties and there were exchanges of numerous drafts of possible directions orders in the respective actions.
25. Directions were set by the Court for the provision of evidence, skeleton arguments and evidence in reply to take place during September in preparation for the October hearing.
26. Significant work had to be done in respect of the preparation of skeleton arguments for the hearing of the October 26, 2009. These had to be served by the Trustees on October 1,
2009.
27. Additionally work on preparing bundles for the hearing namely Volume A
(pleadings, orders and particulars), Volumes B to D (evidence, statements and affidavits) and
Bundles of authorities, (case law and statutory material) was commenced. That work was continued during October in order to comply with the deadlines of the 5th October and 20th
October for the serving of those documents on other parties and lodging of material at the Court.
III. COMPENSATION REQUESTED
28. The Application demonstrates how Attias & Levy has both added value to the
Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
6 29. Attias & Levy has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism. To that end, Attias & Levy has staffed this matter leanly and endeavored to eliminate duplication of effort by giving primary responsibility of the case to one partner, Mr. Keith Azopardi.
30. From May 1, 2009 through October 31, 2009, Attias & Levy provided a total of 759.8 hours of legal services to the Trustee in this case. Prior to the 20% discount, the total amount of fees incurred in this time period was $270,992.40 and the total blended hourly rate for professional services was $356.66. After the 20% discount, the total amount of fees incurred is $216,793.92 and the total blended hourly rate is $285.33. Attias & Levy has agreed to a further holdback of 20% of its fees in the amount of $43,358.78 resulting in the present request for compensation in the amount of
$173,435.14.
31. A breakdown of the total number of hours performed by each Attias & Levy timekeeper is provided on Exhibit A annexed hereto.
32. Attias & Levy seeks reimbursement for out-of-pocket expenses incurred in connection with its representation of the Trustee during the Compensation Period of $14,506.80.
An itemized list of these expenses is detailed on Exhibit B attached hereto.
33. Attias & Levy typically charges its clients $0.17 per page for photocopying and printing. Attias & Levy does not charge for incoming faxes. Charges for electronic research, overnight delivery, postage, long distance telephone calls, and other out-of-pocket disbursements are based on the actual amounts paid by Attias & Levy for those services.
IV. COMPENSATION OWED FROM PRIOR COMPENSATION PERIOD
34. Attias & Levy’s fees for the period March 13, 2009 through April 30, 2009 (“Prior
Compensation Period”) were correctly detailed in its application to this Court, dated July 17, 2009
(the “Prior Application”) [Docket No. 328] and in SIPC’s recommendation in support of Foreign
7 Counsels’ fees, dated August 3, 2009 [Docket No. 355]. However, Baker & Hostetler, LLP, counsel for the Trustee, incorrectly extrapolated the amount of fees requested for Attias & Levy.
As a result, Exhibit A to the Order Approving Applications for Allowance of Interim
Compensation for Services Rendered and Reimbursement of Expenses, dated August 6, 2009 (the
“Order”) [Docket No. 363] mistakenly listed only eighty percent (80%) of Attias & Levy’s discounted fees as “Interim Compensation Requested” instead of one hundred percent (100%) of the discounted fees that had been incurred during the Prior Compensation Period. Pursuant to an agreement with SIPC, a twenty percent (20%) holdback in fees until the end of the liquidation is required. Attias & Levy was thus awarded only sixty-four percent (64%) of its actual discounted fees, or $11,580.25, as opposed to the eighty percent (80%), or $14,475.32, it was entitled to receive. The Application seeks to correct this error; thus an additional $2,895.07 should be granted to Attias & Levy in respect of compensation for services rendered during the Prior
Compensation Period.
V. GENERAL MATTERS
35. All of the professional services for which compensation is requested herein were performed by Attias & Levy for and on behalf of the Trustee and not on behalf of any other person or entity.
36. No agreement or understanding exists between Attias & Levy and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide Attias & Levy with compensation for the legal services described herein.
37. This Court is authorized by SIPA to award to the attorneys for a SIPA Trustee
“reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a
SIPA Trustee. Id.
38. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be
8 charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by this Application, and that this Court shall place considerable reliance on the recommendation of SIPC. SIPA § 78eee(b)(5)(C). Attias & Levy expects that SIPC's recommendation shall be filed with this Court separately.
9 WHEREFORE, Attias & Levy respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to Attias & Levy for interim compensation of legal
fees, after (a) a reduction of 20% (in the amount of $54,198.48 ) and (b) a holdback of
20% (in the amount of $43,358.78) pending final approval of Attias & Levy' fees in
this case, in the aggregate amount of $173,435.13 for professional services rendered to
the Trustee from May 1, 2009 through October 31, 2009;
c. Allowing payments to Attias & Levy in the amount of $2,895.07 in
respect of compensation for services rendered during the Prior Compensation Period;
d. Allowing payment to Attias & Levy in the amount of $14,506.80 for
reimbursement of expenses incurred by Attias & Levy from May 1, 2009 through
October 31, 2009; and
e. Granting Attias & Levy such other and further relief as this Court
deems just and proper.
Respectfully submitted, Dated: November 23, 2009 ATTIAS & LEVY
By: ___s/Keith Azopardi______
Keith Azopardi First Floor Suites 39 Irish Town P.O. Box 466 Gibraltar London EC1A 2FG Telephone: +350 200 72150 Fax: +350 200 74986
10 EXHIBIT A
SUMMARY OF SECOND INTERIM FEE APPLICATION OF ATTIAS & LEVY FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH OCTOBER 31, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Keith Azopardi 1990 (UK & Gib) 420.00 395.5 $166,110.00 Samantha Sacramento 2000(UK) 336.00 157.4 2004(Gib) $52,886.40 Graceanne Parody 2004 (UK) 315.00 81.4 2005 (Gib) $25,641.00 Tom Hillman 2007 (UK) 210.00 81.6 2009 (Gib) $17,136.00 Bernard Valarino 2009 (UK) 210.00 43.9 Pending (Gib) $9,219.00 Total: 759.8 $270,992.40 Total minus 20% $285.33 $216.793.92 Discount Total Net of 20% $173,435.14 Holdback:
11 EXHIBIT B
EXPENSE SUMMARY OF ATTIAS & LEVY FOR THE SECOND INTERIM PERIOD OF MAY 1, 2009 THROUGH OCTOBER 31, 2009
EXPENSES AMOUNTS Communication $1,276.8 Court Fees $630.00 Professional Fees for $12,600.00 Expert Witness Total Expenses Requested: $14,506.80
12 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF EUGENE F. COLLINS AS SPECIAL COUNSEL FOR THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009 Barry O’Neill, together with other members and associates at the law firm of Eugene F.
Collins (“EFC”), special counsel for Irving H. Picard (the “Trustee”), Trustee for the liquidation of
the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff
under the Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”),
submits this Application for Interim Allowance of Fees and Reimbursement of Expenses (the
“Application”) for compensation of legal fees in the amount of $21,445.821 (of which 20% is to be
deferred through the conclusion of the liquidation period) plus an additional $16,374.35 in respect
of amounts that are owed to EFC for services rendered during the Prior Compensation Period (as
defined below), as further described in ¶ 16 infra, and reimbursement of expenses in the amount of
1 $198.63 for the period from May 1, 2009 through September 30, 2009 (the “Compensation Period”).
In support of the Application, EFC respectfully submits as follows:
I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the
Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of
the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA §
78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though
it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the United
States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. Beginning on February 9, 2009, EFC has served as special counsel for the Trustee.
4. On February 23, 2009, this Court entered an order approving the Trustee's motion for
authority to retain EFC as special counsel to the Trustee in matters pertaining to Ireland.
5. The Trustee's motion to retain EFC established a fee arrangement pursuant to which
EFC agreed to a fee reduction in the amount of 10% as well as an additional holdback of fees in the
amount of 20%.
II. SERVICES RENDERED BY EFC
6. The legal services performed on behalf of the Trustee during the time period
covered by this Application are as follows:
7. EFC retained a watching brief on Thema International Fund plc. v. HSBC
Securities Services (Ireland) Limited and HSBC Institutional Trust Services (Ireland) Limited and
AA (Alternative Advantage) plc. v. HSBC Securities Services (Ireland) Limited and HSBC
1 All invoices were received in Euros, and were converted into USD at the November 12, 2009 midday exchange rate of $1.4863. 2 Institutional Trust Services (Ireland) Limited in the Commercial Division of the High Court and were in communication with the solicitors for HSBC to monitor progression of the applications for the release of monies by Thema and AA.
8. With regard to Fortis Prime Fund Solutions Custodial Services (Ireland) Limited v. HSBC Securities Services (Ireland) Limited and Defender Limited and Consulnor Gestion
SGIIC SA v. Optimal Multiadvisors Ireland plc, EFC advised the Trustee on the claim by the funds. EFC monitored the progress of the proceedings and advised Baker & Hostetler LLP
(“B&H”), Trustee’s counsel, accordingly.
9. With regard to Fortis Prime Fund Solutions Bank (Ireland) Limited v. Harley
International Fund plc, EFC advised B&H regarding the freezing of monies by the Irish National
Police (An Garda Síochána) in an account administered by Fortis. EFC contacted the Police
Authorities and made representations for the immediate release of the funds to the Trustee. At the request of the Police Authorities, EFC set out the Trustees claim to the monies and liaised closely with B&H and Lovells in relation to the subsequent release of a claim on the monies. EFC advised on jurisdictional issues arising from any potential direct claim to recover the monies released in the Irish courts. EFC furnished additional advice regarding an application by Fortis for the Harley Fund and the Trustee to interplead competing claims. EFC retained a Junior
Barrister and attended the Commercial Division of the High Court when the interpleader proceedings were listed to confirm that the Trustee was not engaging in the proceedings before the court but was continuing to assert a claim to the Harley Fund monies under US law.
III. COMPENSATION REQUESTED
10. The Application demonstrates how EFC has both added value to the Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
11. EFC has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the
3 highest degree of skill and professionalism.
12. From May 1, 2009 through September 30, 2009, EFC provided a total of 55.3 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $23,828.69 and the total blended hourly rate for professional services was $430.90. After the 10% discount, the total amount of fees incurred is $21,445.82 and the total blended hourly rate is $387.81. EFC has agreed to a further holdback of 20% of its fees in the amount of $4,289.16 resulting in the present request for compensation in the amount of $17,156.66.
13. A breakdown of the total number of hours performed by each EFC timekeeper is provided on Exhibit A annexed hereto.
14. EFC seeks reimbursement for out-of-pocket expenses incurred in connection with its representation of the Trustee during the Compensation Period of $198.63. An itemized list of these expenses is detailed on Exhibit B attached hereto.
15. Charges for postage, telephone, photocopying, fax, taxi, courier and other out-of- pocket disbursements are based on the actual amounts paid by EFC for those services.
IV. COMPENSATION OWED FROM PRIOR COMPENSATION PERIOD
16. EFC’s fees for the period February 9, 2009 through April 30, 2009 (“Prior
Compensation Period”) were correctly detailed in its application to this Court, dated July 17, 2009
(the “Prior Application”) [Docket No. 329] and in SIPC’s recommendation in support of Foreign
Counsels’ fees, dated August 3, 2009 [Docket No. 355]. However, B&H incorrectly extrapolated the amount of fees requested for EFC. As a result, Exhibit A to the Order Approving
Applications for Allowance of Interim Compensation for Services Rendered and Reimbursement of Expenses, dated August 6, 2009 (the “Order”) [Docket No. 363] mistakenly listed only eighty percent (80%) of EFC’s discounted fees as “Interim Compensation Requested” instead of one hundred percent (100%) of the discounted fees that had been incurred during the Prior
Compensation Period. Pursuant to an agreement with SIPC, a twenty percent (20%) holdback in
4 fees until the end of the liquidation is required. EFC was thus awarded only sixty-four percent
(64%) of its actual discounted fees, or $65,497.41, as opposed to the eighty percent (80%), or
$81,871.76, it was entitled to receive. The Application seeks to correct this error; thus an additional $16,374.35 should be granted to EFC in respect of compensation for services rendered during the Prior Compensation Period.
V. GENERAL MATTERS
17. All of the professional services for which compensation is requested herein were performed by EFC for and on behalf of the Trustee and not on behalf of any other person or entity.
18. No agreement or understanding exists between EFC and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide EFC with compensation for the legal services described herein.
19. This Court is authorized by SIPA to award to the attorneys for a SIPA Trustee
“reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a
SIPA Trustee. Id.
20. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by this Application, and that this Court shall place considerable reliance on the recommendation of SIPC. SIPA § 78eee(b)(5)(C). EFC expects that SIPC's recommendation shall be filed with this
Court separately.
WHEREFORE, EFC respectfully requests that this Court enter an Order:
5 a. Granting this Application;
b. Allowing payment to EFC for interim compensation of legal fees, after
(a) a reduction of 10% (in the amount of $2,144.58) and (b) a holdback of 20% (in the
amount of $4,289.16) pending final approval of EFC’s fees in this case, in the
aggregate amount of $17,156.66 for professional services rendered to the Trustee from
May 1, 2009 through September 30, 2009;
c. Allowing payments to EFC in the amount of $16,374.35 in respect of
compensation for services rendered during the Prior Compensation Period;
d. Allowing payment to EFC in the amount of $198.63 for reimbursement
of expenses incurred by EFC from May 1, 2009 through September 30, 2009; and
e. Granting EFC such other and further relief as this Court deems just and
proper.
Respectfully submitted, Dated: November 23, 2009 Eugene F. Collins, Solicitors
By: ___s/Barry O’Neill______
Mr. Barry O’Neill EUGENE F. COLLINS Temple Chambers 3 Burlington Road Dublin 4 Ireland +353 (1) 202 6400
6 EXHIBIT A
SUMMARY OF SECOND INTERIM FEE APPLICATION OF EFC FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Barry O’Neill 1972 743.15 5.4 $4,013.04 Donal Dunne 1994 520.21 20.3 $10,560.06 Robin McDonnell 2003 520.21 12.3 $6,398.46 Christine Martin Trainee 165.14 14.5 $2,394.59 Billy Lee Trainee 165.14 1.5 $247.72 Sheila Booth Trainee 165.14 0.8 $132.12 Orla Morgan Trainee 165.14 0.5 $82.57 Total: 55.3 $23,828.69 Total minus 10% $387.81 $21,445.82 Discount Total Net of 20% $17,156.66 Holdback:
7 EXHIBIT B
EXPENSE SUMMARY OF EFC FOR THE SECOND INTERIM PERIOD OF MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
EXPENSES AMOUNTS Postage, telephone, $193.63 photocopying, fax, taxi, courier Total Expenses Requested: $193.63
8 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF LOVELLS LLP AS SPECIAL COUNSEL TO THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY EXPENSES INCURRED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
Christopher Grierson, together with other members and associates at the international law firm of Lovells LLP (collectively, “Lovells”), special counsel for Irving H. Picard (the “Trustee”),
Trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC
(“BLMIS”) and Bernard L. Madoff under the Securities Investor Protection Act of 1970, 15
U.S.C. §§ 78aaa et seq. (“SIPA”), submits this Application for Interim Allowance of Fees and
Reimbursement of Expenses (the “Application”) for compensation of legal fees in the amount of
$580,942.62 (of which 20% is to be deferred through the conclusion of the liquidation period) plus an additional $149,908.13 in respect of amounts that are owed to Lovells for services rendered during the Prior Compensation Period (as defined below), as further described in ¶ 29 infra,
1 and reimbursement of expenses in the amount of $16,613.42 for the period from May 1, 2009 through September 30, 2009 (the “Compensation Period”).
In support of the Application, Lovells respectfully submits as follows:
I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA
§ 78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the
United States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. Beginning on January 15, 2009, Lovells has served as special counsel for the
Trustee.
4. On February 18, 2009, this Court entered an order approving the Trustee's motion for authority to retain Lovells as special counsel to the Trustee in relation to foreign proceedings, including in England and Wales and other European jurisdictions.
5. The Trustee's motion to retain Lovells established a fee arrangement pursuant to which Lovells agreed to a fee reduction in the amount of 10% as well as an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY LOVELLS
6. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
2 Litigation Strategy
7. Lovells provided extensive advice on the appropriate strategy for the
Trustee in relation to a wide range of claims and potential claims against various respondents in a number of different jurisdictions. This has involved feeder funds, depository/custodian banks, redemption and subscription monies located outside the United States and advice regarding, inter alia, the substantive claims, remedies and relief which may be available to the Trustee under
English law, the law of other common law jurisdictions, and in a number of European jurisdictions including Spain and the Netherlands.
8. Lovells also provided advice regarding the enforcement of U.S. judgments in England and other common law jurisdictions.
Coordination with the JPLs
9. During the Compensation Period Lovells continued to work closely with the Joint Provisional Liquidators (“JPLs”) of Madoff Securities International Limited (“MSIL”)
(Grant Thornton LLP and Dundas & Wilson LLP) in connection with, inter alia, the establishment and subsequent operation of protocols for the sharing of information, and more general cooperation, between the estate of the Debtor and the estate of MSIL. This included further advice regarding the impact of the UK Data Protection Act 1998, as well as advice in connection with witness interviews being conducted by the JPLs pursuant to their statutory powers under the UK Insolvency Act 1986.
English Proceedings
10. Lovells provided extensive advice and assistance regarding the options available to the Trustee in relation to various threatened and pending proceedings before the
High Court in England. Amongst other things, this entailed detailed advice regarding cross- border recognition and assistance provisions and conflict of laws issues.
3 Evidence Gathering
11. Lovells continued to provide advice regarding the Trustee's powers to gather evidence and conduct interviews in England pursuant, inter alia, to the Cross-Border
Insolvency Regulations 2006 as well as in other common law jurisdictions. This included detailed advice regarding the approach of the English Court to disclosure applications and the scope of the disclosure likely to be ordered in any given case. Lovells also undertook significant work in connection with a number of proposed disclosure applications. It is anticipated that the
Trustee will shortly be in a position to proceed with those applications.
Investigations
12. Lovells provided advice and assistance in connection with investigations being conducted by the Trustee and his representatives outside the United States, including in connection with the dealings between the Debtor and MSIL. This entailed close liaison with FTI
Consulting, Inc. (and its associates and affiliates) and the JPLs' representatives (Grant Thornton
UK LLP and Dundas & Wilson LLP).
13. Lovells also conducted various investigations in Continental Europe in relation to assets suspected to have been purchased with monies derived from the Debtor's
“investment advisory” business (including, by way of example, assets previously held in the
Madoffs' names in France).
Overseas Counsel
14. Lovells assisted the Trustee in a number of different jurisdictions, including the British Virgin Islands, to identify and retain local counsel. In many of these jurisdictions, where the legal system is closely modeled on English law, Lovells then worked closely with the overseas lawyers retained by the Trustee in order to ensure the highest quality of advice, and consistency of approach, for the Trustee.
4 Bermuda
15. Lovells worked closely with Williams Barristers & Attorneys in relation to proceedings pending in Bermuda involving Kingate Euro Fund, Ltd and Kingate Global Fund,
Ltd (the “Kingate Funds”). This included advice regarding the Trustee's potential claim to monies held by the Bank of Bermuda Limited and on the implications, for the Trustee, of developments in relation to the Kingate Funds.
Cayman Islands
16. Lovells provided extensive advice in connection with a number of different
“feeder funds” incorporated in the Cayman Islands (in conjunction with Higgs Johnson Truman
Bodden & Co). This included advice regarding Cayman Islands legislation providing for cross- border cooperation in insolvency proceedings as well as, more generally, the scope for the
Trustee to secure and recover “customer property” in the possession of Cayman-incorporated funds.
British Virgin Islands
17. Lovells assisted in the engagement of local counsel in the British Virgin
Islands, SC Andrew LLP, and assisted in the provision of advice to the Trustee regarding a number of issues of BVI law, including as regards BVI legislation providing for cross-border cooperation in insolvency proceedings.
Ireland
18. During the Compensation Period Lovells continued to work closely with
Eugene F. Collins in relation to various legal proceedings pending before the Irish Court, including in relation to a number of feeder funds and custodian/depository banks located in
Ireland.
The Netherlands
19. Lovells provided advice regarding a number of issues of Dutch law arising in
5 connection with Dutch custodian/depositary banks and/or suspected “customer property” located in the Netherlands.
Law Enforcement Agencies
20. Lovells provided advice and assistance in connection with liaison between the Trustee and law enforcement agencies in the UK (including the Serious Fraud Office) and other common law jurisdictions.
21. Finally, throughout the Compensation Period, Lovells participated in extensive conference calls and discussions with representatives of the Trustee, including Baker
& Hostetler LLP and FTI Consulting, Inc. (and its associates and affiliates).
III. COMPENSATION REQUESTED
22. The Application demonstrates how Lovells has both added value to the
Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
23. Lovells has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism. To that end, Lovells has endeavored to eliminate duplication of effort by giving responsibility for the day-to-day conduct of the case to two attorneys,
Mr. Kochberg (Partner) and Mr. Roberts (Sr. Associate), and one trainee, involving others only when necessary.
24. From May 1, 2009 through September 30, 2009, Lovells provided a total of
906.76 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $645,491.80 and the total blended hourly rate for professional services was $711.87. After the 10% discount, the total amount of fees incurred is
$580,942.62 and the total blended hourly rate is $640.68. Lovells has agreed to a further holdback of 20% of its fees in the amount of $116,188.52 resulting in the present request for compensation in the amount of $464,754.10.
6 25. A breakdown of the total number of hours performed by each Lovells timekeeper is provided on Exhibit A annexed hereto.
26. Lovells seeks reimbursement of out-of-pocket expenses incurred in connection with its representation of the Trustee during the Compensation Period in the amount of $16,613.42. An itemized list of these expenses is detailed on Exhibit B attached hereto.
27. The principal out-of-pocket expenses incurred by Lovells were the professional fees of Mr Robin Dicker QC, a leading insolvency barrister retained to represent the
Trustee at the recognition application on February 27, 2009, and who has since provided specialist advice and expertise in relation to other issues with which Lovells has been dealing. It is standard practice in England to engage the services of a specialist barrister in this way.
28. Lovells typically charges its clients $0.33 per page for photocopying and printing. In this case, as not all copying and printing has been charged, the effective rate is approximately $0.28 per page. Lovells does not charge for incoming faxes. Lovells also has not charged for telephone calls, except where external conference call facilities have been used.
Charges for such conference calls are based on the actual amounts paid by Lovells for those services. Similarly, where amounts have been charged in respect of couriers or search fees, those amounts reflect the actual charges incurred by Lovells.
IV. COMPENSATION OWED FROM PRIOR COMPENSATION PERIOD
29. Lovells’ fees for the period January 15, 2009 through April 30, 2009 (“Prior
Compensation Period”) were correctly detailed in its application to this Court, dated July 17,
2009 (the “Prior Application”) [Docket No. 330] and in SIPC’s recommendation in support of
Foreign Counsels’ fees, dated August 3, 2009 [Docket No. 355]. However, Baker & Hostetler,
LLP, counsel for the Trustee, incorrectly extrapolated the amount of fees requested for Lovells.
As a result, Exhibit A to the Order Approving Applications for Allowance of Interim
Compensation for Services Rendered and Reimbursement of Expenses, dated August 6, 2009
7 (the “Order”) [Docket No. 363] mistakenly listed only eighty percent (80%) of Lovells’ discounted fees as “Interim Compensation Requested” instead of one hundred percent (100%) of the discounted fees that had been incurred during the Prior Compensation Period. Pursuant to an agreement with SIPC, a twenty percent (20%) holdback in fees pending final approval of
Lovells' fees in this case. Lovells was thus awarded only sixty-four percent (64%) of its actual discounted fees, or $599,632.52, as opposed to the eighty percent (80%), or $749,540.65, it was entitled to receive. The Application seeks to correct this error; thus an additional $149,908.13 should be granted to Lovells in respect of compensation for services rendered during the Prior
Compensation Period.
V. GENERAL MATTERS
30. All of the professional services for which compensation is requested herein were performed by Lovells for and on behalf of the Trustee and not on behalf of any other person or entity.
31. No agreement or understanding exists between Lovells and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide Lovells with compensation for the legal services described herein.
32. This Court is authorized by SIPA to award to the attorneys for a SIPA
Trustee “reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a SIPA Trustee. Id.
33. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses
8 requested by this Application, and that this Court shall place considerable reliance on the recommendation of SIPC. SIPA § 78eee(b)(5)(C). Lovells expects that SIPC's recommendation shall be filed with this Court separately.
WHEREFORE, Lovells respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to Lovells for interim compensation of legal fees, after (a) a
reduction of 10% (in the amount of $64,549.18) and (b) a holdback of 20% (in the amount
of $116,188.52) pending final approval of Lovells' fees in this case, in the aggregate
amount of $464,754.10 for professional services rendered to the Trustee from May 1,
2009 through September 30, 2009;
c. Allowing payments to Lovells in the amount of $149,908.13 in respect of
compensation for services rendered during the Prior Compensation Period;
d. Allowing payment to Lovells in the amount of $16,613.42 for reimbursement of
expenses incurred by Lovells from May 1, 2009 through September 30, 2009; and
e. Granting Lovells such other and further relief as this Court deems just and proper.
Respectfully submitted, Dated: November 23, 2009 LOVELLS LLP
By: _____s/Christopher Grierson______
Christopher Grierson Atlantic House Holborn Viaduct London EC1A 2FG Telephone: +44 (0) 20 7296 2000 Fax: +44 (0) 20 7296 2001
9 EXHIBIT A
SUMMARY OF SECOND INTERIM FEE APPLICATION OF LOVELLS FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Grierson C. 1976 885.00 13.2 $11,682.00 Archer Q. 1981 885.00 1.2 $1,062.00 Kochberg C. 1992 885.00 260.6 $230,631.00 Richardson K. N/A 335.00 118.5 $39,697.5.00 Roberts M. 2002 755.00 444.46 $335,567.3 Arroyo, A. 2004 235.00 8.1 $1,903.50 Ditchburn, M. 2001 810.00 7.1 $5,751.00 Gomez, E. 1998 560.00 2.0 $1,120.00 Humphrey, O. N/A 290.00 3.8 $1,102.00 Keen, S. 2006 550.00 5.3 $2,915.00 Smith, A. 2009 435.00 2.1 $913.50 Papaphilippopoulos, A. 2009 335.00 2.2 $737.00 Breken, K. 1988 685.00 1.2 $822.00 Hunting, M. N/A 290.00 33.7 $9,773.00 Tager, S. 2007 550.00 3.3 $1,815.00 Total: 906.76 $645,491.80 Total minus 10% $640.68 $580,942.62 Discount Total Net of 20% $464,754.10 Holdback:
10 EXHIBIT B
EXPENSE SUMMARY OF LOVELLS FOR THE SECOND INTERIM PERIOD OF MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
EXPENSES AMOUNTS Communication $76.53 Expenses Stationary 3973.28 Courier 93.10 Counsel Fees 11,504.19 Searches 966.32 Total Expenses $16,613.42 Requested:
11
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
SECURITIES INVESTOR PROTECTION Adv. Pro. No. 08-1789 (BRL) CORPORATION,
Plaintiff-Applicant, SIPA Liquidation
v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
In re:
BERNARD L. MADOFF,
Debtor.
APPLICATION OF SCHIFFERLI VAFADAR SIVILOTTI AS SPECIAL COUNSEL TO THE TRUSTEE FOR ALLOWANCE OF INTERIM COMPENSATION FOR SERVICES RENDERED FROM MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
Schifferli Vafadar Sivilotti (“SVS”), special counsel to Irving H. Picard (the “Trustee”),
Trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC
(“BLMIS”) and Bernard L. Madoff (“Madoff”) under the Securities Investor Protection Act of
1970, 15 U.S.C. §§ 78aaa et seq. (“SIPA”), submits this Application for Interim Allowance of
Fees (the “Application”) for compensation of legal fees in the amount of $17,410.00 (of which
20% is to be deferred through the conclusion of the liquidation period) for the period from May 1,
2009 through September 30, 2009 (the “Compensation Period”). In support of the Application,
SVS respectfully submits as follows:
1 I. BACKGROUND
1. On December 15, 2008, Judge Stanton of the United States District Court for the
Southern District of New York, upon application filed on the same date by the Securities Investor
Protection Corporation (“SIPC”), entered an order (the “Decree Order”) calling for the liquidation of the business of the Debtor in accordance with SIPA and by Paragraph II of the Decree Order, the
Trustee was appointed as the trustee for the liquidation of the Debtor's business.
2. The Debtor's liquidation proceeding was removed to this Court pursuant to SIPA §
78eee(b)(4), and, to the extent consistent with the provisions of SIPA, is being conducted as though it were a case under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of title 11 of the United
States Code (the “Bankruptcy Code”) pursuant to SIPA § 78fff(b).
3. SVS was retained to served as special counsel to the Trustee on May 28, 2009.
4. On June 15, 2009, this Court entered an order approving the Trustee's motion for authority to retain SVS as special counsel to the Trustee in matters pertaining to Swiss law.
5. The Trustee's motion to retain SVS established a fee arrangement pursuant to which
SVS agreed to a fee reduction in the amount of 10%. SVS also agreed to an additional holdback of fees in the amount of 20%.
II. SERVICES RENDERED BY SVS
6. Throughout the Compensation Period, SVS has provided advice on issues of Swiss law. The legal services performed on behalf of the Trustee during the time period covered by this Application are as follows:
7. SVS was retained by the Trustee and its counsel, Baker & Hostetler LLP (“B&H”) and asked to prepare a detailed legal analysis on the applicable provisions of Swiss private international law and Swiss international debt collection and bankruptcy law in connection with the Trustee’s investigation of several Switzerland-based entities. SVS also provided legal advice
2 and recommendations in connection with the Trustee’s evaluation of potential causes of action against such entities.
8. In addition, SVS was asked to evaluate the possibility of recovery and reimbursement from entities organized in Switzerland in favor of the bankruptcy estate. These included questions on the possible recognition and enforcement of US Bankruptcy Court orders in Switzerland, the possibility of filing a lawsuit against certain entities in Switzerland under
Swiss international bankruptcy law and other potential legal remedies and causes of action available to the Trustee.
III. COMPENSATION REQUESTED
9. SVS’s Application demonstrates how SVS has both added value to the Debtor's estate and has advanced the Debtor's SIPC liquidation proceeding.
10. SVS has been mindful of the need to avoid undue legal fees in this case and has taken all reasonable steps to provide cost-effective representation while rendering services with the highest degree of skill and professionalism. To that end, SVS has staffed this matter leanly and has endeavored to eliminate duplication of effort by giving primary responsibility of the case to
Pierre Schifferli and involving other attorneys only when necessary.
11. From May 28, 2009 through July 28, 2009, SVS provided a total of 45.3 hours of legal services to the Trustee in this case. Prior to the 10% discount, the total amount of fees incurred in this time period was $19,344.44 and the total blended hourly rate for professional services was
$427.03. After the 10% discount, the total amount of fees incurred is $17,410.00 and the total blended hourly rate is $384.33. SVS has agreed to a further 20% holdback of fees in the amount of
$3,482.00 resulting in the present request for compensation in the amount of $13,928.00.
12. A breakdown of the total number of hours performed by each SVS timekeeper is provided on Exhibit A annexed hereto.
3 IV. GENERAL MATTERS
13. All of the professional services for which compensation is requested herein were performed by SVS for and on behalf of the Trustee and not on behalf of any other person or entity.
14. No agreement or understanding exists between SVS and any other person for sharing compensation received in connection with this case nor has any other person or entity agreed to provide SVS with compensation for the legal services described herein.
15. This Court is authorized by SIPA to award to the attorneys for a SIPA Trustee
“reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred.” SIPA § 78eee(b)(5)(A). SIPA also permits interim allowances to the attorneys for a SIPA Trustee. Id.
16. Pursuant to § 78eee(b)(5)(E) of SIPA, allowances granted by this Court are to be charged against the general estate as a cost of administration. If the general estate is insufficient to pay such allowances in whole, or in part, SIPC shall advance any necessary funds for such payment. SIPA § 78eee(b)(5)(E). Section 78eee(b)(5)(C) of SIPA provides that SIPC shall file a recommendation with regard to the allowance of fees and reimbursement of expenses requested by this Application, and that this Court shall place considerable reliance on the recommendation of SIPC. SIPA § 78eee(b)(5)(C). SVS expects that SIPC's recommendation shall be filed with this Court separately.
WHEREFORE, SVS respectfully requests that this Court enter an Order:
a. Granting this Application;
b. Allowing payment to SVS for interim compensation of legal fees, after (a) a reduction of 10% (in the amount of $1,934.44) and (b) a holdback of 20% (in the amount of
$3,482.00) pending final approval of SVS's fees in this case, in the aggregate amount of
4 $13,928.00 for professional services rendered to the Trustee from May 28, 2009 through July
28, 2009; and
c. Granting SVS such other and further relief as this Court deems just and proper.
Respectfully submitted, Dated: November 23, 2009 SCHIFFERLI VAFADAR SIVILOTTI
By: _____s/Pierre Schifferli______Pierre Schifferli 8 , Avenue Jules-Crosnier 1206 Geneva Switzerland Telephone: +1(41) 22 839 88 50 Fax: +1(41) 22 839 88 51 Email: [email protected]
5 EXHIBIT A
SUMMARY OF FIRST INTERIM FEE APPLICATION OF SCHIFFERLI VAFADAR SIVILOTTI FOR SERVICES RENDERED FOR THE PERIOD MAY 1, 2009 THROUGH SEPTEMBER 30, 2009
YEAR HOURLY TOTAL HOURS TOTAL ADMITTED RATE BILLED COMPENSATION Pierre Schifferli 1975 $500.00 30.1 $15,050.00 Reza Vafadar 1997 $500.00 3.3 $1,650.00 Laila Rochat Trainee $222.22 7 $1,555.55 Gregory Lachat Trainee $222.22 4.8 $1,066.67 Philippe Angelozzi Trainee $222.22 .1 $22.22 Total: 45.3 $19,344.44 Total minus 10% $384.33 $17,410.00 Discount Total Net of 20% $13,928.00 Holdback:
6