Source: https://www.scribd.com/document/45218892/Picard-vs-Daniel-Bonventre
Timestamp: 2018-03-18 23:56:30
Document Index: 495161751

Matched Legal Cases: ['§ 78', '§ 78', '§270', '§ 1334', '§ 78', '§ 157', '§ 1409', '§ 78', '§ 78', '§ 78', '§78', '§\n78', '§78', '§ 78', '§ 78', '§ 78', '§ 220', '§ 78', '§ 548', '§ 548', '§ 78', '§ 276', '§ 544', '§ 273', '§ 544', '§274', '§ 544', '§ 275', '§ 544', '§ 276', '§ 544', '§ 273', '§ 544', '§ 542', '§\n78', '§78', '§ 78', '§ 78']

Picard vs Daniel Bonventre | Bernard Madoff | Bankruptcy In The United States
Description: Madoff bankruptcy trustee, Irving Picard, files $13 millin lawsuit against former Madoff employee, Daniel Bonventre. Provides details about Bonventre's participation in the fraud.
Madoff bankruptcy trustee, Irving Picard, files $13 millin lawsuit against former Madoff employee, Daniel Bonventre. Provides details about Bonventre's participation in the fraud.
-4201 David J. Sheehan Keith R. Murphy Geraldine E. Ponto 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, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. DANIEL BONVENTRE and BARBARA BONVENTRE, Defendants. Adv. Pro. No. 10-_______ (BRL) Adv. Pro. No. 08-01789 (BRL) SIPA LIQUIDATION (Substantively Consolidated)
COMPLAINT Irving H. Picard, Esq. (the “Trustee”), as trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”), under the Securities Investor Protection Act, §§ 78aaa, et seq. (“SIPA”),1 and the substantively consolidated estate of Bernard L. Madoff individually (“Madoff”), by and through his undersigned counsel, for his Complaint, states as follows: INTRODUCTION 1. This adversary proceeding arises from the massive Ponzi scheme perpetrated by
Bernard L. Madoff (“Madoff”). Over the course of the scheme, there were more than 8,000 client accounts at BLMIS. In early December 2008, BLMIS generated client account statements for its approximately 4,900 open client accounts at BLMIS. When added together, these statements purportedly show that clients of BLMIS had approximately $65 billion invested with BLMIS. In reality, BLMIS had assets on hand worth a small fraction of that amount. On March 12, 2009, Madoff admitted to the fraudulent scheme and pled guilty to 11 felony counts, and was sentenced on June 29, 2009 to 150 years in prison. Daniel Bonventre (“Bonventre”), who actively participated in the Ponzi scheme, and his wife Barbara Bonventre (“Barbara,” “Subsequent Transferee Defendant,” and together with Bonventre, “Defendants”), received avoidable transfers from BLMIS. 2. Bonventre knowingly participated in the Ponzi scheme. He was an employee of
BLMIS from 1968 through December 2008. Prior to starting at BLMIS, he worked as an auditor for a bank. He also studied for and received an associates degree in accounting. Using his experience as an auditor and knowledge of accounting, Bonventre worked at BLMIS, spending
the vast majority of his time there as the Head of Operations, a position through which he reviewed and manipulated the accounting books of BLMIS. 3. Bonventre was a critical player in the operation of the Ponzi scheme. He was
intimately involved in the internal operations of BLMIS, overseeing the “back office” operations which included maintaining the general ledger of BLMIS, supervising the market making and proprietary trading operations (“House 5”), and reconciling the related books and records of BLMIS which included House 5 and the BLMIS Investment Advisory (“IA”) business (“IA Business”). Upon information and belief, Bonventre was instrumental in preparing false or misleading information to be included in Financial and Operations Combined Uniform Single Reports (“FOCUS reports”) submitted to the Securities and Exchange Commission (“SEC”) and acted as an authorized signatory for BLMIS in its business relationships with certain banks and the Depository Trust & Clearing Corporation (“DTCC”). Bonventre oversaw the recording of the cash flow of BLMIS and was keenly aware that IA customers’ money was being used to fund BLMIS operations so that House 5 would appear to be running at a profit when in reality, it operated at a loss for many years. 4. Bonventre orchestrated the use of IA customer property to serve as collateral in
obtaining two loans that were required to sustain the Ponzi scheme through a major cash crisis which occurred from October 2005 through June 2006. He hid those loans through fraudulent accounting practices as new IA customer money was funneled into the Ponzi scheme. 5. Bonventre also took full advantage of the Ponzi scheme including the withdrawal of
substantial funds through backdated purported trades - backdated as far as twelve years earlier that provided astronomical gains in Defendants’ IA account no. 1B0053 (“IA Account”) where little to no trading activity was purported to have occurred. Additionally, Defendants received
the benefit of multiple fraudulent account “corrections” that removed reported negative or “margin” balances. Defendants were virtually never charged margin interest on their IA Account. Even if Bonventre had not been personally involved in the fraud at BLMIS, the activity in Defendants’ IA Account should have put someone with Bonventre’s background on notice of fraudulent activity; however, Bonventre was well aware of, and involved in, the fraud that was being perpetrated by Madoff. 6. Bonventre was rewarded handsomely for his efforts. In fact, both he and Barbara
reaped millions of dollars in the form of IA Account withdrawals, direct payments from BLMIS, and salary and bonuses. The Trustee’s investigation has revealed that since January 1983, Defendants received at least $12,646,062 from BLMIS which consisted of: a. $3,386,833 in funds withdrawn from Defendants’ IA Account over the entire life of the account; b. $7,439,963 in salary paid (going back to 1993, the earliest date for which the trustee has salary information); c. $1,396,674 in bonus money paid (again, going back to 1993); and d. $422,592 in unexplained payments from a BLMIS bank account typically used by BLMIS to pay vendors (“Vendor Payments”). Through this action, the Trustee seeks a judgment in the aggregate amount of at least $12,646,062 against Defendants, resulting from the fraudulent transfers that they received over the years from BLMIS and for Bonventre’s tortious conduct that facilitated the fraud. NATURE OF PROCEEDING 7. This adversary proceeding is brought pursuant to §§ 78fff(b), 78fff-1(a) and 78fff-
2(c)(3), sections 105(a), 542, 544, 548(a), 550(a) and 551 of title 11 of the United States Code (the “Bankruptcy Code”), the New York Fraudulent Conveyance Act (New York Debtor & Creditor Law §270 et seq. (McKinney 2001) (“DCL”)) and other applicable law, for among other
things, turnover and accounting, avoidance of fraudulent conveyances, and disallowance of claims in connection with certain transfers of property by BLMIS to or for the benefit of Defendants. 8. Defendants were beneficiaries of this Ponzi scheme. Prior to the Filing Date,
BLMIS made payments or other transfers (collectively, the “Transfers”) directly or indirectly to Defendants totaling the amount of at least $12,646,062. Through this action, the Trustee seeks to set aside such transfers and preserve and recover the property for the benefit of BLMIS’ defrauded customers. JURISDICTION AND VENUE 9. This is an adversary proceeding commenced before the same Court before which the
main underlying SIPA proceeding, No. 08-01789 (BRL) (the “SIPA Proceeding”,) is pending. The SIPA Proceeding was originally brought in the United States District Court for the Southern District of New York as Securities Exchange Commission v. Bernard L. Madoff Investment Securities LLC et al., No. 08 CV 10791 (the “District Court Proceeding”) and has been referred to this Court. This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and §§ 78eee(b)(2)(A), (b)(4) of SIPA. 10. 11. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), (H) and (O). Venue in this district is proper under 28 U.S.C. § 1409. DEFENDANTS 12. Upon information and belief, Defendant Daniel Bonventre maintains his residence
in New York, New York 10075. Bonventre has been closely associated with Madoff as one of his long term, trusted employees for more than 40 years. Defendants held their IA Account in the names “Daniel Bonventre and Barbara Bonventre J/T,” with an account address in New York, New York 10075. Bonventre controlled the decision making over the IA Account. Two -5-
actions are currently pending against Bonventre for his involvement with BLMIS: SEC v. Bonventre, No. 10-CV-01576 (LLS) (S.D.N.Y. February 25, 2010), and United States v. Bonventre, No. 10-CR-0228 (LTS) (S.D.N.Y. March 24, 2010). 13. Defendant Barbara Bonventre is married to Daniel Bonventre. She also maintains
her residence in New York, New York 10075. Barbara Bonventre is listed as a joint tenant on Defendants’ IA Account. She is both an initial and Subsequent Transferee of BLMIS customer funds as set forth herein. BACKGROUND, THE TRUSTEE AND STANDING 14. On December 11, 2008 (the “Filing Date”),2 Madoff was arrested by federal agents
for violation of the criminal securities laws, including, inter alia, securities fraud, investment adviser fraud, and mail and wire fraud. Contemporaneously, the SEC filed a complaint in the District Court which commenced the District Court Proceeding against Madoff and BLMIS. The District Court Proceeding remains pending in the District Court. The SEC complaint alleged that Madoff and BLMIS engaged in fraud through the investment advisor activities of BLMIS. 15. On December 12, 2008, The Honorable Louis L. Stanton of the District Court
entered an order appointing Lee S. Richards, Esq. as receiver for the assets of BLMIS. 16. On December 15, 2008, pursuant to § 78eee(a)(4)(A) of SIPA, the SEC consented to
a combination of its own action with an application of the Securities Investor Protection Corporation (“SIPC”). Thereafter, pursuant to § 78eee(a)(4)(B) of SIPA, SIPC filed an application in the District Court alleging, inter alia, that BLMIS was not able to meet its
Section 78lll(7)(B) of SIPA states that the filing date is “the date on which an application for a protective decree is filed under 78eee(a)(3),” except 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.” § 78lll(7)(B). Thus, even though the application for a protective decree was filed on December 15, 2008, the Filing Date in this action is December 11, 2008.
obligations to securities customers as they came due and, accordingly, its customers needed the protections afforded by SIPA. 17. Also on December 15, 2008, Judge Stanton granted the SIPC application and
to §78eee(b)(3) of SIPA; b. appointed Baker & Hostetler LLP as counsel to the Trustee pursuant to §
78eee(b)(3) of SIPA; and c. SIPA. By this Protective Decree, the Receiver was removed as Receiver for BLMIS. 18. By orders dated December 23, 2008 and February 4, 2009, respectively, the removed the case to this Bankruptcy Court pursuant to §78eee(b)(4) of
Bankruptcy Court approved the Trustee’s bond and found that the Trustee was a disinterested person. Accordingly, the Trustee is duly qualified to serve and act on behalf of the estate of BLMIS. 19. At a Plea Hearing on March 12, 2009 in the case captioned United States v. Madoff,
Case No. 09-CR-213(DC), Madoff pled guilty to an eleven-count criminal information filed against him by the United States Attorneys’ Office for the Southern District of New York. At the Plea Hearing, Madoff admitted that he “operated a Ponzi scheme through the investment advisory side of [BLMIS].” See Plea Allocution of Bernard L. Madoff at 23, United States v. Madoff, No. 09-CR-213 (DC) (S.D.N.Y. March 12, 2009) (Docket No. 50). Additionally, Madoff asserted “[a]s I engaged in my fraud, I knew what I was doing [was] wrong, indeed criminal.” Id. Madoff was sentenced on June 29, 2009 to 150 years in prison.
On August 11, 2009, a former BLMIS employee, Frank DiPascali (“DiPascali”),
pled guilty to participating and conspiring to perpetuate the Ponzi scheme. At a Plea Hearing on August 11, 2009 in the case entitled United States v. DiPascali, Case No. 09-CR-764 (RJS), DiPascali pled guilty to a ten-count criminal information. Among other things, DiPascali admitted that the fictitious scheme had begun at BLMIS since at least the 1980s. See Plea Allocution of Frank DiPascali at 46, United States v. DiPascali, No. 09-CR-764 (RJS) (S.D.N.Y. August 11, 2009) (Docket No. 11). 21. As the Trustee appointed under SIPA, the Trustee has the job of recovering and
paying out customer property to BLMIS’ customers, assessing claims, and liquidating any other assets of the firm for the benefit of the estate and its creditors. The Trustee is in the process of marshalling BLMIS’ assets, and the liquidation of BLMIS’ assets is well underway. Such assets, however, will be insufficient to reimburse the customers of BLMIS for the billions of dollars that they invested with BLMIS over the years. The Trustee must use his authority under SIPA and the Bankruptcy Code to pursue recovery from, among others: (i) those persons who helped Madoff perpetrate his Ponzi scheme; (ii) those persons who were paid to knowingly help Madoff perpetrate his Ponzi scheme; and (iii) BLMIS “customers” who received preferences and/or payouts of fictitious profits to the detriment of other defrauded customers whose money was consumed by the Ponzi scheme. Absent this or other recovery actions, the Trustee will be unable to satisfy the claims described in subparagraphs (A) through (D) of § 78fff-2(c)(1). 22. Pursuant to section 78fff-1(a), the Trustee has the general powers of a bankruptcy
trustee in a case under the Bankruptcy Code in addition to the powers granted by SIPA pursuant to section 78fff-1(b). Pursuant to section 78fff(b) chapters 1, 3, 5 and subchapters I and II of chapter 7 of the Bankruptcy Code are applicable to this case.
Pursuant to section 78fff(b) and 78lll(7)(B) of SIPA, the Filing Date is deemed to be
the date of the filing of the petition within the meaning of section 548 of the Bankruptcy Code and the date of the commencement of the case within the meaning of section 544 of the Bankruptcy Code. 24. The Trustee has standing to bring these claims pursuant to section 78fff-1 of SIPA
and the Bankruptcy Code, including sections 323(b) and 704(a)(1), because, among other reasons: a. Defendants received “customer property” as defined in § 78lll(4); b. BLMIS incurred losses as a result of the claims set forth herein; c. BLMIS’ customers were injured as a result of the conduct detailed herein; d. SIPC cannot by statute advance funds to the Trustee to fully reimburse all customers for all of their losses; e. the Trustee will not be able to fully satisfy all claims; f. the Trustee, as bailee of customer property, can sue on behalf of customer bailors; g. the Trustee is the assignee of claims paid, and to be paid, to customers of BLMIS who have filed claims in the liquidation proceeding (such claim-filing customers, collectively, “Accountholders”). As of the date hereof, the Trustee has received multiple express unconditional assignments of the applicable Accountholders’ causes of action, which actions could have been asserted against Defendants. As assignee, the Trustee stands in the shoes of persons who have suffered injury in fact and a distinct and palpable loss for which the Trustee is entitled to reimbursement in the form of monetary damages. The Trustee brings this action on
behalf of, among others, those defrauded customers of BLMIS who invested more money in BLMIS than they withdrew; and h. SIPC is the subrogee of claims paid, and to be paid, to customers of BLMIS who have filed claims in the liquidation proceeding. SIPC has expressly conferred upon the Trustee enforcement of its rights of subrogation with respect to payments it has made and is making to customers of BLMIS from SIPC funds. THE FRAUDULENT PONZI SCHEME 25. Founded in 1959, BLMIS began operations as a sole proprietorship of Madoff and
later, effective January 2001, it became a New York limited liability company wholly owned by Madoff. BLMIS operated from its principal place of business at 885 Third Avenue, New York, New York from 1987 to 2008. Madoff, as founder, chairman, and chief executive officer, ran BLMIS together with several family members and a number of additional employees. BLMIS was registered with the SEC as a securities broker-dealer under Section 15(b) of the Securities Exchange Act of 1934, § 78o(b). By that registration, BLMIS is a member of SIPC. BLMIS had three business units: the IA Business, market making and proprietary trading. 26. For certain accounts in the IA Business, BLMIS purported to participate in a capital
appreciation/depreciation strategy, depending on whether the customer sought to generate gains or losses. For example, the strategy was executed by either purporting to purchase small groups of securities near lows and then purporting to sell those same securities near highs, or by purporting to short-sell securities near highs and then purporting to repurchase those securities near lows. 27. For other accounts, Madoff described the IA Business’ investment strategy as a
“split-strike conversion” strategy. Madoff promised these clients that their funds would be invested in a basket of common stocks within the S&P 100 Index, which is a collection of the - 10 -
100 largest U.S. publicly traded companies. The basket of stocks would be intended to mimic the movement of the S&P 100 Index. Madoff asserted that he would carefully time purchases and sales to maximize value, but this meant that the clients’ funds would intermittently be out of the market, at which times they would purportedly be invested in U.S. issued securities and money market funds. The second part of the split-strike conversion strategy was the hedge of such purchases with option contracts. Madoff purported to purchase and sell S&P 100 Index option contracts that closely corresponded with the stocks in the basket, thereby controlling the downside risk of price changes in the basket of stocks. 28. Although clients of the IA Business received monthly or quarterly statements
purportedly showing the securities that were held in – or had been traded through – their accounts, as well as the growth of and profit from those accounts over time, the trades reported on these statements were a complete fabrication. The security purchases and sales depicted in the account statements virtually never occurred and the profits reported were entirely fictitious. At his Plea Hearing, Madoff admitted that he never in fact purchased any of the securities he claimed to have purchased for customer accounts. See Madoff Plea Allocution, at 25. Indeed, based on the Trustee’s investigation to date and with the exception of isolated individual trades for certain clients other than the Defendants, there is no record of BLMIS having cleared any purchase or sale of securities on behalf of the IA Business at the Depository Trust & Clearing Corporation, the clearing house for such transactions, or any other trading platform on which BLMIS could have reasonably traded securities. 29. Prior to his arrest, Madoff assured clients and regulators that he conducted all trades
on the over-the-counter market after hours. To bolster that lie, Madoff periodically wired hundreds of millions of dollars in the aggregate from the bank accounts of its IA Business to
BLMIS’s affiliate, Madoff Securities International Ltd. (“MSIL”), a London based entity substantially owned by Madoff and his family. There are no records that MSIL ever used the wired funds to purchase securities for the accounts of the IA Business clients. In fact, MSIL wired hundreds of millions of dollars back into the bank accounts of BLMIS’s purportedly legitimate proprietary trading and market making businesses to allegedly record revenues3 related to the purported trades in Europe. 30. Additionally, based on the Trustee’s investigation to date, there is no evidence that
BLMIS ever purchased or sold any of the options that Madoff claimed on customer statements to have transacted. 31. For all periods relevant hereto, the IA Business was operated as a Ponzi scheme and
Madoff and his co-conspirators concealed the ongoing fraud in an effort to hinder and delay other current and prospective customers of BLMIS from discovering the fraud. The money received from investors was not set aside to buy securities as purported, but instead was primarily used to make the distributions to – or payments on behalf of – other investors. The money sent to BLMIS for investment, in short, was simply used to keep the operation going and to enrich Madoff, his associates and co-conspirators, including Defendants, until such time as the requests for redemptions in December 2008 overwhelmed the flow of new investments and caused the inevitable collapse of the Ponzi scheme. 32. During the scheme, certain investors requested and received distributions of the
“profits” listed for their accounts that were nothing more than fictitious profits. Other investors, from time to time, redeemed or closed their accounts, or removed portions of the purportedly
BLMIS began wiring funds to MSIL in June 2005 for purposes of having an element of those funds returned and recorded as revenues by BLMIS. MSIL would record incoming funds as the sale of Treasury Bills and the outgoing funds as the purchase of Treasury Bills.
available funds, and were paid consistently with the statements they had been receiving. Some of those investors later re-invested part or all of those withdrawn payments with BLMIS. 33. When payments were made to or on behalf of these investors, including Defendants,
the falsified monthly statements of accounts reported that the accounts of such investors included substantial gains. In reality, BLMIS had not invested the investors’ principal as reflected in customer statements. In an attempt to conceal the ongoing fraud and thereby hinder, delay, or defraud other current and prospective investors, BLMIS paid to or on behalf of certain investors, such as Defendants, the inflated amounts reflected in the falsified financial statements. 34. BLMIS used the funds deposited from new investments to continue operations and
pay redemption proceeds to or on behalf of other investors and to make other transfers. Due to the siphoning and diversion of new investments to fund redemptions requested by other investors, BLMIS did not have the funds to pay investors on account of their new investments. BLMIS was able to stay afloat only by using the principal invested by some clients to pay other investors or their designees. 35. In an effort to hinder, delay or defraud authorities from detecting the fraud, BLMIS
did not register as an Investment Advisor until August 2006 and only then because they were required to do so as the result of an SEC investigation. 36. In or about January 2008, BLMIS filed with the SEC an amended Uniform
Application for Investment Adviser Registration. The application represented, inter alia, that BLMIS had 23 customer accounts and assets under management of approximately $17.1 billion. In fact, in January 2008, BLMIS had approximately 4,900 active client accounts with a purported value of approximately $68 billion under management.
“prepared” by Friehling & Horowitz, a three-person accounting firm in Rockland County, New York. Of the two accountants at the firm, one was retired and living in Florida for many years prior to the Filing Date. 38. At all times relevant hereto, the liabilities of BLMIS were billions of dollars greater
than the assets of BLMIS. At all relevant times, BLMIS was insolvent in that (i) the fair value of its assets were worth less than its liabilities; (ii) it could not meet its obligations as they came due; and (iii) at the time of the transfers, BLMIS was left with insufficient capital. Bonventre’s Involvement in the Fraudulent Scheme 39. Bonventre worked at BLMIS for over 40 years. As the Head of Operations,
Bonventre had intimate knowledge of and high level involvement in the fraudulent scheme. 40. Bonventre had access to and oversaw the flow of money through BLMIS including
the market making and proprietary trading operations and the IA accounts. It was his job to maintain and supervise employees, such as Enrica Cotellessa-Pitz (“Pitz”) who worked in the accounting department. Bonventre knew that IA customer moneys that came into BLMIS were deposited into and redemption requests were drawn from bank accounts controlled by BLMIS, including the IA business’ operating bank account at JPMorgan Chase & Co., Account # xxxxxxxxxxx1703 (“IA Bank Account”) and JPMorgan Chase & Co.,, Account # xxxxxxxxxxxx509 (together with the IA Bank Account, the “IA Bank Accounts”). He also oversaw a separate bank account at the Bank of New York that was used to fund the market making and proprietary trading operations of BLMIS (“House 5 Bank Account”). 41. Bonventre facilitated the transfer of IA customer funds into the House 5 Bank
Account and improperly accounted for those funds as revenue in the general ledger. Without
these transfers of IA funds, House 5 would have been operating at a loss during many years. For example, from fiscal year 2002 to 2008, more than $600 million was transferred from the IA Business to artificially improve revenues and net income of the House 5 business. Some IA funds were provided directly by checks drawn on the IA Bank Accounts. Other funds were provided indirectly. The indirect funds were wired from the IA Bank Account to domestic brokerage accounts in the name of BLMIS or Madoff (these domestic brokerage accounts were not recorded in the books and records of House 5) and, beginning in June 2005, were wired from the IA Bank Account to a MSIL bank account. Subsequently, money was wired from these various accounts to the House 5 Bank Account. Upon information and belief, Pitz tracked these amounts on stationery note pads referring to them as “Walter’s Int[erest]” for direct payments and “$ from Frank [DiPascali]” for indirect payments, referring to Walter Tiletnick and DiPascali, two employees Bonventre knew worked in the IA Business. Bonventre knew of this process. From at least fiscal year 2002 to 2006, the transactions were primarily recorded under Bonventre’s supervision as trading revenue. As trading revenue, they were recorded to the trading subledger in a variety of ways including the utilization of House 5 accounts that were only accessible by House 5 managers including Bonventre. Beginning in September 2006, after BLMIS registered as an investment advisor, the funds from the IA Business were recorded as Commission revenue in the general ledger and the FOCUS reports. 42. From approximately October 2005 through June 2006, the IA Business experienced
a liquidity crisis that threatened to reveal the Ponzi scheme, but the crisis was averted with Bonventre’s help. Approximately $262 million of IA redemptions were made through the House 5 Bank Account and recorded inappropriately as purchases of government obligation investments. Separately, Bonventre also secured two loans from JPMorgan Chase & Co. (“the
“JPMC Loans”) inappropriately using IA customer-contributed securities as collateral ($95 million of loans, collateralized by $100 million of securities during November 2005 and $50 million of loans collateralized by $64 million of securities during January 2006). Bonventre, with the assistance of Pitz, then concealed the JPMC Loans within the books and records of BLMIS by manipulating the balance of an existing line of credit with the Bank of New York. a. Because BLMIS was one legal entity, the collateral and loan activity of the
IA Business should have appeared on the FOCUS Reports. Notwithstanding the rules, as of December 31, 2005, the FOCUS Report that Bonventre, through Pitz, filed, failed to report the $95 million of bank debt or the FHLB securities that were used as collateral. b. Bonventre and Pitz, by accounting for the draw-downs of an existing Bank
of New York (“BONY”) line of credit and having full knowledge of the amount due on the JPMC Loans, should have been aware that the line of credit was being manipulated to a balance such that it would hide the existence of the JPMC Loans. As of March 31, 2006, the FOCUS Report filed by BLMIS included $145 million of bank debt. This debt, however, was separate and apart from the JPMC Loans; the $145 million amount reported on the FOCUS Report related to the separate line of credit with BONY. As of March 31, 2006, BLMIS’ opening general ledger balance for the BONY line of credit totaled $35.5 million. On March 31, however, BLMIS borrowed an additional $109.5 million, to arrive at a loan balance of $145 million. This additional loan appears to have been an attempt to conceal the true liabilities of BLMIS, as both BONY and JPMorgan Chase & Co. would likely not inquire further in light of the $145 million in bank debt on the FOCUS Report.
As Bonventre was instrumental in obtaining the JPMC Loans, he was aware
that IA customer assets were being used to collateralize the loans which were not recorded on the general ledger or in the FOCUS reports of BLMIS. 43. Upon information and belief, during his career Bonventre acted as an authorized
signatory for BLMIS with the DTCC, the entity through which the securities purchased through BLMIS in its House 5 and IA customer accounts, if any securities had been purchased, would have been custodied. As the Head of Operations, Bonventre knew that BLMIS had only one DTCC clearing account. In his capacity as an authorized signatory, Bonventre also knew that the volume of securities reflected by DTCC was impossibly small given the amount of cash and purported transactions on the IA side of the business. Bonventre knew that there were no expenses for other firms clearing securities on the BLMIS ledger, and thus that BLMIS was not in fact purchasing securities for its IA customers. Bonventre’s Fraudulent IA Account Activity 44. Defendants knew or should have known that fictitious and backdated trading
activity was being reported in Defendants’ IA Account and that Defendants’ IA Account reflected fictitious holdings. Indeed, Defendants’ IA Account showed fraudulent backdated activity as far back as twelve years prior to the creation of the purported trades, and there were only three purported equity transactions recorded in the IA Account from at least December 1995 to April 2006, all of which were backdated, including: a. The November 2002 customer statement for Defendants’ IA Account
contains a purchase of Big Lots shares, backdated twelve years to January 1990 (which settled in February 1990) and a sale of these corresponding shares, backdated to September 2002 (which settled in October 2002), generating a long term capital gain of $999,375. This gain, resulting
from the sole purported equity trading activity in the IA Account since at least 1995, represented a 2,216% rate of return for 2002. Bonventre withdrew the exact amount of the gain that was generated, $999,375, on November 12, 2002. Based on BLMIS records, these backdated trades were recorded into the trading system approximately one week after Bonventre had withdrawn the exact amount of the gain from the decade long backdated transaction. Upon information and belief, these trades were reverse-engineered to paper over Bonventre’s withdrawal. b. The July 2004 customer statement for Defendants’ IA Account contains
purported purchases of 157,000 shares of Lucent Technologies, backdated to March 2003, and sales of these same shares backdated to April 2004, generating a long term capital gain of $399,810. This gain, resulting from the sole purported trading activity in the IA Account during 2004, represented a 1,179% rate of return for that year. Bonventre subsequently withdrew these funds in a capital withdrawal of $400,000 on May 25, 2005. c. The March 2006 customer statement for Defendants’ IA Account contains
a purported trade backdated to January 2005 for the purchase of 8,000 shares of Apple. The March 2006 account statement contains a backdated stock split corresponding to a 2-for-1 split that occurred in 2005, which further indicates the backdated nature of the transaction. The corresponding sale of 16,000 shares (split adjusted) in March 2006 resulted in a $479,200 long term capital gain. This gain, resulting from the sole purported trading activity in the IA Account during 2006, represented a 205% rate of return for that year. Bonventre subsequently withdrew these funds in a capital withdrawal of $577,955 on April 6, 2006. 45. Additionally, Defendants received the benefit of multiple fraudulent account
“corrections” that removed reported negative or “margin” balances. Given his experience, Bonventre was or should have been aware of the margin restrictions imposed by Federal Reserve
Board Regulation T, 12 CFR § 220 (“Regulation T”), and by the National Association of Securities Dealers (“NASD”) and then later the Financial Industry Regulatory Authority (“FINRA”). Regulation T requires an investor to provide at least 50% of the equity in the purchase of new securities in a margin account. In connection with short sales, Regulation T requires an investor to provide, above and beyond the actual sale proceeds, equity totaling at least 50% of the proceeds. The margin maintenance restrictions imposed by NASD, and later FINRA, mandate that an investor’s own equity in his or her margin account cannot drop below 25% or, put differently, an investor’s margin balance cannot exceed 75%. Contrary to this, between June 1987 and June 2006, Defendants’ account had less than 25% minimum equity, as required by FINRA (or its predecessor), and was therefore margined over 75% for at least 150 months (the equivalent of over twelve years including every month from June 1987 through March 2000). Brokerage firms routinely issue margin calls to investors when the equity in the account falls below 25% (margin balance exceeds 75%) of the market value of securities. This practice was never applied to Defendants’ account. Further, while accounts are below the 25% minimum equity threshold, a minimum of 50% equity is required on all new stock purchases. On two separate occasions, while Defendants’ account was in an over-margined position, the account made a purported purchase of shares entirely on margin. Defendants were virtually never charged margin interest on their IA Account. Defendants never signed a proper margin account agreement, necessary to open a margin account. Since proper documents were not executed in order to open a margin account, by default the margin activity was actually conducted in a cash account, within which borrowing was not permitted. Based on his experience, Bonventre knew this account activity was fraudulent.
In April 2006, in the midst of the liquidity crisis, Bonventre closed Defendants’ IA
Account. When interviewed by investigators following the public disclosure of the fraud in December 2008, Bonventre stated that he closed the account because he was “queasy” about the funds since the returns were consistently good. Two other former BLMIS employees, George Perez (“Perez”) and Jerome O’Hara (“O’Hara”), also closed their respective IA accounts in April 2006. Upon information and belief, these were the employees who were instrumental in creating the computer programs that BLMIS used to prepare false books and records. Perez and O’Hara closed their accounts before informing Madoff that they would no longer participate in the fraud. Bonventre’s redemption check was issued on April 6, 2006, the very same day that Perez and O’Hara were issued their redemption checks. All five checks were issued in sequential order. Upon information and belief, Bonventre, as an inside employee who knew the Ponzi scheme was in a severe liquidity crisis and in grave danger of immediate collapse, closed his IA Account to maximize his own profits by misappropriating customer money before it was too late. 47. When Bonventre closed the IA Account, the account was left in a margin position of
$116,945. This negative balance was removed on June 5, 2006, by an unusual journal entry for $116,945 which increased the account balance to zero. The account was closed after that adjustment. This was not the first time a fraudulent journal entry took Defendants’ IA Account out of a margin balance. In April 2000, Defendants’ account was in a heavily margined position. The account was taken out of its over-margined position by the use of a balance adjustment of $770,000 that brought it to a credit balance of $382,000. That balance adjustment does not correspond to any purported trading activity. Based on Bonventre’s institutional knowledge, he knew these types of adjustments were fraudulent, and that the books and records of BLMIS were
routinely falsified to deflect the scrutiny of regulators, conceal the Ponzi scheme and maximize the returns of corrupt insiders like himself. THE TRANSFERS 48. According to BLMIS’ records, Defendants maintained their IA Account with
BLMIS set forth on Exhibit A. Actions on the IA Account were to be performed in New York, New York through securities trading activities that would take place in New York, New York. The IA Account was held in New York, New York, and Defendants sent funds to BLMIS and/or to BLMIS’ IA Bank Account in New York, New York for application to the IA Account and the conducting of trading activities. Between January 1983 and the Filing Date, Defendants made deposits to BLMIS through checks and/or wire transfers into bank accounts controlled by BLMIS, including the IA Bank Account and/or received inter-account transfers from other BLMIS accounts. 49. Prior to the Filing Date, BLMIS made payments or other transfers (collectively,
the “Transfers”) directly or indirectly to Defendants totaling the amount of at least $12,646,062. Under the circumstances set forth above, the Defendants knew of the fraud at BLMIS, that BLMIS was insolvent, and/or that the Transfers were made for a fraudulent purpose, or at the very least, Defendants were on inquiry notice of the same. The Transfers consisted of: $3,386,833 in funds withdrawn from Defendants’ IA Account over the entire life of the account, $7,439,963 in salary paid (going back to 1993, the earliest date for which the trustee has salary information), $1,396,674 in bonus money paid (again, going back to 1993), and $422,592 in unexplained Vendor Payments from BLMIS. The Transfers were directly or indirectly made to the Defendants and include, but are not limited to, the Transfers listed on Exhibit B. Through this action, the Trustee seeks a judgment in the aggregate amount of at least $12,646,062 against
Defendants. The Transfers that were directly or indirectly made to or for the benefit of Crupi and/or Bowen in the form of withdrawals from BLMIS accounts include, but are not limited to, the Transfers listed on Exhibit B. 50. The Transfers are avoidable and recoverable under sections 544, 548, 550(a) and
551 of the Bankruptcy Code, applicable provisions of SIPA, particularly SIPA section 78fff2(c)(3), and applicable provisions of N.Y. CPLR 203(g) and 213(8) (McKinney 2001) and DCL sections 273-279 (McKinney 2001). 51. Of the Transfers, BLMIS made payments to Defendants of at least $7,143,254
during the six years prior to the Filing Date (the “Six Year Transfers”) which are avoidable and recoverable under sections 544, 550(a) and 551 of the Bankruptcy Code, applicable provisions of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of DCL sections 273 – 279. Of these Six Year Transfers, (a) $1,177,955 was in the form of withdrawals from the BLMIS IA Account in the name of Defendants; (b) $5,641,679 was in the form of salary and/or bonus payments made by BLMIS to Bonventre in return for his active participation in and administration of the fraudulent scheme; and (c) $323,620 resulted from Vendor Payments to Bonventre by BLMIS for the benefit of Defendants. 52. Of the Six Year Transfers, BLMIS made payments to Defendants of at least
$2,567,736 (the “Two Year Transfers”) during the two years prior to the Filing Date, which are avoidable and recoverable under sections 544, 550(a) and 551 of the Bankruptcy Code and applicable provisions of SIPA, particularly SIPA section 78fff-2(c)(3). Of these Two Year Transfers, (a) $2,422,736 was in the form of salary and/or bonus payments made by BLMIS to Bonventre in return for his active participation in and administration of the fraudulent scheme;
and (b) $145,000 resulted from Vendor Payments to Bonventre by BLMIS for the benefit of Defendants. 53. Upon information and belief, some of the transfers were subsequently transferred by
Bonventre to, or for the benefit of, the Subsequent Transferee Defendant (the “Subsequent Transfers”). The Subsequent Transfers, or the value thereof, are recoverable from Subsequent Transferee Defendant pursuant to section 550(a) of the Bankruptcy Code. 54. To the extent that any of the recovery counts may be inconsistent with each other,
they are to be treated as being pled in the alternative. 55. The Trustee’s investigation is ongoing and the Trustee reserves the right to (i)
supplement the information regarding the Transfers, the Subsequent Transfers and any additional transfers, and (ii) seek recovery of such additional transfers. COUNT ONE ACTUAL FRAUD UNDER FEDERAL LAW FRAUDULENT TRANSFER – 11 U.S.C. §§ 548(a)(1)(A), 550 AND 551 56. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 57. Each of the Two Year Transfers was made on or within two years before the filing
date of BLMIS’ case. 58. Each of the Two Year Transfers constituted a transfer of an interest of BLMIS in
property within the meaning of sections 101(54) and 548(a) of the Bankruptcy Code and pursuant to section 78fff-2(c)(3) of SIPA. 59. Each of the Two Year Transfers was made by BLMIS with the actual intent to
hinder, delay, or defraud some or all of BLMIS’ then existing or future creditors. 60. Each of the Two Year Transfers constitutes a fraudulent transfer avoidable by the
Trustee pursuant to section 548(a)(1)(A) of the Bankruptcy Code and recoverable from the
Defendants pursuant to section 550(a) of the Bankruptcy Code and section 78fff-(2)(c)(3) of SIPA. 61. As a result of the foregoing, pursuant to sections 548(a)(1)(A), 550(a), and 551 of
the Bankruptcy Code, the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Two Year Transfers, (b) directing that the Two Year Transfers be set aside, and (c) recovering the Two Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS. COUNT TWO CONSTRUCTIVE FRAUD UNDER FEDERAL LAW FRAUDULENT TRANSFER – 11 U.S.C. §§ 548(a)(1)(B), 550 AND 551 62. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 63. Date. 64. Each of the Two Year Transfers constitutes a transfer of an interest of BLMIS in Each of the Two Year Transfers was made on or within two years before the Filing
property within the meaning of sections 101(54) and 548(a) of the Bankruptcy Code and pursuant to § 78fff-2(c)(3). 65. BLMIS received less than a reasonably equivalent value in exchange for each of the
insolvent as a result of the Two Year Transfer in question. 67. At the time of each of the Two Year Transfers, BLMIS was engaged in a business
or a transaction, or was about to engage in a business or a transaction, for which any property remaining with BLMIS was an unreasonably small capital.
believed that it would incur, debts that would be beyond BLMIS’ ability to pay as such debts matured. 69. Each of the Two Year Transfers constituted fraudulent transfers avoidable by the
Trustee pursuant to section 548(a)(1)(B) of the Bankruptcy Code and recoverable from the Defendants pursuant to section 550(a) and section 78fff-(2)(c)(3) of SIPA. 70. As a result of the foregoing, pursuant to sections 548(a)(1)(B), 550(a), and 551 of
the Bankruptcy Code, the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Two Year Transfers, (b) directing that the Two Year Transfers be set aside, and (c) recovering the Two Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS. COUNT THREE ACTUAL FRAUD UNDER NEW YORK LAW FRAUDULENT TRANSFER – NEW YORK DEBTOR AND CREDITOR LAW §§ 276, 276-a, 278 AND/OR 279, AND 11 U.S.C. §§ 544, 550(a) AND 551 71. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 72. At all times relevant to the Six Year Transfers, there have been one or more
under DCL section 270. 74. Each of the Six Year Transfers was made by BLMIS with the actual intent to hinder,
delay, or defraud the creditors of BLMIS. BLMIS made the Six Year Transfers to or for the benefit of the Defendants in furtherance of a fraudulent investment scheme. - 25 -
Each of the Six Year Transfers was received by the Defendants with actual intent to
hinder, delay or defraud creditors of BLMIS at the time of each of the Transfers, and/or future creditors of BLMIS. 76. As a result of the foregoing, pursuant to DCL sections 276, 276-a, 278 and/or 279,
sections 544(b), 550(a), and 551 of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA, the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside; and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS, and (d) recovering attorneys’ fees from the Defendants. COUNT FOUR CONSTRUCTIVE FRAUD UNDER NEW YORK LAW FRAUDULENT TRANSFER --NEW YORK DEBTOR AND CREDITOR LAW §§ 273 AND 278 AND/OR 279, AND 11 U.S.C. §§ 544, 550(a) AND 551 77. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of the Complaint as if fully rewritten herein. 78. At all relevant times there was and is at least one or more creditors who held and
hold matured or unmatured unsecured claims against BLMIS that were and are allowable under section 502 of the Bankruptcy Code or that were and are not allowable only under section 502(e) of the Bankruptcy Code. 79. Each of the Six Year Transfers constituted a conveyance by BLMIS as defined
under DCL section 270. 80. 81. BLMIS did not receive fair consideration for the Six Year Transfers. BLMIS was insolvent at the time it made each of the Six Year Transfers or, in the
alternative, BLMIS became insolvent as a result of each of the Six Year Transfers. 82. As a result of the foregoing, pursuant to DCL sections 273, 278 and/or 279, sections
544(b), 550(a), and 551 of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA, the Trustee - 26 -
is entitled to a judgment against Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside; and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS. COUNT FIVE - CONSTRUCTIVE FRAUD UNDER NEW YORK LAW FRAUDULENT TRANSFER—NEW YORK DEBTOR AND CREDITOR LAW §§274, 278 AND/OR 279, AND 11 U.S.C. §§ 544, 550(a) AND 551 83. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of the Complaint as if fully rewritten herein. 84. At all relevant times there was and is at least one or more creditors who held and
hold matured or unmatured unsecured claims against BLMIS that were and are allowable under section 502 of the Bankruptcy Code or that were and are not allowable only under section 502(e) of the Bankruptcy Code. 85. Each of the Six Year Transfers constituted a conveyance by BLMIS as defined
was about to engage in a business or transaction for which the property remaining in its hands after each of the Six Year Transfers was an unreasonably small capital. 88. As a result of the foregoing, pursuant to DCL sections 274, 278 and/or 279, sections
544(b), 550(a), and 551 of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA, the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside; and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS. COUNT SIX - CONSTRUCTIVE FRAUD UNDER NEW YORK LAW FRAUDULENT TRANSFER-NEW YORK DEBTOR AND CREDITOR LAW
§§ 275, 278 AND/OR 279, AND 11 U.S.C. §§ 544 AND 551
To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of the Complaint as if fully rewritten herein. 90. At all relevant times there was and is at least one or more creditors who held and
hold matured or unmatured unsecured claims against BLMIS that are allowable under section 502 of the Bankruptcy Code or that are not allowable only under section 502(e) of the Bankruptcy Code. 91. Each of the Six Year Transfers constituted a conveyance by BLMIS as defined
under DCL section 270. 92. 93. BLMIS did not receive fair consideration for the Six Year Transfers. At the time BLMIS made each of the Six Year Transfers, BLMIS had incurred, was
intending to incur, or believed that it would incur debts beyond its ability to pay them as the debts matured. 94. As a result of the foregoing, pursuant to DCL sections 275, 278 and/or 279, sections
544(b), 550(a), and 551 of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA, the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside; and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS. COUNT SEVEN – RECOVERY OF ALL FRAUDULENT TRANSFERS – NEW YORK CIVIL PRACTICE LAW AND RULES 203(g), 213(8) AND NEW YORK DEBTOR AND CREDITOR LAW §§ 276, 276-a, 278 AND/OR 279, AND 11 U.S.C. §§ 544, 550(a) AND 551 95. The Trustee incorporates by reference the allegations contained in the previous
At all times relevant to the Transfers, the fraudulent scheme perpetrated by BLMIS
was not reasonably discoverable by at least one unsecured creditor of BLMIS. 97. At all times relevant to the Transfers, there have been one or more creditors who
have held and still hold matured or unmatured unsecured claims against BLMIS that are allowable under section 502 of the Bankruptcy Code or that are not allowable only under section 502(e) of the Bankruptcy Code. 98. Each of the Transfers prior to the six years before the Filing Date constituted a
conveyance by BLMIS as defined under DCL section 270. 99. Each of the Transfers was made by BLMIS with the actual intent to hinder, delay, or
defraud the creditors of BLMIS. BLMIS made the Transfers to or for the benefit of the Defendants in furtherance of a fraudulent investment scheme. 100. Each of the Transfers was received by the Defendants with actual intent to hinder,
delay or defraud creditors of BLMIS at the time of each of the Transfers, and/or future creditors of BLMIS. 101. As a result of the foregoing, pursuant to NY CPLR 203(g), 213(8), DCL sections
276, 276-a, 278 and/or 279, sections 544(b), 550(a), and 551 of the Bankruptcy Code, and SIPA section 78fff-2(c)(3), the Trustee is entitled to a judgment against Defendants: (a) avoiding and preserving the Transfers, (b) directing that the Transfers be set aside; and (c) recovering the Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS, and (d) recovering attorneys’ fees from the Defendants. COUNT EIGHT - RECOVERY OF SUBSEQUENT TRANSFER - NEW YORK DEBTOR AND CREDITOR LAW § 273 – 279 AND 11 U.S.C. §§ 544, 548, AND 550(a) 102. To the extent applicable, the Trustee incorporates by reference the allegations
Each of the Transfers is avoidable under sections 544 and 548 of the
Bankruptcy Code, DCL sections 273, 274, 275 and/or 276 and section 78fff-2(c)(3) of SIPA. 104. Upon information and belief, the Subsequent Transfers were transferred by the
Defendants to or for the benefit of Subsequent Transferee Defendants. 105. Each of the Subsequent Transfers was made directly or indirectly to or for the
benefit of Subsequent Transferee Defendants. 106. Subsequent Transferee Defendants are immediate or mediate transferees of the
Subsequent Transfers from Defendant. 107. As a result of the foregoing, pursuant to DCL sections 278 and/or 279, sections
550(a) of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA, the Trustee is entitled to a judgment against the Defendants recovering the Subsequent Transfers, or the value thereof, for the benefit of the estate of BLMIS. COUNT NINE – CONVERSION 108. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 109. BLMIS had a possessory right and interest to its assets, including its customers’
investment funds. 110. Defendants converted the investment funds of BLMIS customers when they
received money originating from BLMIS and its customers, to which Defendants knew they had no right and were not authorized to take. These actions deprived BLMIS and its creditors of the use of this money. 111. As a direct and proximate result of this conduct, BLMIS and its creditors have not
had the use of the money converted by Defendants.
By reason of the above, the Trustee, on behalf of BLMIS and its creditors, is entitled
to an award of compensatory damages, in an amount to be determined at trial. COUNT TEN – UNJUST ENRICHMENT 113. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 114. Defendants benefited from the receipt of money from BLMIS in the form of
payments and other transfers which were the property of BLMIS and its customers, and for which Defendants did not adequately compensate BLMIS or provide value or fair consideration. 115. This enrichment was at the expense of BLMIS and, ultimately, at the expense of
BLMIS’s other customers. 116. Equity and good conscience require full restitution of the monies received by
Defendants from BLMIS. 117. By reason of the above, the Trustee, pursuant to Section 544 of the Bankruptcy
Code and other applicable law, on behalf of BLMIS and its creditors, is entitled to restitution for the benefits Defendants improperly received, in an amount to be determined at trial. COUNT ELEVEN – TURNOVER AND ACCOUNTING – 11 U.S.C. § 542 118. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein. 119. The Trustee has commenced this and other adversary proceedings to avoid and
preserve for the benefit of the estate the Transfers, and to recover such Transfers for the benefit of the estate pursuant to applicable provisions of the Bankruptcy Code, New York Debtor and Creditor Law, and SIPA. 120. All of the Transfers are deemed to be customer property pursuant to SIPA §§
78fff-2(c)(3) and 78lll(4), and constitute property of the estate to be recovered and administered - 31 -
by the Trustee pursuant to sections 541 and 542 of the Bankruptcy Code and SIPA §78fff-2(c)(3) and § 78lll(4). 121. 122. The Defendants are not lawful custodians of the Transfers. As a result of the foregoing, pursuant to section 542 of the Bankruptcy Code and
SIPA § 78fff-2(c)(3), the Trustee is entitled to the immediate payment and turnover from the Defendants of all such customer property and an accounting of all of the customer property, or its value, transferred at any time, directly or indirectly, to the Defendants. WHEREFORE, the Trustee respectfully requests that this Court enter judgment in favor of the Trustee and against the Defendants as follows:
551 of the Bankruptcy Code: (a) avoiding and preserving the Two Year Transfers, (b) directing that the Two Year Transfers be set aside, and (c) recovering the Two Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS;
sections 544(b), 550 and 551 of the Bankruptcy Code and section 78fff-2(c)(3) of SIPA: (a) avoiding and preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside, and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS;
sections 544(b), 550 and 551 of the Bankruptcy Code and section 78fff-2(c)(3) of SIPA: (a) avoiding and preserving the Six Year Fraudulent Transfers, (b) directing the Six Year Transfers be set aside, and (c) recovering the Six Year Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS;
sections 276, 276-a, 278 and/or 279, sections 544(b), 550(a), and 551 of the Bankruptcy Code and section 78fff-2(c)(3) of SIPA: (a) avoiding and preserving the Transfers, (b) directing that the Transfers be set aside, (c) recovering the Transfers, or the value thereof, from the Defendants for the benefit of the estate of BLMIS, and (d) recovering attorneys’ fees from the Defendants;
On the Eighth Claim for Relief pursuant to DCL section 278 and/or 279, sections
544(b), 548 and 550(a) of the Bankruptcy Code, and section 78fff-2(c)(3) of SIPA recovering the
Subsequent Transfers, or the value thereof, from Defendants for the benefit of the estate of BLMIS;
On the Ninth Claim for Relief for the conversion of BLMIS assets, for
On the Tenth Claim for Relief for unjust enrichment, for restitution in an amount
On the Eleventh Claim for Relief, pursuant to sections 542, 550(a) and 551 of the
Bankruptcy Code and section 78fff-2(c)(3) of SIPA a judgment: (a) that the property that was the subject of the Transfers be immediately delivered and turned over to the Trustee, and (b) for an accounting by the Defendants of all Transfers made to Defendants;
On all Claims for Relief, assignment of Defendants’ income tax refunds or
overpayments from the United States, state and local governments which are paid to or credited on behalf of the Defendants which relate to the operation of the Ponzi scheme, including, but not limited to, the filing of a return under the Internal Revenue Service “safe harbor,” amended returns, and otherwise;
Date: New York, New York November 11, 2010 s/ David J. Sheehan s/ Keith R. Murphy s/ Geraldine E. Ponto BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: dsheehan@bakerlaw.com Keith R. Murphy Email: kmurphy@bakerlaw.com Geraldine E. Ponto Email: gponto@bakerlaw.com – and – BAKER & HOSTETLER LLP PNC Center 1900 East 9th Street, Suite 3200 Cleveland, Ohio 44114 Terry M. Brennan Email: tbrennan@bakerlaw.com Edward D. Papp Email: epapp@bakerlaw.com Telephone: (216) 621-0200 Facsimile: (216) 696-0740 Attorneys for Irving H. Picard, Esq., Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff
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