Kruse v. Securities Investor Protection Corp. (In re Bernard L. Madoff Investment Securities LLC)
- Summarized by Nancy Kourland , Rosen & Associates, P.C.
- 11 years 10 months ago
- Citation:
- Case No. 12-410 (2d Cir. Feb. 22, 2013)
- Tag(s):
-
- Ruling:
- Court of Appeals for the Second Circuit affirmed the District Court’s judgment affirming the Bankruptcy Court’s order granting the SIPC Trustee’s motion for an order upholding his denial of the claims of certain claimants that invested directly or indirectly in sixteen (16) feeder funds that, in turn, invested in Bernard L. Madoff Investment Securities LLC (“BMLIS”) on the ground that the claimants are not “customers” of BMLIS under SIPA.
- Procedural context:
- Appeal from a decision of the United States District Court for the Southern District of New York (Cote, J.) affirming the decision of the United States Bankruptcy Court for the Southern District of New York (Lifland, J.) that the claimants were not “customers” of BMLIS pursuant to the plain language of SIPA, the relevant case law, and principles of agency or equity.
- Facts:
- The claimants are 1,771 investors in one or more of sixteen feeder funds, which, in turn, invested a significant portion of their assets with BLMIS.
Among other things, each of the feeder funds (a) was created as investment vehicles and are legal entities that are capable of owning property and suing or being sued; (b) sold ownership interests in themselves, either directly or indirectly, to the claimants and others, and used monies obtained from such sales for investment purposes; (c) had managers and administrators that were responsible for managing and directing the funds’ investments; and (d) invested directly with BLMIS and maintained BLMIS accounts according to the books and records of BLMIS.
The claimants, on the other hand, did not maintain securities accounts at BLMIS, did not execute BLMIS account agreements, did not entrust cash or securities to BLMIS. Rather, they purchased ownership interests in the feeder funds and received either a limited partnership or limited liability company interest or common shares in an offshore company. In addition, private placement memoranda and prospectuses explicitly stated, among other things, that the feeder funds were separate legal entities from BLMIS, the claimants were purchasing interests in the feeder fund and not its assets, and the claimants were yielding the exclusive right to make investment decisions to the managers of the feeder funds.
- Judge(s):
- Leval, Raggi, and Livington, Circuit Judges
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