Investors push to force Madoff into bankruptcy

As promised, lawyers for several aggrieved investors filed an involuntary bankruptcy petition against Bernard Madoff Monday, designed to force the faux-financier into personal bankruptcy and seize his personal property as recompense.

The former Madoff customers claim nearly $64 million in losses, the sum of their final investment statements from the firm. The petition was allowed to go forward in light of Mr. Madoff’s guilty plea in March, when he admitted to masterminding a $65 billion Ponzi scheme.

“The (Madoff) broker-dealer is in bankruptcy, but up until now Bernie Madoff personally was not,” said Jonathan Landers, partner at Milberg LLP, representing the handful of investors named in the bankruptcy petition. Those investors are Blumenthal & Associates Florida General Partnership, Martin Rappaport Charitable Unitrust, Martin Rappaport, Marc Cherno and Steven Morganstern.

“We are very concerned that some of the assets would simply slip through the cracks because they were in his personal name — or for other reasons — and we want to make sure they would all be available to the victims,” Mr. Landers said.

Mr. Madoff has 20 days to respond to the filing. His lawyer, Ira Lee Sorkin, declined comment Monday.

The bankruptcy petition comes on the heels of a ruling last Friday in Manhattan’s Federal District Court allowing such petitions to go forward.

Back in December, Judge Louis Stanton blocked these types of personal bankruptcy suits over concerns that they would slow down the court’s progress in untangling the web of deception surrounding the investment firm, so any cases against Mr. Madoff personally were stayed.

The judge reversed himself Friday, ceding that the potential benefit to wronged investors of forcing Mr. Madoff into bankruptcy outweighs concerns about a lengthier and more expensive process. The government-appointed trustee in charge of liquidating Mr. Madoff’s financial firm has already identified hundreds of millions of dollars worth of potential assets overseas, including property in France and investments in the Caribbean, and Mr. Landers and others are concerned that the foreign jurisdiction will make difficult any U.S. attempt to take them over.

“Mr. Madoff has plenty of property that belongs to him, but that doesn’t belong to the SIPC Trustee,” Mr. Landers said. “He has assets that he transferred to his wife’s name, and still other potential assets overseas that have not yet been reached. We want to make sure we can challenge the (U.S.) government on anything they forfeit.”

Trustee Irving Picard has opposed allowing the suits forcing Mr. Madoff into personal bankruptcy to go forward. He has so far recovered more than $1 billion in assets, and it will take months to identify and recover more. Simultaneous lawsuits and investigations against Mr. Madoff personally could compete with that.

But Mr. Landers says that since filing the petition Monday morning, he has been in talks with Mr. Picard, exploring ways they can work together.

“Once a judge sets the parameters, often it’s up to the lawyers to work out the details,” Mr. Landers added. “And that’s where we are now.”