Roy Englert Wins Another Second Circuit Appeal Allowing The Madoff Trustee To Claw Back Ponzi Scheme Proceeds

On August 30, 2021, the U.S. Court of Appeals for the Second Circuit ruled for Robbins Russell’s client, the trustee of Bernard Madoff’s now-defunct investment firm, allowing the trustee to recover funds from entities who received them, directly or indirectly, from the Madoff firm, unless they can demonstrate that a reasonable person in their position would not have investigated the fund transfers further. Robbins Russell partner Roy Englert presented the oral argument for the trustee, who was also represented by BakerHostetler. Nathanael Kelley of the Securities Investor Protection Corporation argued on behalf of the co-appellant.

We and our co-counsel persuaded the Second Circuit to overturn two bankruptcy court decisions, together dismissing the trustee’s efforts to void more than a half-billion dollars in transfers. Those decisions had followed an earlier ruling by U.S. District Judge Jed S. Rakoff, holding that the trustee had the burden to prove that investors did not take funds in good faith, and that good faith meant intentional blindness to evidence suggesting a high probability of fraud. The unanimous panel held that the lower courts had erred because investors bear the burden of demonstrating good faith, and a lack of good faith requires only that the information investors knew would have caused a reasonable person in their position to investigate further. Matthew Madden and Leslie Esbrook joined Roy on Robbins Russell’s team handling this appeal. The funds that the trustee now has a chance to recoup for the estate will increase the amount available to compensate victims of Madoff’s scheme.

This decision was Roy’s and Robbins Russell’s second significant victory in the Second Circuit (together with co-counsel) for the Madoff trustee. In 2019, the Second Circuit overturned another district court decision and adopted Englert’s argument that Madoff proceeds transferred overseas are not outside the trustee’s reach. Last year, Robbins Russell and its co-counsel successfully defeated a Supreme Court petition for a writ of certiorari seeking review of that decision.

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