The court-appointed trustee recovering money for victims of convicted Ponzi schemer Bernard Madoff is preparing a wave of new lawsuits, this time targeting individual investors who might have benefited from the fraud, a published report said today.
Trustee Irving Picard said he could sue about half of the estimated 2,000 individuals he has called "net winners" from their dealings with Madoff, the Wall Street Journal reports.
"The people who made money, who got more, have made money at the expense of the people who didn't," Picard told the paper.
This month, Picard demanded $3.6 billion from more than two dozen entities and individuals that he says "deepened the pain" of Madoff's investors by enabling him to operate his fraud for at least two decades.
Picard filed papers in U.S. Bankruptcy Court in Manhattan late Tuesday against the Fairfield Greenwich Group, two dozen affiliates and its founding partners, among others, saying they represented nearly half of Madoff's billions of dollars of reported assets under management.
The recasting of a lawsuit first filed in May 2009 against three Fairfield Greenwich funds that are now being liquidated cast the widest net yet across financial entities and individuals that Picard insists had to know something was seriously wrong as the years passed and Madoff consistently hit financial targets no one else could reach.
The lawsuit said the defendants had "actual and constructive knowledge of Madoff's fraud and cannot deny their knowledge of many 'red flags' indicating the likelihood of that fraud."
"The defendants were not victims. They were enablers. They were facilitators. They deepened the pain of Madoff's customers and their own investors. The effect of their actions was a catastrophic continuation of the Ponzi scheme," the lawsuit said.
Fairfield Greenwich in a statement said the lawsuit is filled with "false, misleading and rehashed accusations."
"We find it incomprehensible that it would be filed while Fairfield Greenwich is in the midst of constructive, good-faith negotiations with the trustee and other parties," the company said.
Picard said in the court papers that the defendants had an "extraordinary and lucrative" deal with Madoff that allowed them to receive more than a billion dollars in fees for selling a fund "that had returns that were so consistently positive, they were seemingly impossible."
Madoff's scheme collapsed in December 2008 when he confessed to his sons and later to the FBI that his private investment business was a fraud. Although Madoff had sent statements to investors in November 2008 saying they had as much as $65 billion in assets, only a few hundred million dollars remained.
Madoff, 72, pleaded guilty to fraud charges and was sentenced last year to 150 years in prison.