Madoff family seeks dismissal of lawsuit

Reuters

FRAUD: Bernard Madoff's family say they had no knowledge of the multi-billion fraud he committed.

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Lawyers for swindler Bernard Madoff's brother Peter attacked as "sensationalistic" a trustee's allegations that he should have known about the historic multibillion dollar fraud and stopped it while he was an executive at the Madoff firm.

In court documents filed on Monday night asking for dismissal of a US$198.7 (US$NZ282) million lawsuit, the brother, sons and niece of the imprisoned con man said they had no fiduciary responsibilities to the investment advisory unit at the centre of the decades-long fraud that ruined thousands of large and small investors alike.

"Peter Madoff is not Bernard Madoff," lawyers for Peter Madoff, wrote at the beginning of their motion in US Bankruptcy Court in New York.

"The Trustee's complaint is a sensationalistic attempt to lump together members of the Madoff family and create liability by association."

Peter Madoff, whose lawyers say he has been under criminal investigation for more than a year, was the senior executive for three decades in the market-making and proprietary trading business at now-defunct Bernard L Madoff Investment Securities LLC (BLMIS).

"The complaint obscures the fact that the Madoff family is comprised of individuals who performed different functions and received different distributions at different times from BLMIS," the motion said.

Bernard Madoff, 71, was arrested in December 2008, pleaded guilty to criminal charges last March and is serving a 150-year prison sentence for the fraud US prosecutors estimated at as much as US$65 billion.

Five others besides Madoff have been criminally charged so far with helping him run the scheme by falsifying records. Investors have sued family members but they have not been criminally charged.

Irving Picard, a New York lawyer appointed by the court to wind down the firm, sued Madoff's brother, sons Andrew and Mark and niece Shana last October 2 in a single lawsuit.

It accused them of negligence and enriching themselves with money that belongs to customers.

"In light of Bernard Madoff's control over the BLMIS investment advisory business, and his and others' Herculean efforts to cover up the fraud, any allegation that Peter Madoff could have discovered the fraud absent his alleged negligence would be wild speculation," the motion said.

Fraud missed

In a separate motion to dismiss, attorneys for sons Andrew and Mark noted the complaint "does not acknowledge that thousands of sophisticated investors as well as numerous SEC examinations missed the very fraud that Mark and Andrew were alleged to have missed as well."

The scale and duration of the Madoff fraud shook investor confidence, not least because subsequent investigations showed that the US Securities and Exchange Commission market regulator missed it, despite several tip-offs and probes.

"The complaint includes no allegations even suggesting that Mark and Andrew had a fiduciary relationship with IA (Investment Advisory) customers, nor could it," the lawyers said.

"Bernard Madoff's massive and unforeseeable fraud, not any action of Mark or Andrew Madoff, caused the damages to BLMIS that the Trustee seeks to recover."

It also repeated previous public statements that the sons were also victims of the fraud and contacted authorities within hours of their father confessing to them on December 10, 2008.

"Long on rhetoric, but short on legal or factual support, this is a case that as a matter of fairness never should have been brought, and as a matter of law should be dismissed."

Madoff niece Shana seeks dismissal on similar grounds in a separate filing by her lawyers.

They wrote that Picard "provides no allegations about what Shana Madoff did wrong or that she was involved in any way with the secret fraud of her uncle Bernie Madoff. For good reason, they don't exist."

Last July, Picard has also sued Madoff's wife, Ruth Madoff, seeking to recover nearly US$45 million. She has until May 10 to respond to the allegations.

- Reuters