Madoff Victims Suffer Major Setback In Federal Appeals Court

On January 6, 2012,the Southern District of New York affirmed a June 28, 2011, Order of the district’s bankruptcy court affirming Trustee Irving H. Picard’s denial of appellants’ claims against Bernard L. Madoff Investment Securities LLC (“BLMIS”) under the Securities Investor Protection Act (“SIPA”) because appellants do not qualify as BLMIS “customers” under SIPA. , see id. § 78lll(2). The matter than moved to the 2nd Circuit on appeal. None of the appellants invested directly with BLMIS; rather, they invested in two limited partnerships, Spectrum Select,L.P., and Spectrum Select II, L.P. (“Spectrum Funds”). Those Spectrum Funds then invested in two hedge funds, Rye Select Broad Market Fund, L.P., and Rye Select Broad Market Prime Fund, L.P. (“Feeder Funds”). Investors were advised in various documentation that by purchasing interests in the Feeder Funds, the investors had yielded exclusive control over investment decisions to those entities, which had invested the investors’ pooled capital with BLMIS through securities accounts maintained only in the funds’ names. More on Forbes here.

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