Judge Paves Way For End Of Madoff Trustee’s Clawback Suits

A New York federal judge has ruled that defendants facing clawback suits from the trustee handling Bernie Madoff’s estate may move to dismiss those claims by showing that he failed to plausibly allege a lack of good faith, according to court documents filed Monday. In a ruling issued April 27 but filed just Monday, U.S. District Judge Jed S. Rakoff said that each of the defendants — various investors who profited as a result of Madoff’s notorious $65 billion Ponzi scheme — may challenge trustee Irving Picard’s assumption that they were sophisticated market participants who, while not necessarily aware of the scheme, violated their duties by failing to investigate its suspicious returns. “In these ordinary circumstances, it is undisputed that a ’securities investor has no inherent duty to inquire about his stockbroker,’ and nothing in [the Securities Investor Protection Act] creates such a duty. … Absent a duty to investigate, a customer’s failure to do so does not equate with a lack of good faith,” the opinion said. More on Law360 here.