BURTON R. LIFLAND, Bankruptcy Judge.
Before the Court are the motions of A & G Goldman Partnership ("A & G Goldman")
On May 12, 2009, the Trustee filed a complaint (the "Complaint")
In February 2010, Adele Fox ("Fox"), a BLMIS customer and creditor of the estate, brought putative class actions in federal court in Florida (the "Florida Actions") against the Picower Defendants. In that action, she was represented by Beasley Hauser Kramer & Galardi P.A., one of the firms which represents the Class Action Plaintiffs here as well. This Court enjoined the Florida Actions. See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC ("Fox I"), 429 B.R. 423, 437 (Bankr.S.D.N.Y.2010). Shortly thereafter, Fox appealed.
On December 17, 2010, the BLMIS Trustee entered into an agreement memorializing the Picower Settlement (the "Settlement Agreement"), which entailed the forfeiture and repayment of approximately $7.2 billion, of which $5 billion was to be paid to the BLMIS Trustee. This represented the return of 100 percent of the net withdrawals received by the Picower Defendants over the lifetime of their investments with BLMIS. In exchange, the Settlement Agreement provides for (i) the release of the Picower Defendants from all claims that the Trustee brought or could have brought against them in connection with BLMIS, as well as (ii) the prevention of putative plaintiffs filing lawsuits that are duplicative or derivative of the claims that the Picower Defendants settled. Specifically, the Settlement Agreement includes the Picower Injunction, which enjoins:
Settlement Agreement, pp. 5-6 (emphasis added). In the Settlement Order, this Court approved the Settlement Agreement, which included the Picower Injunction. Fox appealed the Settlement Order as well.
Less than three months ago, on March 26, 2012, the District Court upheld both Fox I and the Settlement Order. See Picard v. Fox ("Fox II"), 848 F.Supp.2d 469 (S.D.N.Y.2012). Specifically, Judge Koeltl looked past the nominal title of the movants' causes of action, which sounded in tort, in affirming this Court's finding that they were property of the estate, subject to both the automatic stay, as well as an injunction under Code section 105. In so doing, the District Court emphasized that those causes of action were not substantively different than the Trustee's cause of action (the "New York Action") since they, inter alia, (i) were based on the same conduct as the Trustee's New York Action, (ii) did not derive from any duties owed by the Picower Defendants to the Florida Plaintiffs, and (iii) could have been asserted by any creditor of BLMIS. The court also rejected the movants' arguments pertaining to the Trustee's purported lack of standing and the applicability of the Court of Appeals' 2008 opinion
Despite this recent ruling directly on point, the Class Action Plaintiffs — two BLMIS customers who, like Fox and Marshall, filed customer claims — argue that the Court should not enjoin their "federal securities law claims" because they belong to shareholders and not the estate. Furthermore, they contend that the Trustee lacks standing to bring those claims and this Court lacks jurisdiction to adjudicate them in light of Johns-Manville. The Class Action Plaintiffs, however, have simply repeated, repackaged, and relabeled the wrongs alleged by the Trustee in an attempt to create independent claims where none exist. In fact, they re-iterate allegations almost verbatim of not only the Trustee's Complaint, but also of the complaints their same counsel set forth in Fox I. As such, the Court rejects the Plaintiffs' arguments and denies the Motion.
"It's déjà vu all over again."
Fox II, 848 F.Supp.2d at 481 (internal quotation marks omitted). To prevent this, "a court must look to the body of the complaint, not to the plaintiff's designation or stated intention" in determining the nature of the wrong alleged. Kramer v. W. Pac. Indus., Inc. 546 A.2d 348, 352 (Del.1988) (internal quotation marks omitted). Courts in this district therefore routinely "look[] past the nominal title of the cause of action pleaded in assessing whether or not a claim is in substance duplicative or derivative of a claim that is the property of the Trustee." Fox II, 848 F.Supp.2d at 482 (citing In re Ionosphere Clubs, Inc., 156 B.R. 414, 439 (S.D.N.Y. 1993), aff'd, 17 F.3d 600 (2d Cir.1994)). Indeed, "[w]hile as a general matter a court should accept as true the allegations pleaded in a complaint at this stage in a case, that principle has limits." Fox II, 848 F.Supp.2d at 482; see also Matter of Commonwealth Oil Refining Co., Inc., 805 F.2d 1175, 1187 (5th Cir.1986) ("[T]he legislative intent underlying § 362[] should not be undermined by artful pleading that depends on form rather than substance." (citation and internal quotation marks omitted)).
While titling their cause of action as a federal securities claim, the Class Action Plaintiffs' action is based on pleadings that are nearly identical to those of the Trustee. For example, both the Trustee and the Class Action Plaintiffs allege that: (i) BLMIS customers received monthly or quarterly statements that purported to show securities held in their accounts, but these statements and the transactions appearing thereon were almost completely fabricated, compare Pamela Goldman Draft Compl., ¶ 33, and A & G Goldman Draft Compl., ¶ 33, with Tr.'s Compl., ¶ 21; (ii) Picower directed BLMIS to create fraudulent trading records including backdated trades, compare Pamela Goldman Draft Compl., ¶ 49, and A & G Goldman Draft Compl., ¶ 49, with Tr.'s Compl., ¶ 4; and (iii) Picower, and not Madoff, was the largest beneficiary of Madoff's fraud, withdrawing more than $7.2 billion of other people's money, compare Pamela Goldman Draft Compl., ¶¶ 1, 46, 47, and A & G Goldman Draft Compl., ¶¶ 1, 46, 47, with Tr.'s Mem. of Law in Opp'n to Def.'s Partial Mot. To Dismiss at 2, (Adv. Pro. No. 09-01197) (Dkt. No. 11), p. 2.
Furthermore, it appears that not only have the Class Action Plaintiffs substantially parroted the Trustee's Complaint, they have also recycled their own pleadings: many of the allegations currently before the Court mimic those set out in the Fox
The Class Action Plaintiffs argue that the Court should look past these common facts and focus on the differences between their allegations and the Trustee's with respect to the harms committed and damages alleged. The Court declines to do so, as the Class Action Plaintiffs' claim is derivative of the Trustee's. To assert an independent claim, "a creditor must have suffered an injury significantly different from the injuries to creditors in general." Fox I, 429 B.R. at 431 (internal quotation marks omitted) (emphasis added). Indeed, the Second Circuit has specified, "[i]f a claim is a general one, with no particularized injury arising from it, and if that claim could be brought by any creditor of the debtor, the trustee is the proper person to assert the claim, and the creditors are bound by the outcome of the trustee's action." St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir.1989) (emphasis added); see also In re Cabrini Med. Ctr., No. 09-14398, 2012 WL 2254386, at *7 (Bankr. S.D.N.Y. June 15, 2012) ("[T]he injury cannot be a secondary effect from the harm done to the corporation." (citing St. Paul, 884 F.2d at 704) (internal quotation marks omitted)).
Plaintiffs' counsel unconvincingly attempts to plead a particularized injury by re-classifying actions relevant to all defendants under a different body of law and manufacturing a duty thereunder. Specifically, the Plaintiffs attempt to distinguish the actions of the Picower Defendants as against the Plaintiffs by creating a security
Finally, this appears to be yet another attempt by the same counsel to re-litigate this Court's Net Equity Decision. See SIPC v. BLMIS, 424 B.R. 122 (Bankr. S.D.N.Y.2010) aff'd, In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011) (the "Net Equity Decision"); see also Fox I, 429 B.R. at 427 ("The Florida Plaintiffs are obviously disappointed at the economic impact on them from this Court's Net Equity decision."). Here the Plaintiffs emphasize that the damages they sustained "were the result of injuries that arose from their purchase of overvalued securities and are measured by the difference between the value of their BLMIS securities at the time of purchase [zero] and the price paid by each purchaser [the principal investment]." Reply, p. 2. Put differently, the Class Action Plaintiffs seek the repayment of their entire principal investments. Yet, the Net Equity Decision provides for the repayment of only net losses. An award of principal therefore would result in a windfall to not only the Class Action Plaintiffs, but also the classes they represent: net winners who are not entitled to any distributions and net losers who have already received disbursements from the Trustee and SIPC would potentially receive amounts greater than those to which they are entitled. See Fox II, 848 F.Supp.2d at 487 (affirming this Court's application of the injunction under Code section 105 in part because "the Florida Actions, if successful, could result in distributions to BLMIS customers outside of the plan that was determined by the Net Equity Decision, and could result in inconsistent judgments"); see also Fox I, 429 B.R. at 436 ("As the Court presiding over the SIPA liquidation of BLMIS, this Court has sole jurisdiction over the administration and distribution of estate assets to customers.") (citing Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447, 124 S.Ct. 1905, 158 L.Ed.2d 764 (2004)).
For the foregoing reasons, the Motions are hereby DENIED.
EXHIBIT A
Class Action Pleadings Trustee's Pleadings Fox/Marshall Pleadings
In fact, however, Madoff was Based upon the Trustee's investigation Defendants were, as a group,
not the most substantial beneficiary to date, Picower the largest beneficiaries of
of the Ponzi scheme. was instead the biggest beneficiary the Ponzi scheme, converting
The Defendants were. The of Madoff's scheme, and receiving billions of dollars
accounting performed by the having withdrawn either directly from the accounts of innocent
Madoff bankruptcy Trustee or through the entities Madoff and BLMIS
reveals that the Defendants he controlled more than $7.2 customers. See Fox Compl.
received at least $7.2 billion billion of other investors' ¶ 1; Marshall Compl. ¶ 1.
of BLMIS customers' cash money. See Tr.'s Mem. of
... See Pamela Goldman Law in Opp. to Mot. to Dismiss
Compl. ¶ 1; A & G Goldman pg. 2.
Compl. ¶ 1.
According to the Trustee,
BLMIS made payments and
other transfers to the Defendants
totaling over $7.2 billion
more than Defendants
deposited, including $6.7 billion
from 1995 to 2008. See
Fox Compl. ¶ 38; Marshall
Compl. ¶ 38.
While Madoff and a few employees Additionally, on information In fact, relevant documents
operated the Ponzi and belief, Picower, directly and information show that
scheme on a day to day basis, and/or through and/or with Picower and the Defendants
they did so under the direction the assistance of Freilich, directed directed BLMIS to prepare
and control of the Defendants fictitious, backdated account statements for the
who participated in trades in order to achieve fictitious Defendants reflecting not actual
the fraud for their own benefit gains or losses in earlier trading results but the
by directing the creation periods. For example, rates of return Picower
of false books and records at BLMIS records reflect several "wanted to achieve".
BLMIS. The Defendants instructed conversations beginning BLMIS complied with these
Madoff and his employees around May 14, 2007 between directions, and the vast majority
to make false transactions "April" and BLMIS employees of the purported "profits"
and book entries to about gains that the Picower in the Defendants' accounts
document allegedly profitable Foundation "need[ed] were not a result of
securities transactions in the during Jan & Feb [20]06." the actual purchase and sale
Defendants' BLMIS accounts On information and belief, of securities. See Fox
that in fact never occurred, "April" is [Defendant] April Compl. ¶ 7; Marshall Compl.
but instead provided the Defendants Freilich. Since any legitimate ¶ 7.
with the returns gains or losses in January
that they "wanted to or February 2006 had to
achieve." BLMIS complied, have been achieved more than
which allowed the Defendants one year before these conversations
to steal billions of dollars of even occurred, Freilich
BLMIS customers' assets in and Defendants knew or
the form of the fictitious profits should have known that they
based on the false trading were participating in fraudulent
documentation. See Pamela activity. See Tr.'s
Goldman Compl. ¶ 2; A & G Compl. ¶ 63(f). Goldman Compl. ¶ 2. Picower was a highly sophisticated Defendant Jeffry M. Picower Picower was a highly sophisticated investor, accountant ("Picower") is a sophisticated investor, accountant and attorney who participated investor and businessman who and attorney who participated in the Madoff Ponzi invested in BLMIS over many in the Madoff Ponzi scheme for over 20 years, decades through 24 entity scheme for over 20 years, knowing that he was participating and/or personal accounts. knowing that he was participating in a fraud. Picower According to a 2002 Forbes in a fraud. Picower had vast experience in the article entitled "Unaccountable," had vast experience in the purchase and sale of businesses, Picower is a former attorney, purchase and sale of businesses, including health care accountant and tax including health care and technology companies. shelter promoter who has and technology companies. He had also been personally been active in the financial industry He had also been personally responsible for managing for more than 25 responsible for managing hundreds of millions, if not years. He maintains residences hundreds of millions, if not billions, of dollars of assets, at 1410 South Ocean billions, of dollars of assets, and he had developed uncommon Boulevard, Palm Beach, Florida and he had developed uncommon sophistication in trading 33480 and 4900 Congress sophistication in trading securities and evaluating returns Street, Fairfield, Connecticut securities and evaluating returns therefrom. Upon information 06824. Upon information and therefrom, Upon information and belief, Picower belief, Picower has been closely and belief Picower was closely associated with associated with Madoff on was closely associated with Madoff, both in business and both a business and social level Madoff, both in business and socially, for the last 30 years. for the last 30 years. Picower socially, for the last 30 years. Picower held an individual holds an individual Picower held an individual BLMIS account in the name BLMIS account in the name BLMIS account in the name of "Jeffry M. Picower," with "Jeffry M. Picower," with the of "Jeffry M. Picower," with an account address of 1410 account address reported as an account address of 1410 South Ocean Boulevard, Palm 1410 South Ocean Boulevard, South Ocean Boulevard, Palm Beach, Florida. Picower was Palm Beach, Florida 33480. Beach, Florida. Picower was a trustee of the Picower Upon information and belief, a trustee of the Picower Foundation, and Chairman of Picower is trustee for the Picower Foundation, and Chairman of the Board of Defendant Decisions Foundation and Chairman the Board of Defendant Decisions Incorporated. See of the Board of Defendant Incorporated. See Fox Pamela Goldman Compl. ¶ 10; Decisions Incorporated. Compl. ¶ 13; Marshall A & G Goldman Compl. ¶ 10. See Tr.'s Compl. ¶ 34. Compl. ¶ 13. Defendant Barbara Picower Defendant Barbara Picower is Defendant Barbara Picower is a person residing at 1410 a person residing at 1410 is a person residing at 1410 South Ocean Boulevard, Palm South Ocean Boulevard, Palm South Ocean Boulevard, Palm Beach, Florida 33480. Barbara Beach, Florida 33480. Upon Beach, Florida 33480. Barbara Picower is Picower's information and belief, Barbara Picower is Picower's surviving spouse. According Picower is married to Picower. surviving spouse, According to the Trustee, Barbara Picower Upon information and to the Trustee, Barbara Picower holds an individual account belief, Barbara Picower holds holds an individual account at BLMIS in the name an individual account at at BLMIS in the name "Barbara Picower," with the BLMIS in the name "Barbara "Barbara Picower," with the account address of 1410 Picower," with the account account address of 1410 South South Ocean Boulevard, Palm address reported as 1410 Ocean Boulevard, Palm Beach, Florida 33480, and South Ocean Boulevard, Palm Beach, Florida 33480, and, Barbara Picower is trustee Beach, Florida 33480. Upon Barbara Picower is trustee for Defendant Trust f/b/o information and belief, Barbara for Defendant Trust f/b/o Gabrielle H. Picower, an officer Picower is trustee for Gabrielle H. Picower, an officer and/or director of Defendant Defendant Trust FBO Gabrielle and/or director of Defendant Decisions Incorporated, H. Picower, an officer Decisions Incorporated, and trustee and Executive and/or director of Defendant and trustee and Executive Director of the Picower Decisions Incorporated and Director of the Picower Foundation. See Pamela trustee and Executive Director Foundation. See Fox Compl.
Goldman Compl. ¶ 12; A & G of the Picower Foundation. ¶ 15; Marshall Compl. ¶ 15. Goldman Compl. ¶ 12. See Tr.'s Compl. ¶ 35. Defendant Decisions Incorporated Defendant Decisions Incorporated Defendant Decisions Incorporated is a corporation organized ("Decisions") is a corporation is a corporation organized under the laws of Delaware organized under the under the laws of Delaware with a principal place of laws of Delaware with a principal with a principal place of business at 950 Third Avenue, place of business at 950 business at 950 Third Avenue, New York, New York Third Avenue, New York, New York, New York 10022 and an alternate mailing New York 10022 and an alternate 10022 and an alternate mailing address on its BLMIS account mailing address or its address on its BLMIS account listed as 22 Saw Mill BLMIS account listed as 22 listed as 22 Saw Mill River Road, Hawthorne, New Saw Mill River Road, Hawthorne, River Road, Hawthorne, New York, 10532. According to New York, 10532. York, 10532. According to the Trustee, the Decisions Incorporated Upon information and belief, the Trustee, the Decisions Incorporated office in Hawthorne the Decisions office in Hawthorne office in Hawthorne was merely a store-front was merely a store-front was merely a store-front office through which little office through which little office through which little or no business was conducted, or no business was conducted. or no business was conducted, and Decisions Incorporated Upon information and Decisions Incorporated is a general partner and belief, Decisions is a general is a general partner of Defendants Capital partner of Defendants of Defendants Capital Growth Company, JA Primary Capital Growth Company, JA Growth Company, JA Primary Limited Partnership, Primary Limited Partnership, Limited Partnership, JA Special Limited Partnership, JA Special Limited Partnership, JA Special Limited Partnership, JAB Partnership, JAB Partnership, JAB Partnership, JEMW Partnership, JF Partnership, JEMW Partnership, JF Partnership, JEMW Partnership, JF Partnership, JLN Partnership, JLN Partnership, JLN Partnership, JMP Limited Partnership JMP Limited Partnership and JMP Limited Partnership and Jeffry M. Picower Special Jeffry M. Picower Special Co. and Jeffry M. Picower Special Co. See Pamela Goldman See Tr.'s Compl. ¶ 37. Co. See Fox Compl. ¶ 16; Compl. ¶ 13; A & G Goldman Marshall Compl. ¶ 16. Compl. ¶ 13. Defendant Capital Growth Upon information and belief, Defendant Capital Growth Company purports to be a Defendant Capital Growth Company purports to be a limited partnership with a Company purports to be a limited partnership with a mailing address for its limited partnership with a mailing address for its BLMIS account listed at 22 mailing address for its BLMIS account listed at 22 Saw Mill River Road, Hawthorne, BLMIS account listed at 22 Saw Mill River Road, Hawthorne, New York, 10532, Saw Mill River Road, Hawthorne, New York, 10532, care of Decisions Incorporated. New York, 10532, care care of Decisions Incorporated. According to the Trustee, of Decisions Incorporated. According to the Trustee, Defendant Decisions Incorporated Upon information and belief, Defendant Decisions Incorporated and/or Picower Defendant Decisions Incorporated and/or Picower serve/served as General Partner and/or Defendant Picower serve/served as General Partner or Director of Capital serves as General Partner or Director of Capital Growth Company, and Decisions or Director of Capital Growth Company, and Decisions Incorporated and Picower Growth Company, and Decisions Incorporated and Picower transact/transacted Incorporated, Picower, transact/transacted business through this entity. and/or Freilich transact business business through this entity. See Pamela Goldman Compl. through this entity. See See Fox Compl. ¶ 17; Marshall ¶ 14; A & G Goldman Compl. Tr.'s Compl. ¶ 38. shall Compl. ¶ 17. ¶ 14. Defendant JA Primary Limited Defendant JA Primary Limited Defendant JA Primary Limited Partnership is a limited Partnership is a limited Partnership is a limited partnership organized under partnership organized under partnership organized under the laws of Delaware with a the laws of Delaware with a the laws of Delaware with a principal place of business at principal place of business at principal place of business at 25 Virginia Lane, Thornwood, 25 Virginia Lane, Thornwood, 25 Virginia Lane, Thornwood,
New York 10594. According New York 10594. Upon information New York 10594. According to the Trustee, Defendant and belief, Defendant to the Trustee, Defendant Decisions Incorporated Decisions Incorporated Decisions Incorporated and/or Picower serves/served and/or Defendant Picower and/or Picower serves/served as General Partner or Director serves as General Partner or as General Partner or Director of JA Primary Partnership, Director of JA Primary Partnership, of JA Primary Partnership, and Decisions Incorporated, and Decisions Incorporated, and Decisions Incorporated, and/or Picower Picower, and/or April and/or Picower transact/transacted business Freilich transact business transact/transacted business through this entity. See through this defendant entity. through this entity. See Fox Pamela Goldman Compl. ¶ 15; See Tr.'s Compl. ¶ 39. Compl. ¶ 18; Marshall A & G Goldman Compl. ¶ 15. Compl. ¶ 18. Defendant JA Special Limited Defendant JA Special Limited Defendant JA Special Limited Partnership is a limited Partnership is a limited partnership Partnership is a limited partnership organized under organized under the partnership organized under the laws of Delaware with a laws of Delaware with a principal the laws of Delaware with a principal place of business at place of business at 25 principal place of business at 25 Virginia Lane, Thornwood, Virginia Lane, Thornwood, 25 Virginia Lane, Thornwood, New York, New York 10594. New York, New York 10594. New York, New York 10594. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant Decisions Incorporated Defendant Decisions Incorporated Decisions Incorporated and/or Picower serve/served and/or Defendant Picower and/or Picower serve/served as General Partner or serves as General Partner as General Partner or Director of JA Special Limited or Director of JA Special Director of JA Special Limited Partnership, and Decisions Limited Partnership, and Decisions Partnership, and Decisions Incorporated, and/or Picower Incorporated, Picower, Incorporated, and/or Picower transact/transacted and/or Freilich transact business transact/transacted business through this Defendant through this defendant business through this Defendant entity. See Pamela entity. See Tr.'s Compl. ¶ 40. entity. See Fox Compl. Goldman Compl. ¶ 16; A & G ¶ 19; Marshall Compl. ¶ 19. Goldman Compl. ¶ 16. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant JAB Partnership Defendant JAB Partnership JAB Partnership purports to be a limited partnership purports to be a limited partnership purports to be a limited partnership with a listed mailing with a listed mailing with a listed mailing address care of Decisions Incorporated address care of Decisions Incorporated address care of Decisions Incorporated at 22 Saw Mill at 22 Saw Mill at 22 Saw Mill River Road, Hawthorne, New River Road, Hawthorne, New River Road, Hawthorne, New York, 10532. Upon information York, 10532. Upon information York, 10532. Upon information and belief, Defendant and belief, Defendant Decisions and belief Defendant Decisions Decisions Incorporated Incorporated and/or Incorporated and/or and/or Picower serve/served Defendant Picower serves as Picower serve/served as General as General Partner or Director General Partner or Director Partner or Director of of JAB Partnership, of JAB Partnership, and Decisions JAB Partnership, and Decisions and Decisions Incorporated, Incorporated, Picower, Incorporated, and/or Picower and/or Picower transact/transacted and/or Freilich transact business transact/transacted business through this defendant business through this Defendant through this Defendant entity. entity. See Tr.'s Compl. ¶ 41. entity. See Fox Compl. See Pamela Goldman ¶ 20; Marshall Compl. ¶ 20. Compl. ¶ 17; A & G Goldman Compl. ¶ 17. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant JEMW Partnership Defendant JEMW Partnership JEMW Partnership purports to be a limited partnership purports to be a limited purports to be a limited partnership with a listed mailing partnership with a listed mailing with a listed mailing address care of Decisions Incorporated address care of Decisions address care of Decisions Incorporated at 22 Saw Mill Incorporated at 22 Saw Mill at 22 Saw Mill River Road, Hawthorne, New River Road, Hawthorne, New River Road, Hawthorne, New
York, 10532; and Defendant York, 10532. Upon information York, 10532; and Defendant Decisions Incorporated and belief, Defendant Decisions Decisions Incorporated and/or Picower serve/served Incorporated and/or and/or Picower serve/served as General Partner or Director Defendant Picower serves as as General Partner or Director of JEMW Partnership, General Partner or Director of JEMW Partnership, and Decisions Incorporated, of JEMW Partnership, and and Decisions Incorporated, and/or Picower transact/transacted Decisions Incorporated, Picower, and/or Picower transact/transacted business and/or Freilich transact business through this Defendant entity. business through this defendant through this Defendant entity. See Pamela Goldman entity. See Tr.'s See Fox Compl. ¶ 21; Compl. ¶ 18; A & G Goldman Compl. ¶ 42. Marshall Compl. ¶ 21. Compl. ¶ 18. According to the Trustee, Upon information and belief, According to the Trustee, Defendant JF Partnership Defendant JF Partnership Defendant JF Partnership purports to be a limited partnership purports to be a limited partnership purports to be a limited partnership with a listed mailing with a listed mailing with a listed mailing address care of Decisions Incorporated address care of Decisions Incorporated address care of Decisions Incorporated at 22 Saw Mill at 22 Saw Mill at 22 Saw Mill River Road, Hawthorne, New River Road, Hawthorne, New River Road, Hawthorne, New York, 10532; and Defendant York, 10532. Upon information York, 10532; and Defendant Decisions Incorporated and belief, Defendant Decisions Decisions Incorporated and/or Picower serve/served Incorporated and/or and/or Picower serve/served as General Partner or Director Defendant Picower serves as as General Partner or Director of JF Partnership, and General Partner or Director of JF Partnership, and Decisions Incorporated, of JF Partnership, and Decisions Decisions Incorporated, and/or Picower transact/transacted Incorporated, Picower, and/or Picower transact/transacted business and/or Freilich transact business act/transacted business through this Defendant entity. through this defendant through this Defendant entity. See Pamela Goldman entity. See Tr.'s Compl. ¶ 43. See Fox Compl. ¶ 22; Compl. ¶ 19; A & G Goldman Marshall Compl. ¶ 22. Compl. ¶ 19. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant JFM Investment Defendant JFM Investment JFM Investment Company is an entity through Company is an entity through Company is an entity through which Decisions Incorporated, which Decisions Incorporated, which Decisions Incorporated, and/or Picower transact/transacted Picower and/or Freilich transact and/or Picower transact/transacted business, with business, with a listed business, with a listed mailing address care mailing address care of Decisions a listed mailing address care of Decisions Incorporated at Incorporated at 22 Saw of Decisions Incorporated at 22 Saw Mill River Road, Mill River Road, Hawthorne, 22 Saw Mill River Road, Hawthorne, New York, New York, 10532. Upon information Hawthorne, New York, 10532; and JFM Investment and belief, JFM Investment 10532; and JFM Investment Company is a Limited Partner Company is a Limited Company is a Limited Partner of Capital Growth Company, Partner of Capital Growth of Capital Growth Company, and Decisions Incorporated Company, and Decisions Incorporated and Decisions Incorporated and/or Picower serve/served and/or Picower and/or Picower serve/served as General Partner or serves as General Partner or as General Partner or Director of JFM Investment Director of JFM Investment Director of JFM Investment Company. See Pamela Goldman Company. See Tr.'s Compl. Company. See Fox Compl. Compl. ¶ 20; A & G ¶ 44. ¶ 23; Marshall Compl. ¶ 23. Goldman Compl. ¶ 20. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant JLN Partnership is a Defendant JLN Partnership JLN Partnership is a limited partnership with a is a limited partnership with a limited partnership with a listed mailing address care of listed mailing address care of listed mailing address care of Decisions Incorporated at 22 Decisions Incorporated at 22 Decisions Incorporated at 22 Saw Mill River Road, Hawthorne, Saw Mill River Road, Hawthorne, Saw Mill River Road, Hawthorne, New York, 10532; New York, 10532. New York, 70532;
and Decisions Incorporated Upon information and belief, and Decisions Incorporated and/or Picower serve/served Decisions Incorporated and/or and/or Picower serve/served as General Partner or Director Picower serves as General as General Partner or Director of JLN Partnership, Partner or Director of JLN of JLN Partnership, and Decisions Incorporated, Partnership, and Decisions and Decisions Incorporated, and/or Picower transact/transacted Incorporated, Picower, and/or and/or Picower transact/transacted business Freilich transact business business through this Defendant entity. through this defendant entity. through this Defendant entity. See Pamela Goldman See Tr.'s Compl. ¶ 45. See Fox Compl. ¶ 24; Compl. ¶ 21; A & G Goldman Marshall Compl. ¶ 24. Compl. ¶ 21. Defendant JMP Limited Defendant JMP Limited Partnership Defendant JMP Limited Partnership is a limited partnership is a limited partnership Partnership is a limited partnership organized under the organized under the laws organized under the laws of Delaware, with a of Delaware, with a principal laws of Delaware, with a principal place of business at place of business at 25 Virginia principal place of business at 25 Virginia Lane, Thornwood, Lane, Thornwood, New 25 Virginia Lane, Thornwood, New York 10594. According York 10594. Upon information New York 10594, According to the Trustee, Decisions Incorporated and belief, Decisions Incorporated to the Trustee, Decisions Incorporated and/or Picower and/or Picower and/or Picower serve/served as General Partner serves as General Partner or serve/served as General Partner or Director of JMP Partnership, Director of JMP Partnership, or Director of JMP Partnership, and Decisions Incorporated, and Decisions Incorporated, and Decisions Incorporated, and/or Picower Picower, and/or Freilich and/or Picower transact/transacted business transact business through this transact/transacted business through this Defendant entity. defendant entity. See Tr.'s through this Defendant entity. See Pamela Goldman Compl. ¶ 46. See Fox Compl. ¶ 25; Compl. ¶ 22; A & G Goldman Marshall Compl. ¶ 25. Compl. ¶ 22. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant Jeffry M. Picower Defendant Jeffry M. Picower Jeffry M. Picower Special Co. is an entity Special Co. is an entity Special Co. is an entity through which Decisions Incorporated, through which Decisions Incorporated, through which Decisions Incorporated, and/or Picower Picower and/or and/or Picower transact/transacted business, Freilich transact business, transact/transacted business, with a mailing address care with a mailing address care of with a mailing address care of Decisions Incorporated 22 Decisions Incorporated at 22 of Decisions Incorporated at Saw Mill River Road, Hawthorne, Saw Mill River Road, Hawthorne, 22 Saw Mill River Road, New York, 10532; New York, 10532. Hawthorne, New York, and Decisions Incorporated Upon information and belief, 10532; and Decisions Incorporated and/or Picower serve/served Decisions Incorporated and/or and/or Picower as General Partner or Director Picower serves as General serve/served as General Partner of Jeffry M. Picower Partner or Director of Jeffry or Director of Jeffry M. Special Co. See Pamela Goldman M. Picower Special Co. See Picower Special Co. See Fox Compl. ¶ 23; A & G Tr.'s Compl. ¶ 47. Compl. ¶ 26; Marshall Goldman Compl. ¶ 23. Compl. ¶ 26. According to the Trustee, Defendant Defendant Favorite Funds is According to the Trustee, Defendant Favorite Funds is an an entity through which Picower Favorite Funds is an entity through which Picower transacts business, with entity through which Picower transacted business, with a a listed mailing address care transacted business, with a listed mailing address care of of Decisions Incorporated at listed mailing address care of Decisions Incorporated at 22 22 Saw Mill River Road, Hawthorne, Decisions Incorporated at 22 Saw Mill River Road, Hawthorne, New York, 10532. Saw Mill River Road, Hawthorne, New York, 10532, and Upon information and belief, New York, 10532, and Decisions Incorporated Decisions Incorporated and/or Decisions Incorporated and/or Picower serve/served Picower serves as General and/or Picower serve/served as General Partner or Director Partner or Director of Favorite as General Partner or Director of Favorite Funds. Funds. See Tr.'s Compl. of Favorite Funds.
See Pamela Goldman Compl. ¶ 48. See Fox Compl. ¶ 27; Marshall ¶ 24; A & G Goldman Compl. Compl. ¶ 27. ¶ 24. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant Jeffry M. Picower Defendant Jeffry M. Picower Jeffry M. Picower P.C. purports to be a limited P.C. purports to be a limited P.C. purports to be a limited partnership with a listed partnership with a listed partnership with a listed mailing address at 25 Virginia mailing address at 25 Virginia mailing address at 25 Virginia Lane, Thornwood, New Lane, Thornwood, New York, Lane, Thornwood, New York, New York 10594, and New York 10594. Upon information York, New York 10594, and Decisions Incorporated and belief, Decisions Decisions Incorporated and/or Picower serve/served Incorporated and/or Picower and/or Picower serve/served as General Partner or Director serves as General as General Partner or Director of Jeffry M. Picower Partner or Director of Jeffry of Jeffry M. Picower P.C., and Decisions Incorporated, M. Picower P.C., and Decisions P.C., and Decisions Incorporated, and/or Picower transact/transacted Incorporated, Picower, and/or Picower transact/transacted business and/or Freilich transact business business through this defendant entity. through this defendant through this defendant entity. See Pamela Goldman entity. See Tr.'s Compl. ¶ 49. See Fox Compl. ¶ 28; Compl. ¶ 25; A & G Goldman Marshall Compl. ¶ 28. Compl. ¶ 25. Defendant Picower Foundation Upon information and belief, Defendant Picower Foundation is a trust organized for Defendant Picower Foundation is a trust organized for charitable purposes with Picower is a trust organized for charitable purposes with Picower listed as donor, and Picower charitable purposes with Picower listed as donor, and Picower and Barbara Picower, listed as donor and Picower and Barbara Picower, among others, listed as Trustees and Barbara Picower, among others, listed as Trustees during the relevant time among others, listed as Trustees. during the relevant time period. Picower Foundation's Picower Foundation's period. Picower Foundation's addresses are reported addresses are reported as addresses are reported as 1410 South Ocean Boulevard, 1410 South Ocean Boulevard, as 1410 South Ocean Boulevard, Palm Beach, Florida Palm Beach, Florida 33480 Palm Beach, Florida 33480 and 9 West 57th and 9 West 57th Street, Suite 33480 and 9 West 57th Street, Suite 3800, New York, 3800, New York, New York Street, Suite 3800, New York, New York 10019. See Pamela 10019. See Tr.'s Compl. ¶ 50. New York 10019. See Fox Goldman Compl. ¶ 26; A & Compl. ¶ 29; Marshall G Goldman Compl. ¶ 26. Compl. ¶ 29. According to the Trustee, Defendant Upon information and belief, According to the Trustee, Defendant Picower Institute for Defendant Picower Institute Picower Institute for Medical Research is a nonprofit for Medical Research is a Medical Research is a nonprofit entity organized under nonprofit entity organized under entity organized under the laws of New York, with a the laws of New York, the laws of New York, with a principal place of business at with a principal place of business principal place of business at 350 Community Drive, Manhasset, at 350 Community Drive, 350 Community Drive, Manhasset, New York 11030. See Manhasset, New York 11030. New York 11030. See Pamela Goldman Compl. ¶ 27; See Tr.'s Compl. ¶ 51. Fox Compl. ¶ 30; Marshall A & G Goldman Compl. ¶ 27. Compl. ¶ 30. According to the Trustee, Defendant Defendant Trust FBO Gabrielle According to the Trustee, Defendant Trust f/b/o Gabrielle H. Picower is a trust established Trust f/b/o Gabrielle H. Picower is a trust established for beneficiary H, Picower is a trust established for beneficiary Gabrielle Gabrielle H. Picower, who for beneficiary Gabrielle H. Picower, who is the upon information and belief is H. Picower, who is the daughter of Picower and Barbara the daughter of Picower and daughter of Picower and Barbara Picower, with Defendant Barbara Picower, with Defendant Picower, with Defendant Barbara Picower listed as Barbara Picower listed Barbara Picower listed as trustee, and the trust's as trustee and the trust's trustee, and the trust's BLMIS account address reported BLMIS account address reported BLMIS account address reported as 1410 South Ocean as 1410 South Ocean as 1410 South Ocean
Boulevard, Palm Beach, Florida Boulevard, Palm Beach, Florida Boulevard, Palm Beach, Florida 33480. See Pamela Goldman 33480. See Tr.'s Compl. 33480. See Fox Compl. Compl. ¶ 28; A & G ¶ 52. ¶ 31; Marshall Compl. ¶ 31. Goldman Compl. ¶ 28. On information and belief, On information and belief, the On information and belief the the ... [Picower Entity Defendants] ... [Picower Entities] in dealing ... [Picower Entity Defendants] were dominated, with BLMIS have been were dominated, controlled controlled and used as a mere dominated by and used merely and used as a mere instrumentality of Picower to as the instrument of Picower instrumentality of Picower to advance his interests in, and to advance his personal interests advance his interests in, and to participate in and control, rather than corporate to participate in, the Madoff the Madoff Ponzi scheme. ends. As set forth herein, Picower Ponzi scheme. Thus, the Picower Thus, the Picower Entity Defendants exercised complete dominion Entity Defendants are are the alter egos of over the Picower Entities the alter egos of Picower and Jeffry Picower and of each in dealing with BLMIS, of each other. See Fox other. See Pamela Goldman which he knew or should have Compl. ¶ 32; Marshall Compl. ¶ 29; A & G Goldman known was predicated on Compl. ¶ 32. Compl. ¶ 29. fraud. As a result, the Picower Entities functioned as alter egos of Picower and no corporate veil can be maintained between them. See Tr.'s Compl. ¶ 53. BLMIS is a New York Limited BLMIS is a New York limited Liability Corporation that liability company that is wholly was wholly owned by Madoff. owned by Madoff. Founded BLMIS was founded in 1959. in 1959, BLMIS operated Madoff as Founder, Chairman, from its principal place of Chief Executive Officer, business at 885 Third Avenue, and sole shareholder ran New York, New York. Madoff, BLMIS as his alter ego with as founder, chairman, several family members and and chief executive officer, a few employees. BLMIS ran BLMIS together with was registered with the SEC several family members and a as a Securities Broker Dealer number of additional employees. under § 15 of the Exchange BLMIS was registered Act. See Pamela Goldman with the SEC as a securities Compl. ¶ 30; A & G Goldman broker-dealer under Section Compl. ¶ 30. 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(b). By that registration, BLMIS is a member of SIPC. BLMIS had three business units: investment advisory (the "IA Business"), market making and proprietary trading. See Tr.'s Compl. ¶ 19. BLMIS customers received Although clients of the IA The Defendants' account records monthly statements showing Business received monthly or reflect, and Defendants the purchase and sales of securities quarterly statements purportedly were aware of, or should have in their accounts showing the securities been of, the fact that Madoff along with the profits purportedly that were held in — or had and BLMIS booked in their realized from these been traded through — their accounts fictional profits from securities transactions. But accounts, as well as the fictional trading. Upon information the transactions reported on growth of and profit from and belief, no purchases these statements were a fabrication. those accounts over time, the or sales of securities The securities trades reported on these in the Defendants' BLMIS
transactions described in the statements were a complete accounts ever actually occurred. monthly statements either fabrication. The security Upon information never occurred or rarely occurred, purchases and sales depicted and belief, no purchases or and the profits reported in the account statements virtually sales of securities in the class were entirely fictitious. never occurred and the members' BLMIS accounts Madoff admitted at profits reported were entirely ever actually occurred. See his plea hearing that he had fictitious. At the Plea Hearing, Fox Compl. ¶ 8; Marshall never purchased any of the Madoff admitted that he Compl. ¶ 8. securities in BLMIS customer never in fact purchased any of accounts. Following an the securities he claimed to extensive and lengthy investigation, have purchased for customer the Trustee for accounts. Indeed, based on BLMIS has stated that, except the Trustee's investigation to for isolated individual date and with the exception of transactions, there is no record isolated individual trades for of BLMIS having purchased certain clients other than the or sold any securities Defendants, there is no record in BLMIS customer accounts. of BLMIS having cleared See Pamela Goldman Compl. any purchase or sale of securities ¶ 33; A & G Goldman Compl. at the Depository Trust ¶ 33. & Clearing Corporation, the clearing house for such transactions, or any other trading platform on which BLMIS could have reasonably traded securities. See Tr.'s Compl. ¶ 21. The money that customers The money received from investors Picower, the other Defendants, paid to BLMIS in connection was not set aside to and their agents directly with their investment contracts buy securities as purported, participated in the Madoff with BLMIS was not but instead was primarily Ponzi scheme, and knew used to purchase securities as used to make the distributions or should have known that described, but instead was to — or payments on behalf the funds used to pay the used to make distributions to of — other investors. See Tr.'s Defendants' fictional profits other investors, primarily to Compl. ¶ 24. could have only come from the Defendants. See Pamela the accounts of other BLMIS Goldman Compl. ¶ 34; A & G customers. Picower and Defendants Goldman Compl. ¶ 34. converted the cash in other innocent BLMIS customer accounts for their own personal benefit with the acquiescence and assistance of Madoff and BLMIS. See Fox Compl. ¶ 9; Marshall Compl. ¶ 9. On December 11, 2008, Madoff On December 11, 2008 (the was arrested by federal "Filing Date"), Madoff was agents and charged with arrested by federal agents for criminal violation of the federal violation of the criminal securities securities laws, including laws, including, inter securities fraud, investment alia, securities fraud, investment advisor fraud, and mail and adviser fraud, and mail wire fraud. On the same and wire fraud. Contemporaneously, day, the SEC filed a complaint the Securities and in the United States Exchange Commission District Court for the Southern ("SEC") filed a complaint in District of New York the District Court which commenced against Madoff and BLMIS, the District Court
also alleging that Madoff and Proceeding against Madoff BLMIS engaged in securities and BLMIS. The District fraud. See Pamela Goldman Court Proceeding remains Compl. ¶ 35; A & G Goldman pending in the District Court. Compl. ¶ 35. The SEC complaint alleged that Madoff and BLMIS engaged in fraud through the investment advisor activities of BLMIS. See Tr.'s Compl. ¶ 9. On December 15, 2008, the On December 15, 2008, pursuant SEC consented to a combination to 15 U.S.C. of its own action with an § 78eee(a)(4)(A), the SEC application of the Securities consented to a combination of Investor Protection Corporation its own action with an application ("SIPC"). Thereafter, of the Securities Investor pursuant to 15 U.S.C. Protection Corporation § 78eee(a)(4)(B) of the Securities ("SIPC"). Thereafter, pursuant and Investor Protection to 15 U.S.C. Action ("SIPA"), SIPC filed § 78eee(a)(4)(B), SIPC filed an application in the District an application in the District Court alleging that BLMIS Court alleging, inter alia, that was not able to meet its obligations BLMIS was not able to meet to its securities customers its obligations to securities as they came due and customers as they came due that such customers needed and, accordingly, its customers the protections afforded by needed the protections afforded SIPA. See Pamela Goldman by SIPA. See Tr.'s Compl. ¶ 36; A & G Goldman Compl. ¶ 11. Compl. ¶ 36. Also on December 15, 2008, Also on December 15, 2008, the District Court appointed Judge Stanton granted the Irving H. Picard, Esq., as SIPC application and entered trustee ("Trustee") for the an order pursuant to SIPA substantively consolidated (the "Protective Decree"), liquidation of Madoff's estate which, in pertinent part appointed and of BLMIS under SIPA. the Trustee for the See Pamela Goldman Compl. liquidation of the business of ¶ 37; A & G Goldman Compl. BLMIS pursuant to 15 U.S.C. ¶ 37. § 78eee(b)(3). See Tr.'s Compl. ¶ 12(a). Picower, now deceased, was a Defendant Picower is a sophisticated Picower was a highly sophisticated sophisticated investor, accountant investor, accountant investor, accountant and lawyer. Picower, and lawyer who has organized and attorney who participated directly and through the buyouts of health care in the Madoff Ponzi Defendants, had a very close and technology companies scheme for over 20 years, relationship with Madoff. Picower since at least the 1980s. He knowing that he was participating knew Madoff for decades has reportedly known Madoff in a fraud.... Upon and was an investor in for decades, and has been invested information and belief Picower BLMIS since at least the in BLMIS since at was closely associated with 1980s. Madoff served as a least the 1980s. Madoff Madoff, both in business and Trustee for one of Picower's served as a trustee of the Picower socially, for the last 30 years. foundations, the Picower Institute Institute for Medical See Fox Compl. ¶ 13; Marshall for Medical Research. Research. See Tr.'s Compl. shall Compl. ¶ 13. See Pamela Goldman Compl. ¶ 58. ¶ 42; A & G Goldman Compl. ¶ 42.
Picower and, through him, the other Defendants therefore enjoyed an unusually close relationship with Madoff. See Tr.'s Compl. ¶ 59. Through the other Defendants Picower and, through him, the and through his relationship other Defendants, therefore with Madoff, Picower enjoyed an unusually close relationship became privy to information with Madoff, and about BLMIS and its operations were privy to information and not available to other dealings not known to other customers. See Pamela BLMIS investors. See Tr.'s Goldman Compl. ¶ 43; A & G Compl. ¶ 59. Goldman Compl. ¶ 43. Picower was able to control This entanglement permitted By directly instructing Madoff BLMIS and use BLMIS as Madoff, at his whim and desire, and BLMIS employees "a personal piggy bank" by to engage in innumerable to book such phony transactions withdrawing funds for various financial transactions wherein which generated phony entities he controlled, he essentially used BLMIS as profits, the Defendants controlled even if there was no legitimate his personal "piggy bank," and enabled the fraud underlying profitable ... See SIPC v. BLMIS, Adv. to convert the funds of other transaction warranting a distribution Pro. No. 08-1789(BRL), ECF innocent BLMIS account of such funds. See No. 196 (S.D.N.Y. May 5, holders. See Fox Compl. Pamela Goldman Compl. ¶ 45; 2009) (Mem. of Law in Support ¶ 111; Marshall Compl. ¶ 111. A & G Goldman Compl. ¶ 45. of Joint Mot. for Entry of Order Substantively Consolidating the Estate of Bernard L. Madoff Into the SIPA Proceeding of Bernard L. Madoff Investment Securities LLC) The Transfers were, in part, false and fraudulent payments of nonexistent profits supposedly earned in the Accounts ("Fictitious Profits"). See Tr.'s Compl. ¶ 66. In fact, the Defendants benefited Based upon the Trustee's investigation Defendants were, as a group, in a much more substantial to date, Picower the largest beneficiaries of way than Madoff and his was instead the biggest beneficiary the Ponzi scheme, converting family. The Trustee has alleged of Madoff's scheme, and receiving billions of dollars in an adversary action having withdrawn either directly from the accounts of innocent against the Defendants that or through the entities Madoff and BLMIS the Defendants received at he controlled more than $7.2 customers. See Fox Compl. least $7.2 billion from billion of other investors' ¶ 1; Marshall Compl. ¶ 1. BLMIS, net of their investments. money. See Tr.'s Mem. of See Pamela Goldman Law in Opp. to Mot. to Dismiss Compl. ¶ 46; A & Goldman pg. 2. Compl. ¶ 46. The Picower Defendants were far and away the primary beneficiaries of the Madoff fraud, having received almost 40% of the approximately $18 billion lost by BLMIS customers. See Pamela Goldman Compl. ¶ 47; A & G Goldman Compl. ¶ 47.
According to the Trustee, BLMIS made payments and other transfers to the Defendants totaling over $7.2 billion more than Defendants deposited, including $6.7 billion from 1995 to 2008. See Fox Compl. ¶ 38; Marshall Compl. ¶ 38. The Defendants directed Picower and the other Defendants In fact, relevant documents BLMIS to prepare fraudulent also knew or should and information show that trading records and have known that they were Picower and the Defendants fraudulent trading results, reaping the benefits of manipulated directed BLMIS to prepare which effected returns in purported returns, account statements for the their accounts based upon false documents and fictitious Defendants reflecting not actual transactions which in fact profit. For example, some trading results but the never took place. Picower purported "trades" in Defendants' rates of return Picower directly and through the other accounts supposedly "wanted to achieve". Defendants initiated, directed, took place before the relevant BLMIS complied with these coordinated and cause direction from the Defendants, directions, and the vast majority to be effected false records or even before the relevant of the purported "profits" and back dated records at account was opened or in the Defendants' accounts BLMIS, which resulted in funded. BLMIS records further were not a result of the appearance of trading suggest that not only was the actual purchase and sale profits in these accounts. Picower Picower aware (or at a minimum, of securities. See Fox then withdrew these should have been Compl. ¶ 7; Marshall Compl. false profits from the Defendant aware) that BLMIS was creating ¶ 7. accounts. This direction backdated transactions, of trading activity and direction but that Picower and/or his of preparation of false agent may have used backdated trading records over a multi-year documents to direct such period shows control of backdated trades themselves. the specific fraudulent activity See Tr.'s Compl. ¶ 4. which constituted the underlying Ponzi scheme and the underlying violations of 10b-5 engaged in by BLMIS. See Pamela Goldman Compl. ¶ 49; A & G Goldman Compl. ¶ 49. In fact, upon information and belief, Picower and the other Defendants, with the assistance of Picower's associate April C. Freilich ("Freilich"), directed fictitious and backdated trades, with the consent of Madoff, BLMIS and their agents, to manufacture profits and losses in accordance with an overall fraudulent trading strategy developed by Picower. See Fox Compl. ¶ 48; Marshall Compl. ¶ 48. The false trading documentation Defendants' accounts regularly The Defendants' "buy and maintained by BLMIS earned extraordinary and hold strategy" purportedly shows that the Defendants' implausibly high rates of return. generated extraordinary and
accounts generated annual For example, Picower's implausibly high annual rates rates of return well in excess "Decision Inc. #3" and of return. For example, two of any conceivable rates of "Decision Inc. #4" regular of the BLMIS accounts controlled return for the relevant trading trading accounts purportedly by Picower generated strategy in these accounts. earned annual rates of return annual rates of return of over For example, two of over 100% for four consecutive 100% for four consecutive the BLMIS accounts controlled years, from 1996-1999, years from 1996 through by Picower generated inclusive. The annual rates 1999. According to the Trustee: annual rates of return of over of return for these accounts "Between 1996 and 2007 100% for four consecutive during the period from 1996 defendants 24 regular trading years from 1996 through to 1999 ranged from a "low" accounts enjoyed 14 instances 1999. According to the Trustee of approximately 120% to a of supposed annual returns of "between 1996 and 2007 high of over 550%. Nor more than 100%..." During defendants' 24 regular trading were these isolated or unusual this time period the annual accounts enjoyed 14 instances occurrences; Picower's rates of return for certain of of supposed annual "Decision Inc. #2" account, Defendants' accounts ranged returns of more than for example, purported to from 120% to over 550%. 100%...." During this time earn over 950% in 1999. Indeed, Other Defendant accounts period the annual rates of return between 1996 and 2007, had documented earnings of for certain of defendants' Defendants' 24 regular trading almost 1000%. See Fox accounts ranged from accounts enjoyed 14 instances Compl. ¶ 43; Marshall 120% to over 550%. In actuality, of supposed annual Compl. ¶ 43. Picower directly and returns of more than 100% through the Picower defendants and 25 in which the annual used his ability to control returns purportedly exceeded the BLMIS records 50%. On information and belief, maintained to cause the preparation the high returns reported of trading records on Defendants' accounts which purported to show were a form of compensation these trading profits, which by Madoff to Picower for in fact never occurred. By perpetuating the Ponzi orchestrating the creation of scheme by investing and these false trading records, maintaining millions of dollars Picower enabled himself to in BLMIS. See Tr.'s transfer proceeds from these Compl. ¶ 63(a). purported transactions to his own account and then to third party bank accounts which he controlled. The funds he withdrew belonged to other BLMIS customers including the class members. See Pamela Goldman Compl. ¶ 50; A & G Goldman Compl. ¶ 50. These implausibly high purported returns have enabled Picower and the other Defendants to collectively withdraw more than $6.7 billion since December 1995. At least $5.1 billion of that sum was over and above any funds deposited by Defendants and constituted money belonging to victims of the fraud. See Tr.'s Compl. ¶ 63(b).
The operations of the Decisions For example, Decisions maintained The several BLMIS accounts account establishes Picower's several accounts with of Defendant Decisions Incorporated, control of the cash BLMIS. One of those accounts, which was controlled flows at BLMIS and his unfettered "Decisions Inc.," was by Picower, provide ability to remove used by Picower and the other concrete examples of the obviously money from the BLMIS customer Defendants as the primary fictitious profits Defendants accounts for his own source of cash withdrawals received as a result benefit and as he saw fit. from BLMIS. The account of their participation in the The Decisions, Inc. accounts reflected little trading activity Ponzi scheme. See Fox were the primary source of and relatively few holdings, Compl. ¶ 49; Marshall the Picower Defendants' cash but Picower directed quarterly Compl. ¶ 49. withdrawals from BLMIS. distributions from this account These accounts reflect virtually in the millions to hundreds no trading activity and of millions of dollars virtually no securities positions throughout the 1990s and or other collateral for 2000s. See Tr.'s Compl. loans from this account. See ¶ 63(d). Pamela Goldman Compl. ¶ 54; A & G Goldman Compl. ¶ 54. These accounts were a primary source of Defendants' cash withdrawals from BLMIS during the relevant time period, yet the accounts reflected virtually no trading activity and very few purported securities positions. See Fox Compl. ¶ 49; Marshall Compl. ¶ 49. Picower, directly and through Prior to the Filing Date, Picower and Freilich directed the other Defendants, made BLMIS made payments or the withdrawals from the Decisions distribution requests and directed other transfers (collectively, Incorporated account cash withdrawals from the "Transfers") totaling over even though the account this account ranging from $50 $6.7 billion to one or more of maintained a large negative million to $150 million five or the Defendants. The Transfers cash balance of more than $6 more times per year for a were made to or for the billion and there was not total of approximately $6 billion. benefit of one or more of the enough cash in the account to See Pamela Goldman Defendants and include, but cover the withdrawals. See Compl. ¶ 55; A & G Goldman are not limited to, the Transfers Fox Compl. ¶ 50; Marshall Compl. ¶ 55. listed on Exhibit B. See Compl. ¶ 50. Tr.'s Compl. ¶ 57; See also Tr.'s Compl. Ex. B. The Defendants' control of On or about April 24, 2006, That Picower, the other Defendants, BLMIS's operations was such Decisions opened a sixth account and Madoff and that they were able to direct with BLMIS ("Decisions BLMIS actively conspired to BLMIS employees to create 6") by wire transfer on steal the funds of the Plaintiff and document false and non-existent April 18 of $125 million. and the class members is also securities transactions, BLMIS promptly began "purchasing" evidenced by the fact that which, in turn, were designed securities in the account, many purported trades in the to generate fictitious but it backdated the Defendants' accounts were profits for Picower to withdraw vast majority of these purported back dated. Picower purportedly from the Defendants' transactions to January "sold" positions on a BLMIS accounts. See Pamela 2006. By the end of fabricated earlier date to Goldman Compl. ¶ 56; A & April, a scant 12 days later, generate phony profits. See G Goldman Compl. ¶ 56. the purported net equity value Fox Compl. ¶ 54; Marshall of the account was over Compl. ¶ 54. $164 million, a gain of $39 million, or a return of more than
30% in less than two weeks of purported trading. The reason for this massive gain: the Decisions 6 April 2006 customer account statement reflected 57 purported purchases of securities between January 10 and January 24, 2006, almost three months before the account was opened or funded. Defendants knew or should have known that the account that they opened in April could not legitimately have purchased securities in January, and that the $125 million deposited on April 18 could not legitimately have grown by more than 30% in less than two weeks, which, annualized, would have resulted in a rate of return of more than 750%. The majority of the securities "purchased" in January were "purchased" near the lowest prices for the period from January to April 2006, and were purportedly chosen in order to create an unusually high unrealized gain by the end of April. See Tr.'s Compl. ¶ 63(e). The Defendants' ability to reconfigure For example, as stated in the for their own fraudulent Trustee's Complaint, on or purpose the actual trading about April 24, 2006, Decisions records maintained by Incorporated opened a BLMIS, a highly regulated new account with BLMIS broker and investment advisor, known as the "Decisions Incorporated shows that the Defendants 6" ("Decisions 6") exercised control over account by a wire transfer on the day to day operations of April 18, 2006 of $125 million. BLMIS and specifically over See Fox Compl. ¶ 55; Marshall the trading activity that constituted Compl. ¶ 55. a violation of the securities laws. See Pamela Goldman Compl. ¶ 57; A & G Goldman Compl. ¶ 57. By way of example, as stated Picower instructed BLMIS to in the Trustee's complaint, on backdate trades in this account or about April 24, 2006, Defendant to January 2006, which Decisions, Inc. was before the Decisions 6 opened a new account with account was even opened. BLMIS known as the Decisions, See Fox Compl. ¶ 56; Marshall Inc. 6 account. This Compl. ¶ 56. account was opened with a wire transfer of $125 million. The Defendants instructed BLMIS to back date trades in this account to January
2006, which was four months prior to the time the account was actually opened. BLMIS employees carried out the Defendants' direct instructions and fabricated and back dated trades in the Decision 6 account. This resulted in the net value of the account increasing by almost $40 million, or 30%, in less than two weeks after it "actually opened." The Defendants' ability to affect back dated trades in the Decisions 6 account generated phony paper profits which had appreciated only on a hindsight basis and represented part of a continuous pattern of the Picower defendants directing the falsification of trading records at BLMIS, which allowed Picower to pilfer from other BLMIS accounts. See Pamela Goldman Compl. ¶ 58; A & G Goldman Compl. ¶ 58. As a result of the fabrication/backdating of trades, the purported net value of securities in the Decisions 6 account by the end of April 2006 had increased by almost $40 million, for a return of 30% in less than two weeks of "purported trading". See Fox Compl. ¶ 57; Marshall Compl. ¶ 57. Picower's scheme to backdate trades in Decisions 6 was designed to generate phony paper profits in the account by picking stocks which had appreciated on a "hindsight basis," and represented part of a continuous pattern of false generation of profits which enabled Picower and the Defendants to pilfer other BLMIS customer accounts for actual cash based upon phony booked profits. See Fox Compl. ¶ 58; Marshall Compl. ¶ 58. By way of further example, BLMIS records, together On or around December 29, on or about December 29, with Picower's own documents, 2005, Freilich, acting on Picower's 2005, Picower's assistant further suggest Picower's behalf, faxed BLMIS April Freilich, acting on behalf and his agents' complicity a letter signed by Picower,
half of the Defendants, faxed in the fraud, through two additional that directed BLMIS to realize BLMIS a letter signed by Picower backdated trades in a gain of $50 million. that directed BLMIS December 2005. On or Upon instruction from Picower to "realize" a gain of $50 million around December 29, 2005, and/or Freilich, BLMIS in the Picower accounts. April Freilich, acting on behalf "sold" large amounts of Agilent Upon direction from Picower of Picower, faxed to Technologies and Intel and Freilich, BLMIS sold BLMIS a letter signed by Picower Corporation stock in various large amounts of stock in that directed BLMIS to Defendant accounts on a Agilent Technologies and Intel "pick up long term capital backdated basis. Freilich directed Corporation in various gains in the accounts listed the sale of large Defendant accounts on a back below before December 31, amounts of these purported dated basis. Freilich directed 2005" across five Decisions accounts. securities on or about December the sales of large amounts The letter further directed 29, 2005, requesting that of these purported securities BLMIS to realize the sales be booked to take on or about December 29, $50,000,000 in gains, and attached place on an earlier date, i.e., 2005, requesting that the the relevant "portfolio December 8th or 9th. These sales be booked to take place appraisal" statements for the trades were backdated by Picower on an earlier date, i.e., December five Decisions accounts listed and BLMIS for the 8 or 9. BLMIS backdated in the letter. Each "portfolio purpose of generating phony the trades at Picower's appraisal," created by Picower "paper" profits of approximately direction and on Picower's and/or his agents, purported $46.3 million, making behalf for the purpose of generating to show the securities held up most of Picower's requested phony paper profits in each account, the date they $50 million gain. See Fox of approximately $46.3 million, were "purchased," the quantity Compl. ¶ 62; Marshall which made up most of held, and also purported to Compl. ¶ 62. Picower's requested $50 million calculate the unrealized gain distribution. See Pamela or loss on each security based Goldman Compl. ¶ 59; A & G on the market values as of Goldman Compl. ¶ 59. November 30, 2005, the date of the "portfolio appraisal." According to Picower's own "portfolio appraisals," none of these Decisions accounts held more than 11 different securities, and three of these accounts held 5 or fewer securities as of November 30, 2005. See Tr.'s Compl. ¶ 63(i). Upon Picower's instruction, BLMIS "sold" Agilent Technologies ("Agilent") and Intel Corporation ("Intel") across these accounts, realizing a long-term gain of approximately $46.3 million, a significant majority of the requested gain. According to the account statements generated by BLMIS for December 2005 — and forwarded to Picower and his agents — these trades purportedly settled around December 8 and 9, 2005, approximately 3 weeks before the relevant instruction was sent to BLMIS. Picower's failure to question BLMIS' apparent clairvoyance suggests that Picower
knew that BLMIS was backdating trades. See Tr.'s Compl. ¶ 63(i)(i). Picower, on behalf of the Defendants, In December 2005, BLMIS Also according to the Trustee, directed and caused also created backdated "purchases" Picower and BLMIS BLMIS to affect other back on margin of Google, backdated other purported dated transactions generating Diamond Offshore Drilling securities transactions during phony profits. During December ("Diamond") and Burlington December 2005, including 2005, the Defendants Resources, Inc. ("Burlington") purported purchases on margin purported to purchase the across all of the referenced of Google, Diamond Offshore following securities on margin accounts. These "purchases" Drilling, Inc., and Burlington in their accounts: Google, — with purported settlement Resources, Inc. across Diamond Offshore Drilling, dates between January several of Defendants' accounts, Inc., and Burlington Resources, 12 and January 20, 2005 — which resulted in a Inc. This resulted in were entirely fictitious and purported gain for Picower of a purported gain of almost were reflected for the first almost $80 million. These $80 million. These purchases time in the BLMIS-created purchases purportedly occurred purportedly occurred between account statements issued at between January 12 January 12 and 20, the end of December 2005. and 20, 2005, but they were 2005 but were fictitious, as This backdated trading activity entirely fictitious, as the the transactions actually occurred resulted in an immediate transactions were first reflected eleven months later in purported 12-month unrealized 11 months later in Defendants' December 2005. Defendants "gain" for Picower of approximately December 2005 caused BLMIS to create false $79 million and a BLMIS account statements. book and record entries in portfolio value of over $155 See Fox Compl. ¶ 63; Marshall order to create a phony $80 million as of the end of December Compl. ¶ 63. million profit on "transactions" as a result of the increase that did not take place in the market value of on the dates recorded on these securities during the BLMIS's records. See calendar year.... Picower's Pamela Goldman Compl. ¶ 60; failure to question or to repudiate A & G Goldman Compl. ¶ 60. these trades — indeed, he benefited from them by being paid dividends and by selling the positions years later — is evidence of Picower's awareness of BLMIS' fraudulent activities. See Tr.'s Compl. ¶ 63(i)(ii). The Defendants also directed Additionally, on information For example, according to and orchestrated the preparation and belief, Picower, directly the Trustee's Complaint, on of false statements in and/or through and/or with May 18, 2007, Freilich indicated May 2007, which reflected the assistance of Freilich, directed that the Foundation millions of dollars in securities fictitious, backdated needed "$20 mil in gains" for transactions which reportedly trades in order to achieve fictitious January and February and took place in earlier gains or losses in earlier "want[ed] 18% for year[] 07 in 2007, but which in fact did periods. See Tr.'s Compl. appreciation," but that she not take place at all. See ¶ 63(f). had to check the numbers Pamela Goldman Compl. ¶ 61; "with Jeff." Upon information A & G Goldman Compl. ¶ 61. and belief, "Jeff" is Picower, Five days later on May 23,-2007, and presumably after consulting with Picower, Freilich told BLMIS that the numbers she provided earlier were wrong, and the Foundation "needs only $12.3 mil [in gains] for" January and February
2007. See Fox Compl. ¶ 60; Marshall Compl. ¶ 60. On May 18, 2007, Freilich indicated the Foundation needed "$20 mil in gains" for January and February and "want[ed] 18% for year[] 07 appreciation," but that she had to check the numbers "with Jeff." On information and belief, "Jeff" is Defendant Jeffry Picower. Five days later, on May 23, Freilich told BLMIS that the numbers she had provided earlier were wrong, and the Foundation "needs only $12.3 mil [in gains] for" January and February 2007. See Tr.'s Compl. ¶ 63(f)(i). Class members purchased securities For certain accounts in the IA issued by BLMIS, Business, BLMIS purported which consisted of a discretionary to participate in a capital appreciation/depreciation trading account purportedly strategy, investing in stock depending on whether the and options and operated customer sought to generate pursuant to a power of attorney gains or losses. For example, (the "BLMIS Discretionary the strategy was executed by Trading Program"). either purporting to purchase Each class member received small groups of securities monthly statements purportedly transactions near lows and reflecting the securities then purporting to sell those in their account, the trading same securities at highs, or activity during the month, by purporting to sell securities and the profits earned over near highs and then purporting the relevant time period. to repurchase those The monthly statements for securities near lows. See customer accounts depicted Tr.'s Compl. ¶ 20. consistent profits on a monthly basis and rarely, if ever, showed loses. See Pamela Goldman Compl. ¶ 69; A & G Goldman Compl. ¶ 69. Madoff has admitted, and it For all periods relevant hereto, At a plea hearing on March is a fact, that BLMIS and the the IA Business was operated 12,2009 in Madoff pled guilty BLMIS Discretionary Trading as a Ponzi scheme and to the eleven-count criminal Program operated as a Madoff concealed the ongoing information and admitted under Ponzi scheme and Madoff and fraud in an effort to hinder oath that he "operated a other BLMIS employees concealed and delay other current and Ponzi scheme through, ... this ongoing fraud in prospective customers of [BLMIS]...." See Fox an effort to hinder and delay BLMIS from discovering the Compl. ¶ 35; Marshall customers of BLMIS from fraud. See Tr.'s Compl. ¶ 24. Compl. ¶ 35 discovering this fraud. See Pamela Goldman Compl. ¶ 71; A & G Goldman Compl. ¶ 71. Madoff also admitted that, during the relevant time period, he never actually invested
any of the funds he received from BLMIS customers, instead depositing the funds into a bank account, Madoff never actually purchased and sold securities in BLMIS customer accounts, instead using client funds simply to pay other, different, clients' purported returns and redemption of principal. See Fox Compl. ¶ 36; Marshall Compl. ¶ 36 Monies received from investors The money received from investors Madoff also admitted that, in connection with the was not set aside to during the relevant time period, BLMIS Discretionary Trading buy securities as purported, he never actually invested Program were not invested but instead was primarily any of the funds he received as described by BLMIS in used to make the distributions from BLMIS customers, instead confirmations and monthly to — or payments on behalf depositing the funds statements, but instead were of — other investors. The into a bank account, Madoff used to make distributions to money sent to BLMIS for investment, never actually purchased and selected other investors, primarily in short, was simply sold securities in BLMIS customer Madoff and the controlling used to keep the operation going accounts, instead using Picower Defendants. and to enrich Madoff, his client funds simply to pay See Pamela Goldman Compl. associates and others, including other, different, clients' purported ¶ 73; A & G Goldman Compl. Defendants ... See Tr.'s returns and redemption ¶ 73. Compl. ¶ 24. of principal. See Fox Compl. ¶ 36; Marshall Compl. ¶ 36 In or about December 2008, The money sent to BLMIS the Ponzi scheme collapsed for investment, in short, was when customer redemptions simply used to keep the operation in the BLMIS Discretionary going and to enrich Madoff, Trading Program overwhelmed his associates and others, the amount of money including Defendants, which was being placed in until such time as the requests new BLMIS accounts.... for redemptions in The BLMIS Ponzi scheme December 2008 overwhelmed also involved the preparation the flow of new investments and publication to investors and caused the inevitable collapse and brokerage customers of of the Ponzi scheme. false BLMIS audit reports See Tr.'s Compl. ¶ 24. prepared by Frielich and Horowitz as members of a three person accounting firm in Rockland County, New York. BLMIS provided the financial reports to regulators and investors in the BLMIS Discretionary Trading Program for the purpose of their reliance thereon. The accounting reports falsely reported that Madoff was effecting customer transactions and that BLMIS was profitable and generating customer profits in customer accounts.
See Pamela Goldman Compl. ¶ 75; A & G Goldman Compl. ¶ 75. Not only did Madoff Seek to evade regulators, Madoff also had false audit reports "prepared" by Friehling & Horowitz, a three-person accounting firm in Rockland County, New York. Of the three employees at the firm, one employee was an assistant and one was a semiretired accountant living in Florida. See Tr.'s Compl. ¶ 31. At all times relevant hereto, At all times relevant hereto, the BLMIS's actual liabilities the liabilities of BLMIS were were billions of dollars greater billions of dollars greater than than its assets. As a result, the assets of BLMIS. At all BLMIS and the BLMIS relevant times, BLMIS was Discretionary Trading Program insolvent in that (i) its assets were rendered insolvent were worth less than the value by the Ponzi scheme. of its liabilities; (ii) it could Customer assets were effectively not meet its obligations as stolen by Madoff and they came due; and (iii) at the Picower Defendants in the time of the transfers, connection with this Ponzi BLMIS was left with insufficient scheme. See Pamela Goldman capital. See Tr.'s Compl. ¶ 76; A & G Compl. ¶ 32. Goldman Compl. ¶ 76.
