Pg 1 of 8 BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 Hearing Date: May 10, 2012 at 10:00 AM Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Estate of Bernard L. Madoff UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: Adv. Pro. No. 08-01789 (BRL) SIPA LIQUIDATION (Substantively Consolidated) BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, v. Plaintiff, Adv. Pro. No. 10-05208 (BRL) TROTANOY INVESTMENT COMPANY LTD., ACCESS INTERNATIONAL ADVISORS LTD. (f/k/a ALTERNATIVE ADVISORS LIMITED), HYPOSWISS PRIVATE BANK GENÈVE S.A. (f/k/a ANGLO-IRISH BANK (SUISSE) S.A., f/k/a MARCUARD COOK & CIE S.A.), and PALMER FUND MANAGEMENT SERVICES LIMITED Defendants. TRUSTEE S RESPONSE TO OBJECTION OF STEVEN SURABIAN, RICHARD SURABIAN AND MARTIN M. SURABIAN TO APPROVAL OF A SETTLEMENT BETWEEN THE TRUSTEE AND TROTANOY INVESTMENT COMPANY LTD.
Pg 2 of 8 Irving H. Picard (the Trustee ), as trustee for the substantively consolidated liquidation of the business of Bernard L. Madoff Investment Securities LLC ( BLMIS ), under the Securities Investor Protection Act, 15 U.S.C. 78aaa et seq. ( SIPA ), and the estate of Bernard L. Madoff ( Madoff ), by his undersigned counsel, hereby responds to the opposition dated April 2, 2012 (the Objection ) of Steven Surabian, Richard Surabian, and Martin M. Surabian (collectively, the Surabians ) made to the motion for the entry of an order, pursuant to section 105(a) of the United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code ), and Rules 2002 and 9019 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), approving a certain settlement agreement by and among the Trustee on one hand, and Trotanoy Investment Company Ltd. ( Trotanoy ), a Bailiwick of Guernsey limited liability company on the other hand (the Settlement or Trotanoy Settlement ). 1 PRELIMINARY STATEMENT Under the Trustee s settlement with Trotanoy, $28.96 million will be paid in cash to the fund of Customer Property, for distribution to BLMIS customers. The Settlement resolves contested, complex claims against Trotanoy and related entities Hyposwiss Private Bank Genève S.A. ( Hyposwiss ) and Palmer Fund Management Services Limited ( Palmer ) (together, the Settling Defendants ). In return for the $28.96 million payment, the Trustee will release its claims against the Settling Defendants. In addition, Trotanoy which was a net loser in the Ponzi scheme will have its customer claim allowed, and under Bankruptcy Code section 502(h) the amount of the settlement payment will be added to its customer claim. The Trustee also anticipates stipulating to a dismissal without prejudice of the remaining defendant in the action, 1 Unless stated otherwise, all defined terms retain the same meaning as provided in the Trustee's Motion For Entry Of Order Pursuant To Section 105(a) Of The Bankruptcy Code And Rules 2002 And 9019 Of The Federal Rules Of Bankruptcy Procedure Approving A Settlement Agreement By And Between The Trustee And Trotanoy Investment Company Ltd. (the Motion ), ECF No. 50 (March 26, 2012). 1
Pg 3 of 8 Access International Advisors Ltd., subsequent to the Court s approval of the Settlement, leading to the resolution of this adversary proceeding. Importantly, not a single objection was filed by an actual BLMIS customer or creditor. Instead, the only objection has come from a single family the Surabians who are not even BLMIS customers or creditors, and therefore do not have standing to object. The Surabians improper and frivolous objection should not stand in the way of a settlement that is reasonable and in the best interests of the BLMIS estate. However, even if the Court were to consider the Surabians Objection, it is entirely without merit. The Surabians argue that the Trustee s $28.96 million recovery is insufficient, and that the Trustee should be forced to litigate for the full amount withdrawn from BLMIS by the Trotanoy fund an amount as high as $179.9 million. The Surabians position that the Trustee can never compromise for anything less than the maximum amount potentially recoverable under the law is unreasonable, and contrary to the law of this Circuit. See Liu v. Silverman (In re Liu), 1998 WL 890176, at *1 (2d Cir. Dec. 18, 1998) (holding that bankruptcy court s role is to canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness ). The Surabians also argue that there is no record proof that Trotanoy was a net loser. This argument is baseless. As confirmed by the Trustee and his professionals analysis of BLMIS books and records, and other records, Trotanoy did deposit $36 million more than it withdrew from BLMIS. The Trotanoy settlement is fair, equitable, and well above the lowest point in the range of reasonableness, and should be approved. Accordingly, the Surabians Objection should be rejected out of hand. 2
Pg 4 of 8 I. THE COURT SHOULD NOT CONSIDER THE OBJECTION, BECAUSE THE SURABIANS LACK STANDING TO OBJECT The Court should not consider the Surabians Objection because the Surabians were never customers or creditors of BLMIS, and lack standing to object to the Trotanoy Settlement. Indeed, the Court has entered an order expunging their filed claims and objections. In re Bernard L. Madoff Inv. Secs. LLC, No. 08-01789 (BRL), Order Granting Trustee s Third Omnibus Motion Seeking To Expunge Claims And Objections Of Claimants That Did Not Invest With BLMIS Or In Entities That Invested In BLMIS at 2-3, ECF No. 4779 (Bankr. S.D.N.Y. April 19, 2012) (the April 19 Order ). 2 Under black-letter bankruptcy law, a party that seeks to challenge an order of the bankruptcy court must be directly and adversely affected pecuniarily by it. In re DBSD N. Am., Inc., 634 F.3d 79, 89 (2d Cir. 2011); Masonic Hall & Asylum Fund v. Official Comm. Of Unsecured Creditors (In re Refco, Inc.), 2006 WL 3409088, at *2 (S.D.N.Y. Nov. 16, 2006), aff d 505 F.3d 109 (2d Cir. 2007). The Surabians can demonstrate no financial connection whatsoever to BLMIS or the outcome of the Trotanoy Settlement, and thus should not be heard. Picard v. Fairfield Sentry Ltd. (In re Bernard L. Madoff Inv. Secs. LLC), No. 09-01239 (BRL), Order at 4-5, ECF No. 92 (Bankr. S.D.N.Y. June 7, 2011) (holding that objectors to settlement that are not customers or creditors of BLMIS are not directly and adversely affected pecuniarily... because they do not hold a direct interest in the Debtor, [BLMIS] and thus lack standing) (citing In re Refco, Inc., 2006 WL 3409088 at *2, *6); Picard v. Tremont Group Holdings Inc. (In re Bernard L. Madoff Inv. Secs. LLC), 10-05310 (BRL), Order at 3, ECF No. 38 (Bankr. S.D.N.Y. Sept. 22, 2011) (same). 2 Nor do the Surabians have a basis to appeal the April 19 Order. The Surabians did not oppose the Trustee s motion to expunge their claims and objections. They also failed to appear before the Court at the April 19, 2012 hearing on the matter. 3
Pg 5 of 8 II. THE TROTANOY SETTLEMENT IS REASONABLE UNDER BANKRUPTCY RULE 9019 Even if the Court were to consider the Surabians Objection, it is clear that it has no merit. Contrary to the arguments presented in the Surabians Objection, the Trotanoy Settlement falls well above the lowest point in the range of reasonableness. The Trustee believes that the Trotanoy Settlement, which will resolve a significant, complex matter, greatly furthers the interests of the customers of BLMIS by securing a payment of $28.96 million in cash from Trotanoy to the Trustee for the benefit of the fund of Customer Property. See Motion Ex. D 6. This sum represents 100% of the withdrawals made by Trotanoy from BLMIS during the ninetyday preference period. A. The Surabians Position That the Trustee Must Litigate for the Full Amount Withdrawn by Trotanoy From BLMIS Is Unreasonable And Lacks Basis The Surabians, who have no interest in this case, argue that the recovery is insufficient because the Trustee should pursue the full amount that was withdrawn by Trotanoy from BLMIS which they identify as either $176.9 million or $148.2 million. 3 (Objection at 5.) In effect, the Surabians argue that the Trustee may never settle a case for anything less than the maximum amount potentially recoverable. But this is not the law. Rather, the bankruptcy court can, and should approve a compromise that falls within the range of reasonableness, after considering factors that include: (i) the probability of success in the litigation; (ii) the difficulties associated with collection; (iii) the complexity of the litigation, and the attendant expense, inconvenience and delay; and (iv) the paramount interests of the creditors. In re Refco, Inc., 2006 WL 3409088, at *7; see also Motion 18-21. 3 The correct amount of money withdrawn by Trotanoy over the lifetime of its account at BLMIS was $179,893,211.58 of which 148,221,764.61 was withdrawn in the six-year period preceding the Filing Date. Ultimately, however, Trotanoy still withdrew $36 million less than it deposited at BLMIS. See Motion Ex. A at 1-2. 4
Pg 6 of 8 As set forth by the Trustee in his Affidavit accompanying the Motion, taking the Trotanoy adversary proceeding to judgment would require protracted, costly, and uncertain litigation. Motion Ex. D. 4. Further, such litigation would be extremely complex, create significant delay, and would involve both litigation risk and difficulties associated with collection. Id. After analysis of these factors and considerations, the Trustee concluded that, in his business judgment, the Settlement represents a fair and reasonable compromise of the claims asserted without the risks and uncertainties of continued litigation. Id. 7-8. B. The Surabians Argument That the Trustee Has Not Demonstrated That Trotanoy Is a Net Loser Is Baseless The Surabians also argue that the Trustee has not supplied on the record proof that Trotanoy deposited $216,200,511 with BLMIS. (Objection at 5.) The Surabians appear to argue that the evidence does not support the conclusion that Trotanoy deposited more money with BLMIS than it withdrew. Their position is baseless. The Trustee and his retained consultants conducted a thorough investigation of the books and records of BLMIS, as well as other records obtained by the Trustee. See Motion 14. This investigation concluded that on an overall basis, Trotanoy deposited a total of $216,200,511.27 during the life of its account at BLMIS, while it withdrew $179,893,211.58, for a net loss of $36,307,299.69. See Motion Ex. A at 1-2. The Surabians offer no evidence to counter this conclusion other than uninformed supposition. Trotanoy did in fact withdraw more from its BLMIS account than it deposited, and was thus a net loser. In addition, the Surabians devote significant space in their Objection to erroneous arguments that the Trustee has made various computational errors all of which miss the mark. First, the Surabians argue that adding together the total of the withdrawals made by Trotanoy within six years of the Filing Date yields a total of $148,221,764.61, which is less than 5
Pg 7 of 8 Trotanoy s lifetime withdrawal amount of $179,893,211.58. (Objection at 2-3.) This difference reflects the fact that the lifetime withdrawal amount includes $31.7 million in withdrawals made more than six years before the Filing Date. Second, the Surabians note that Trotanoy s amended customer claim is for a balance of $36,649,256, while the Trustee has only recognized a net loss of $36,307,299.69. (Objection at 3.) This is because Trotanoy s amended customer claim included all tax withholding transactions during the life of the account, while the Trustee has only credited the tax withholding transactions occurring in the six years prior to the Filing Date consistent with the Trustee s November 2011 settlement with the Internal Revenue Service recovering such amounts. Lastly, the Surabians charge that the Trustee has computed Trotanoy s net loss incorrectly, stating $179,893,211.58 plus $36,649,256.00 equal $213,542,467.58, not the alleged deposit of $216,200,511.72, again numbers do not add up. (Objection at 5.) This is simply wrong. The sum of these two numbers is in fact $216,542,467.58. And substituting the correct amount of Trotanoy s net loss, $36,307,299.69, yields the correct lifetime deposit total of $216,200,511.27. The Surabians Objection is thus lacking in any merit. CONCLUSION For the foregoing reasons and the reasons set forth in his moving papers, the Trustee respectfully requests that the Settlement be approved in its entirety. 6
Pg 8 of 8 Dated: New York, New York April 30, 2012 Respectfully submitted, /s/ David J. Sheehan Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: dsheehan@bakerlaw.com Thomas L. Long Email: tlong@bakerlaw.com Deborah Renner Email: drenner@bakerlaw.com Samir Ranade Email: sranade@bakerlaw.com Sammantha Clegg Email: sclegg@bakerlaw.com Attorneys for Irving H. Picard, Trustee for the SIPA Liquidation of Bernard L. Madoff Investment Securities LLC 7