A Revisit to the Lautenberg Private Foundation Lawsuit vs. Peter Madoff – Installment 28

June 8, 2010Articles White Collar Defense & Compliance Blog

This is the twenty-eighth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the Ponzi scheme perpetrated by Bernard L. Madoff (“Bernard”). Many of the Installments in this series have focused on specific problems and concerns respecting public charities and private foundations that were victims of this and similar schemes.

Installment 15 of this series, posted on September 15, 2009, discussed a lawsuit (the “Foundation Lawsuit”) brought by two children of, and the private charitable foundation (the “Foundation”) formed by, Senator Frank Lautenberg, its President. The claims in the Foundation Lawsuit include allegations that Peter Madoff (“Peter”), the brother of Bernard, violated the Securities Exchange Act of 1934 by failing to disclose to investors with whom Peter had been involved that Bernard’s company was engaged in fraudulent activities. The plaintiffs in the Foundation Lawsuit claim losses aggregating almost $9 million.

Installment 15 discussed some concerns regarding the likelihood of success of the Foundation Lawsuit against Peter. One of the questions asked was whether the preliminary success of the Foundation Lawsuit would spur other stakeholders to sue members of the Madoff family, thereby exposing them to the potential for very large claims that could precipitate bankruptcy filings for Peter and other family members. Indeed, there have been a number of lawsuits filed against members of the family of Bernard, as reported in a recent article by Bloomberg Business Week.

The Bloomberg Business Week article also reported that a new threat to the success of the Foundation Lawsuit has emerged. Specifically, Irving Picard, the trustee in the liquidation of Bernard’s bankrupt estate, is seeking to block a dozen lawsuits against relatives of Bernard, including the Foundation Lawsuit. Mr. Picard has asked a U.S. bankruptcy court to halt the suits, arguing that they are an attempt by the claimants to “leapfrog” other victims to recover more than they are due. The article quotes Mr. Picard’s pleadings as alleging that there is only “one pool of customer property,” and plaintiffs, such as the Foundation, should not be allowed to obtain preferential recoveries.

Installment 15 also reported that as of September 15, 2009, a check of the charity information website Guidestar indicated that the Form 990-PF Internal Revenue Service (IRS”) filing of the Foundation for 2008 had not yet been posted. Surprisingly, a current check of Guidestar indicates that the Form 990-PF of the Foundation for 2008 had still not yet been posted, even though the latest date (with permitted extensions) for timely filing with the IRS was November 16, 2009.

Readers should stay tuned for further developments in this matter, as the nature and extent of disclosures that are made by the Foundation in its 2008 Form 990-PF, especially with respect to the Foundation Lawsuit and the financial status and contingencies respecting the Foundation, should be interesting.

[To be continued in Installment 29]