Mealey’s Emerging Securities Report: Madoff’s Arrest Results In Filing Of State, Federal Lawsuits
The disclosure of Bernard Madoff’s alleged $50 billion Ponzi scheme has rocked the financial world over the past month.
In the wake of Madoff’s arrest, shareholders, investment groups, hedge funds and the Securities and Exchange Commission have filed a number of lawsuits in state and federal courts against him, investment firms that invested in Madoff’s alleged Ponzi scheme and others.
Investor Irwin Kellner filed a class action lawsuit against Madoff, Bernard L. Madoff Investment Securities LLC (BMIS) and 100 John Doe defendants on Dec. 12 in the U.S. District Court for the Southern District of New York, claiming that the defendants violated state and federal law by taking part in the Ponzi scheme.
Kellner alleges that the defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO), U.S. Code Sections 1962(a) and (d), Section 10(b) of the Securities Exchange Act of 1934, SEC Rule 10b-5, Section 12 of the Securities Act of 1933, General Business Law Sections 349 and 350 and the New York Debtor and Creditor Law Section 273, 274, 275 and 276 by taking part in the Ponzi scheme. Claims for fraud, negligent misrepresentation, breach of fiduciary duty, conversion and unjust enrichment also were made.
Damages Sought
Kellner seeks more than $50 billion in compensatory damages, consequential damages, treble damages and general damages, as well as disgorgement and restitution, costs and disbursements of the action, attorney fees and other relief.
The SEC has filed a lawsuit against Madoff in the Southern District of New York, and investor Phyllis Molchatsky filed an administrative action against the SEC on Dec. 22 on behalf of the American Masters Broad Market Fund L.P. for $2 million she invested in Madoff’s scheme in 2001.
Five other federal class action lawsuits in connection with investments lost in the Madoff Ponzi scheme also have been filed in the Southern District of New York, while a bankruptcy action on behalf of Rosenman Family LLC has been filed in the U.S. Bankruptcy Court for the Southern District of New York. Furthermore, a shareholder derivative suit against investment firm Family Management Corp. and others was recently filed in the Southern District of New York.
State Court Actions
Moreover, investors have filed three state court actions in New York and California courts in connection with the scheme, and two other lawsuits have been filed in federal court against related defendants. Each of the three state court suits makes claims for breach of fiduciary duty and negligence, and the New York actions also state claims for unjust enrichment, misrepresentation, breach of contract and a violation of New York Business Law Section 349.
Kellner is represented by Mark S. Mullholland and Kimberly B. Malerba of Ruskin Moscou Faltischek in Uniondale, N.Y.
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