On March 14, 2024, the U.S. District Court for the Southern District of New York denied a motion by Citibank, N.A. for leave to file an interlocutory appeal of a bankruptcy court’s order denying a motion to dismiss fraudulent transfer claims brought by the liquidating trustee of Bernie Madoff’s investment firm. In 2010, the liquidating trustee for the Madoff investment firm filed an adversary proceeding, in bankruptcy court, against Citibank (and certain affiliates) to recover, as subsequent fraudulent transfers, approximately $443 million that the Madoff firm had paid to investors that, in turn, the investors paid to Citibank as loan repayments. Citibank moved to dismiss the adversary proceeding on the grounds, among others, that a “Ponzi scheme presumption” of fraudulent intent should not apply to the loan payment transfers and that the transfers did not actually deplete the estate of the Madoff firm. The bankruptcy court denied the motion, and Citibank moved the district court for leave to file an interlocutory appeal.
The district court denied the motion for leave to file an interlocutory appeal. In doing so, the district court first held that the bankruptcy court’s ruling on the Ponzi scheme presumption—essentially, that the fact that the debtor was engaged in a Ponzi scheme is sufficient to allege fraudulent intent with respect to all its transfers—was, despite being an open question in the Second Circuit, not dispositive and, therefore, insufficient for interlocutory review because the bankruptcy court alternatively found that the trustee sufficiently pled “badges of fraud” with respect to the transfers in question. The district court further found the defendants’ “depletion of the estate” argument was not an issue of pure law appropriate for interlocutory review, as the amended complaint did not allege sufficient facts to put that question in issue.
The case is Citibank, N.A. v. Picard (In re Bernard L. Madoff), No. 22-cv-9597 (S.D.N.Y. Mar. 14, 2024). The trustee is represented by Baker & Hostetler LLP. The defendants are represented by Cleary Gottlieb Steen & Hamilton LLP. The opinion is available here.
