On December 1st, the Seventh Circuit affirmed the approval of a receiver's plan to distribute the assets of a failed investment manager, finding that where a receivership trust lacks sufficient assets to fully repay investors and the investors' funds are commingled, a pro rata distribution plan is appropriate, and that the trial court properly rejected the objectors' arguments that their redemption requests made them creditors and not equity holders. SEC v.

On September 14th, a Bankruptcy Court entered partial summary judgment in favor of defendants, brokerages through whom the debtor conducted a fraudulent stock lending scheme. The Chapter 7 bankruptcy trustee cannot avoid as fraudulent transfers funds and stock received by defendants directly from the victims of the scheme, margin interest paid to defendants by the debtor, and cash transfers that the debtor directly deposited into the brokerage accounts in the year prior to the bankruptcy filing.

On April 1st, the FDIC closed on a sale of an equity interest in a limited liability company (LLC) created to hold certain assets transferred from 19 failed bank receiverships. The purchaser of the interest in the Multibank Structured Transaction Single Family Residential 2010-1 is Roundpoint Mortgage Servicing Corporation. The sale was conducted through a competitive auction held on February 24, 2010. Nine different qualified groups submitted bids to purchase either a 50% leveraged ownership interest or a 20% unleveraged ownership interest in the newly formed LLC.

On March 1st, the bankruptcy court overseeing the bankruptcy proceedings and SIPA liquidation of Bernard L. Madoff Investment Securities upheld the SIPC trustee's method for determining the net equity held by the victims of Madoff's fraud. The SIPC trustee defines net equity as the amount of cash deposited by the customer into his BLMIS customer account less any amounts withdrawn.

The United States Court of Appeals for the Second Circuit found in favor of the trustee (the Trustee) presiding over the liquidation of Bernard L. Madoff Investment Securities (BMIS), affirming the Trustee’s calculation of “net equity” in the BMIS liquidation. The Trustee calculates net equity to determine the value of claims submitted by victims of Madoff’s massive fraud.

Kitchin Associates LLC is a Pennsylvania limited liability company that is no longer in business. Richard Kitchin and his son were the members of Kitchin LLC and each held a 50% ownership interest in the entity. In a bankruptcy court proceeding, the Joan I. Glisson Trust asserted a claim against Mr. Kitchin in the amount of $257,047.63, arising from an unsatisfied mortgage loan to Kitchin LLC, the proceeds of which were used to purchase a property in Pennsylvania. Mr.

The U.S. Court of Appeals for the Second Circuit affirmed the U.S. Bankruptcy Court for the Southern District of New York’s dismissal of a complaint brought by Rosenman Family, LLC, an investor with Bernard L. Madoff Investment Securities LLC (BLMIS), against the trustee of BLMIS’s estate. The complaint alleged that Rosenman was entitled to a return of $10 million it wired to BLMIS, because, Rosenman argued, the funds were stolen or embezzled by BLMIS and thus never became BLMIS’s property and/or part of BLMIS’s bankruptcy estate.

Given the overarching Madoff Ponzi scheme as well as other mini-Madoff schemes that surfaced in its wake, many have been following issues arising from the ability of a trustee to claw back transfers (either as preferential or as fraudulent transfers) from investors who redeemed their interests in a private investment fund or managed account that turned out to be a Ponzi scheme. The law generally provides that an investor’s principal investment is protected so long as it is received in good faith and for value.

On April 1, the Federal Deposit Insurance Corporation (FDIC) closed the sale of an equity interest in a limited liability company (LLC) created to hold certain assets transferred from 19 failed bank receiverships. The purchaser of the interest in the Multibank Structured Transaction Single Family Residential 2010-1 is Roundpoint Mortgage Servicing Corporation (Roundpoint). The sale was the result of a competitive auction held on February 24.

The Federal Deposit Insurance Corporation (FDIC) announced that Residential Credit Solutions was the winning bidder in a pilot sale of receivership assets conducted to test the funding mechanism for the Legacy Loans Program. The FDIC, as a receiver of Franklin Bank, SSB, owns a portfolio of residential mortgage loans with an unpaid principal balance of approximately $1.3 billion, which the FDIC will convey to a limited liability company. Residential Credit Solutions will pay $64,215,000 in cash for a 50% stake in the limited liability company using 6-to-1 leverage.