SCHLEICHER v. WENDT (August 20, 2010)

Conseco was a large financial services company traded on the New York Stock Exchange. It filed for bankruptcy in 2002 and successfully reorganized. This securities-fraud claim was filed against Conseco managers who are alleged to have made false statements prior to the bankruptcy. Then-District Judge Hamilton (S.D. Ind.) certified a class. Defendants appeal.

Judge Jed S. Rakoff of the Southern District of New York last week ruled that the U.S. Bankruptcy Code does not permit a bankruptcy trustee to recover foreign transfers.  Specifically, Judge Rakoff refused to allow Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), to recoup monies initially transferred from BLMIS to non-U.S.

The Supreme Court has cleared the way for Irving Picard, the Trustee overseeing the Madoff liquidation proceeding, to distribute billions of dollars to victims of Madoff’s Ponzi scheme.  On Monday, the Court declined to hear appeals in two cases from the Second Circuit challenging Picard’s formula for repaying victims.

We have been following the saga of the case brought by Irving Picard, the trustee overseeing the Bernard Madoff bankruptcy liquidation proceeding, against the owners of the NY Mets, Saul Katz and Fred Wilpon.

On the surface, Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), had a very good day. Judge Jed S.

Landmark decision holds that the SFO does not have the power to procure documents from foreign companies outside the jurisdiction.

Merit Management

Two recent court decisions may affect an equity sponsor’s options when deciding whether and how to put money into - or take money out of - a portfolio company. The first may expand the scope of “inequitable conduct” that, in certain Chapter 11 settings, could lead a court to equitably subordinate a loan made by a sponsor to its portfolio company, placing the loan behind all of the company’s other debt in the payment queue. The second decision muddies the waters of precedent under the U.S. Bankruptcy Code on the issue of the avoidability of non-U.S.

When a debtor pays the market cost for goods and services provided to it by third-party vendors, these payments normally cannot be recovered as fraudulent transfers in the U.S. That is because the debtor receives reasonably equivalent value for the payments to its vendors and because the unsuspecting vendors can assert a good faith defense based on the value provided.

The U.S. Court of Appeals for the Ninth Circuit recently held that a debtor corporation’s sole shareholder and third parties who sold real property and services to the sole shareholder could be liable for fraudulent transfers.