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`SECURITIES INVESTOR PROTECTION
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`CORPORATION,
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`BERNARD L. MADOFF INVESTMENT
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`SECURITIES LLC,
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`In re:
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`BERNARD L. MADOFF,
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`IRVING H. PICARD, Trustee for the
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`Liquidation of Bernard L. Madoff
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`Investment Securities LLC,
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`A & G GOLDMAN PARTNERSHIP; and
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`PAMELA GOLDMAN
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`CAPITAL GROWTH COMPANY; DECISIONS,
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`INC.; FAVORITE FUNDS; JA PRIMARY
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`LIMITED PARTNERSHIP; JA SPECIAL
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`LIMITED PARTNERSHIP; JAB
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`PARTNERSHIP; JEMW PARTNERSHIP; JF
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`PARTNERSHIP; JFM INVESTMENT
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`COMPANIES; JLN PARTNERSHIP; JMP
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`LIMITED PARTNERSHIP; JEFFRY M.
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`PICOWER SPECIAL COMPANY; JEFFRY M.
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`PICOWER, P.C.; THE PICOWER
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`FOUNDATION; THE PICOWER INSTITUTE
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`OF MEDICAL RESEARCH; THE TRUST F/B/O :
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`Adv. Pro. No. 08-01789 (SMB)
`SIPA LIQUIDATION
`(Substantively Consolidated)
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`Adv. Pro. No. 14-02407 (SMB)
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`Adv. Pro. No. 14-02408 (SMB)
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`GABRIELLE H. PICOWER; BARBARA
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`PICOWER, individually and as Executor of the
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`Estate of Jeffry M. Picower, and as Trustee for the
`Picower Foundation and for the Trust f/b/o Gabriel :
`H. Picower,
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`A & G GOLDMAN PARTNERSHIP; and
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`PAMELA GOLDMAN
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`MEMORANDUM DECISION ENJOINING
`PROSECUTION OF DEFENDANTS’ ACTION
`AGAINST THE PICOWER PARTIES
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`A P P E A R A N C E S:
`BAKER & HOSTETLER LLP
`45 Rockefeller Plaza
`New York, NY 10111
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`David J. Sheehan, Esq.
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`Deborah H. Renner, Esq.
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`Tracy L. Cole, Esq.
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`Keith R. Murphy, Esq.
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`Amy Vanderwal, Esq.
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`Ferve Ozturk, Esq.
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`Of Counsel
`Attorneys for Irving H. Picard, Trustee for the
` Substantively Consolidated SIPA Liquidation
` of Bernard L. Madoff Investment Securities
` LLC and the Estate of Bernard L. Madoff
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`SCHULTE ROTH ZABEL LLP
`919 Third Avenue
`New York, NY 10022
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`William D. Zabel, Esq.
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`Marcy Ressler Harris, Esq.
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`Michael Kwon, Esq.
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`Jennifer M. Opheim, Esq.
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`Of Counsel
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`Attorneys for the Picower Parties
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`HERRICK, FEINSTEIN LLP
`Two Park Avenue
`New York, New York 10016
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`Joshua J. Angel, Esq.
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`Hanh Huynh, Esq.
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`Of Counsel
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`- and-
`BEASLEY HAUSER KRAMER & GALARDI, P.A.
`505 South Flagler Drive, Suite 1500
`West Palm Beach, Florida 33401
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`James W. Beasley, Jr., Esq.
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`Joseph G. Galardi, Esq.
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`Andrew S. Kwan, Esq.
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`Of Counsel
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`- and-
`BLACKNER, STONE & ASSOCIATES
`123 Australian Avenue
`Palm Beach, Florida 33480
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`Richard Lee Stone, Esq.
`Of Counsel
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`Attorneys for A & G Goldman Partnership and Pamela Goldman
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`STUART M. BERNSTEIN
`United States Bankruptcy Judge:
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`In January 2011, Irving H. Picard, Esq. (“Trustee”), as trustee of the Securities Investor
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`Protection Act (“SIPA”) liquidation of Bernard L. Madoff Investment Securities LLC
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`(“BLMIS”), settled the estate’s claims against the Picower Parties.1 As part of the settlement, the
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`The “Picower Parties” include Capital Growth Company; Decisions, Inc.; Favorite Funds; JA Primary
`1
`Limited Partnership; JA Special Limited Partnership; JAB Partnership; JEMW Partnership; JF Partnership; JFM
`Investment Companies; JLN Partnership; JMP Limited Partnership; Jeffry M. Picower Special Company; Jeffry M.
`Picower, P.C.; the Picower Foundation; the Picower Institute of Medical Research; the Trust F/B/O Gabrielle H.
`Picower; and Barbara Picower, individually, and as executor of the estate of Jeffry M. Picower, and as Trustee for
`the Picower Foundation and for the Trust F/B/O Gabriel H. Picower.
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`3
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`Court entered a permanent injunction in favor of the Picower Parties that barred creditors from
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`asserting claims “duplicative or derivative of the claims brought by the Trustee, or which could
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`have been brought by the Trustee against the Picower BLMIS Accounts or the Picower
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`Releasees.” Since then, various former BLMIS customers have attempted, without success, to
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`side step the restrictions imposed by the injunction and sue the Picower Parties to recover their
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`lost investments.
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`The current litigation involves the third such attempt by A & G Goldman Partnership and
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`Pamela Goldman (together, the “Goldman Parties”) to sue the Picower Parties in the United
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`States District Court for the Southern District of Florida (the “Florida District Court”). They
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`contend that Jeffry Picower was a “control person” of BLMIS under § 20(a) of the Securities
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`Exchange Act of 1934 (the “Exchange Act”) and liable for BLMIS’ primary violations of the
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`federal securities laws.
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`The Trustee and the Picower Parties commenced the above-captioned adversary
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`proceedings to enjoin the Florida litigation contending that it violates the Court’s permanent
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`injunction and the automatic stay. The Picower Parties also seek to prevent the Goldman Parties
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`from filing another complaint against them. For the reasons that follow, the applications for
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`injunctive relief are granted, but the Picower Parties’ request to enjoin the Goldman Parties from
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`filing further pleadings is denied.
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`BACKGROUND
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`The background to these proceedings has been recounted in A & G Goldman P’ship v.
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`Picard (In re BLMIS), No. 12 Civ. 6109 (RJS), 2013 WL 5511027, at *1-3 (S.D.N.Y. Sept. 30,
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`4
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`2013) (“Goldman I”) and Picard v. Marshall (In re BLMIS), 511 B.R. 375, 379-386 (Bankr.
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`S.D.N.Y. 2014) (“Goldman II”), aff’d, 531 B.R. 345 (S.D.N.Y. 2015). The Court assumes
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`familiarity with these decisions and limits the discussion to the facts necessary for the disposition
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`of the pending applications.
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`A.
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`The Settlement
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`As recounted in the cited decisions as well as many others, Bernard L. Madoff conducted
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`the largest Ponzi scheme in history through BLMIS until its collapse and his arrest in December
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`2008. The Trustee eventually brought approximately 1,000 adversary proceedings to avoid and
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`recover the transfers from BLMIS to its customers. On May 12, 2009, the Trustee sued the
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`Picower Parties primarily to avoid and recover $6.7 billion that the Picower Parties had
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`withdrawn from their BLMIS accounts between December 1995 and the collapse of the Ponzi
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`scheme, and subsequently discovered additional transfers that increased the total withdrawals to
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`$7.2 billion, Goldman II, 511 B.R. at 379-80, of which at least $5 billion represented fictitious
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`profits consisting of other people’s money. (Complaint, dated May 12, 2009 (“Trustee
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`Complaint”) at ¶ 2 (Adv. Pro. No. 09-01197 ECF Doc. # 1).) 2 The Trustee Complaint asserted
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`claims for turnover and preferences under the Bankruptcy Code, fraudulent transfers under New
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`York and bankruptcy law and disallowance of any Picower Party’s claims. It alleged, among
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`other things, that the Picower Parties knew or should have known that BLMIS was a Ponzi
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`A copy of the Trustee Complaint is attached as Exhibit 3 to the Declaration of Marcy Ressler Harris in
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`Support of the Picower Parties’ Application for Enforcement of the Permanent Injunction, dated Nov. 17, 2014
`(“Harris Declaration”) (Adv. Pro. No. 14-02408 ECF Doc. # 4).
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`scheme, and actively participated by giving directions to BLMIS to create fictitious trading
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`records for their accounts. (See, e.g., id. at ¶¶ 4, 60, 61, 63(f).)
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`The Trustee, the Picower Parties and the Government, which was negotiating with the
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`Picower Parties regarding a potential civil forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C),
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`eventually entered into a global settlement agreement. Under the settlement, the Picower Parties
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`agreed to pay $5 billion to the BLMIS estate, corresponding to the amount of fictitious profits
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`they received, (see Memorandum of Law in Support of Motion for Entry of an Order Pursuant to
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`Section 105(a) of the Bankruptcy Code and Rules 2002 and 9019 of the Federal Rules of
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`Bankruptcy Procedure Approving an Agreement by and Between the Trustee and the Picower
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`BLMIS Account Holders and Enjoining Certain Claims, dated Dec. 17, 2010, at 3 (Adv. Pro. No.
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`09-01197 ECF Doc. # 25), and to forfeit $2.2 billion to the Government. Goldman II, 511 B.R.
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`at 380. On January 13, 2011, the Court entered an order approving the settlement agreement
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`between the Trustee and the Picower Parties (the “Settlement Agreement”) that included the
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`following permanent injunction (the “Permanent Injunction”) in favor of the Picower Parties:
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`[A]ny BLMIS customer or creditor of the BLMIS estate . . . or anyone whose
`claim in any way arises from or is related to BLMIS or the Madoff Ponzi scheme,
`is hereby permanently enjoined from asserting any claim against the Picower
`BLMIS Accounts or the Picower Releasees that is duplicative or derivative of the
`claims brought by the Trustee, or which could have been brought by the Trustee
`against the Picower BLMIS Accounts or the Picower Releasees . . . .
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`(Order Pursuant to Section 105(a) of the Bankruptcy Code and Rules 2002 and 9019 of the
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`Federal Rules of Bankruptcy Procedure Approving an Agreement by and Among the Trustee and
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`the Picower BLMIS Account Holders and Issuing a Permanent Injunction, dated Jan. 13, 2011, at
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`6
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`7 (Adv. Pro. No. 09-01197 ECF Doc. # 43.) The Trustee agreed in the Settlement Agreement3 to
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`use his reasonable best efforts to oppose challenges to the scope, applicability, or enforceability
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`of the Permanent Injunction. (Settlement Agreement at ¶ 7.) Finally, the Picower Parties had
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`filed twenty-one claims against the SIPA estate, (see id., Attachment A), and they agreed to
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`withdraw those claims. (Id. at ¶ 9.)
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`B.
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`The Challenge to the Permanent Injunction
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`Prior to the settlement, former BLMIS customers (Fox and Marshall) filed putative class
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`actions against the Picower Parties in the Florida District Court alleging Florida state law claims
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`sounding in conversion, unjust enrichment, conspiracy, and state RICO violations. See Fox v.
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`Picard (In re BLMIS), 848 F. Supp. 2d 469, 475 (S.D.N.Y. 2012) (“Fox I”), aff’d, 740 F.3d 81
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`(2d Cir. 2014) (“Marshall”). The Trustee commenced an adversary proceeding to enjoin the
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`Fox/Marshall actions pending the completion of his settlement with the Picower Parties. The
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`Court concluded prior to its approval of the settlement that the Florida actions violated the
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`automatic stay and at least one stay order of the District Court. In addition, the Court further
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`ruled that the Fox/Marshall actions posed an imminent threat to the BLMIS estate and that an
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`extension of the stay was appropriate and necessary to “preserve the integrity of the SIPA
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`proceedings and the Trustee’s settlement negotiations....” Picard v. Fox (In re BLMIS), 429 B.R.
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`423, 436 (Bankr. S.D.N.Y. 2010), aff’d, 848 F. Supp. 2d 469 (S.D.N.Y. 2012), aff’d, 740 F.3d 81
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`(2d Cir. 2014). Finally, the Court stated at the hearing to approve the settlement that the
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`3
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`The Settlement Agreement is attached as Exhibit A to the Court’s order.
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`Permanent Injunction applied to Fox’s and Marshall’s putative class actions. (Transcript of Jan.
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`13, 2011 Hearing at 41:8-14) (Adv. Pro. No. 08-01789 ECF Doc. # 3815).)
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`Fox and Marshall appealed the approval of the settlement and the issuance of the
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`Permanent Injunction, and argued, inter alia, that the Court lacked jurisdiction to issue the
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`Permanent Injunction. District Judge Koeltl, to whom the appeal was assigned, explained that
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`the question hinged on whether the Fox/Marshall complaints alleged direct claims or claims that
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`were derivative of the claims asserted against the Picower Parties by the Trustee. Fox I, 848
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`F.Supp.2d at 478.
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`The District Court first observed that the Fox/Marshall complaints made factual
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`allegations which were virtually identical to those made by the Trustee in the Trustee Complaint
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`and based on the same conduct by the Picower Parties—“involvement in the Madoff Ponzi
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`scheme, and the transfer of billions of dollars in BLMIS-held customer funds to the Picower
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`[Parties].” Id. at 479. Furthermore, the alleged wrongful acts harmed every BLMIS investor in
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`the same way, and the claims were “general one[s]” and not claims seeking to recover injury
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`inflicted by the Picower Parties directed toward particular BLMIS customers. Id. at 480 (quoting
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`St. Paul Fire & Maine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989)). Judge Koeltl
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`rejected the argument that the Florida complaints alleged individualized tort claims rather than
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`the bankruptcy claims alleged in the Trustee Complaint, stating that “this nominal difference
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`does not amount to a substantive difference.” Id at 481. He concluded:
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`Allowing the Florida Actions to go forward would carry real risks to the estate,
`implicating the viability of the current settlement and the possibility of future
`settlements, and providing an avenue for BLMIS customers who are displeased
`with the Net Equity Decision to undermine that decision by directly pursuing
`claims that are wholly derivative of claims already brought by the Trustee.
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`Id. at 490–91.
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`Fox and Marshall appealed and the Second Circuit affirmed, concluding that the
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`Fox/Marshall complaints were attempts to “plead around” the Permanent Injunction and the
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`automatic stay. Marshall, 740 F.3d at 91–92. The Second Circuit explained that “derivative
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`claims” are claims that arise from the secondary effect of a harm done to the debtor and seek
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`relief from third parties that pushed the debtor into bankruptcy, id. at 89; accord Picard v.
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`JPMorgan Chase & Co. (In re BLMIS), 721 F.3d 54, 70 (2d Cir. 2013), cert. denied, 134 S. Ct.
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`2895 (2014); St. Paul Fire & Marine, 884 F.2d at 704, while a claim is “particularized” when the
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`injury can be “directly traced to the [third party’s] conduct.” Marshall, 740 F.3d at 89 (quoting
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`St. Paul Fire & Marine, 884 F.2d at 704). The Fox/Marshall complaints “allege nothing more
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`than steps necessary to effect the Picower defendants’ fraudulent withdrawals of money from
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`BLMIS, instead of ‘particularized’ conduct directed at BLMIS customers.” Id. at 84. They did
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`not contain particularized claims because they “do not allege that the Picower defendants made
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`any such misrepresentations to BLMIS customers.” Id. at 92. Quoting from District Judge
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`Richard J. Sullivan’s decision in a case involving the Goldman Parties and discussed
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`immediately below, the Second Circuit stated:
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`The ... Complaints plead nothing more than that the Picower Defendants traded on
`their own BLMIS accounts, knowing that such “trades” were fraudulent, and then
`withdrew the “proceeds” of such falsified transactions from BLMIS. All the
`“book entries” and “fraudulent trading records” that the Complaints allege refer to
`nothing more than the fictitious records BLMIS made, for the Picower
`Defendants, to document these fictitious transactions. In other words, the
`Complaints plead nothing more than that the Picower Defendants fraudulently
`withdrew money from BLMIS.
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`Id. (emphasis in original).
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`C.
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`Goldman I
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`While the Fox/Marshall litigation was wending its way through the courts in this Circuit,
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`the Goldman Parties sought leave from this Court to file two putative class actions in Florida
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`District Court. The proposed complaints alleged that the Picower Parties had received billions of
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`dollars in transfers under circumstances that suggested they knew that BLMIS was engaged in
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`fraud. They claimed that Picower was a “control person” with respect to BLMIS under § 20 of
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`the Exchange Act, and participated with BLMIS in violations of section 10(b) of the Exchange
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`Act and Rule 10b–5. After this Court held that the proposed complaint violated the Permanent
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`Injunction and the automatic stay, SIPC v. BLMIS (In re BLMIS), 477 B.R. 351, 355-58 (Bankr.
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`S.D.N.Y. 2012), aff’d, 2013 WL 5511027 (S.D.N.Y. Sept. 30, 2013), the Goldman Parties
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`appealed.
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`On appeal, District Judge Sullivan observed that the same act may give rise to derivative
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`and direct claims, and claims under § 20(a) of the Exchange Act were direct. Goldman I, 2013
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`WL 5511027, at *5–6. However, a plaintiff does not plead a § 20(a) claim simply by labeling it
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`as such, and the Court must, instead, look to the substance of what is alleged. Id. at *6. Thus,
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`although the adequacy of the proposed complaints was not before the District Court, “whether
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`the Complaints plead a bona fide control person claim is relevant insofar as it affects whether
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`Appellants have pled a non-derivative claim.” Id. (emphasis in original).
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`The District Court then proceeded to examine the proposed complaints and concluded
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`that they consisted of conclusory averments that did not allege bona fide securities fraud claims.
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`Id. at *6-7. The Goldman Parties did not plead “any facts to support the allegation that the
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`Picower Defendants controlled BLMIS beyond what was necessarily incident to directing trades
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`in their own customer accounts,” and each “conclusory legal statement about the Picower
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`Defendants’ control over BLMIS ... simply parrots the elements required to make out a control
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`person claim.” Id. at *8. Furthermore, the proposed complaints did not claim that the Picower
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`Parties directed BLMIS to make representations beyond what was necessary to document their
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`withdrawals. Id. at *9. The District Court concluded:
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`[I]t is not enough that securities fraud claims would be non-derivative of
`fraudulent conveyance claims and that Appellants call their claims securities
`fraud claims‒the Goldman Complaints must actually plead securities fraud
`claims. Beyond a few bare legal conclusions, the Complaints plead no such
`claims. All the Goldman Complaints plead is that the Picower Defendants
`directed trades in their own BLMIS accounts and did so knowing that no such
`trades were in fact taking place—in other words, that the Picower Defendants
`fraudulently withdrew money from BLMIS.
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`Id. at *10 (emphases in original).
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`D.
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`Goldman II
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`Three months after the issuance of the decision in Goldman I, the Goldman Parties filed
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`an action in the Florida District Court seeking a declaration that neither the Permanent Injunction
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`nor the automatic stay barred their new complaint against the Picower Parties which again
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`alleged a violation of section 20(a) of the Exchange Act. Goldman II, 511 B.R. at 386. The new
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`complaint alleged, in substance, that the Picower Parties “were aware of the Ponzi scheme, were
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`able to cause BLMIS to make fraudulent entries in their own accounts that allowed them to steal
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`the funds belonging to other customers, and knew and caused BLMIS to make
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`misrepresentations to the other customers in the account statements and other financial
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`information that BLMIS sent to them.” Id. at 391. The Trustee commenced another suit to
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`enjoin the new action again arguing that the asserted claims were derivative of the BLMIS
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`estate’s claims and barred by the Permanent Injunction and the automatic stay.4 The Picower
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`Parties intervened seeking the same relief as the Trustee.
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`Addressing the complaints filed or proposed by both the Goldman Parties and the
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`Fox/Marshall parties, the Court granted the injunction concluding that the new pleadings violated
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`the Permanent Injunction. The Court observed that “[a]ll the Courts that have considered the
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`issue have concluded that regardless of the label the plaintiffs choose to attach to their claims, a
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`claim based on the Picower Defendants’ fraudulent withdrawals and fraudulent entries in their
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`accounts, without any particularized allegations that the Picower Defendants directly participated
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`in any misrepresentation to the customers, is derivative of the Trustee’s fraudulent conveyance
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`claims against the Picower Defendants.” Id. at 390. The new complaint attempted to cure the
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`deficiencies in the previous complaint by “averring that the [Picower Parties’] fraudulent
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`withdrawals and fictitious entries in their own accounts had the effect of causing BLMIS to send
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`false financial statements to other customers.” Id. at 392-93. Aside from these conclusory
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`statements, the new Goldman complaint did not allege that the Picower defendants “directed or
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`were at all involved in the creation or dissemination of these statements to other BLMIS
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`customers,” Goldman I, 2013 WL 5511027, at *8, or include particularized allegations that
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`Picower was an officer of BLMIS, or “that Picower Defendants did anything besides
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`fraudulently withdraw money from BLMIS and cause BLMIS to make phony entries in the
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`records of their accounts.” Goldman II, 511 B.R. at 393.
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`In addition, the Fox/Marshall plaintiffs had moved to reopen their Florida action and for leave to file a
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`second amended complaint. The Trustee also sought to enjoin the prosecution of that action.
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`E.
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`Fox II
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`The Goldman Parties did not ultimately pursue an appeal of this Court’s Goldman II
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`decision,5 but Fox/Marshall did. District Judge Koeltl, who had also decided the prior
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`Fox/Marshall appeal, affirmed. Like the Goldman Parties’ complaints, Fox/Marshall’s new
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`complaint included a claim under section 20(a) of the Exchange Act. Fox v. Picard (In re
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`BLMIS), 531 B.R. 345, 349 (Bankr. S.D.N.Y. 2015) (“Fox II”). The Fox/Marshall section 20(a)
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`claim alleged, inter alia, that the Picower Parties “controlled BLMIS and participated in
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`convincing additional customers to invest in BLMIS by inducing BLMIS’s misleading
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`statements to customers.” Id. at 352. Fox/Marshall sought to differentiate its allegations from
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`the Goldman Parties’ initial control person allegations rejected in Goldman I by asserting that
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`their section 20(a) claims involved direct injuries based on their own reliance on fraudulent
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`statements and misrepresentations made to them. Id.
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`The District Court reviewed the new complaint under the criteria discussed by the
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`District Court in Goldman I, and agreed that “the appellants have not made particularized
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`allegations about any misrepresentations made by the Picower parties or direct involvement of
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`the Picower parties in misrepresentations by Madoff.” Id. The Fox/Marshall complaint did not
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`point to any specific misrepresentations, and the allegations regarding “inflated account values,”
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`the only misrepresentations it discussed, were entirely conclusory. Id. In addition, the
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`allegations in the new Fox/Marshall complaint contained derivative allegations similar to those
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`rejected in Goldman I, and included actions taken by the Picower Parties regarding their own
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`The Goldman Parties’ had filed a notice of appeal but stipulated to its dismissal. (See Harris Declaration,
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`Exhibit 5.)
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`BLMIS accounts, particularized allegations of BLMIS’ fraud that did not include the Picower
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`Parties, and conclusory allegations of control person liability with no particularized support. Id.
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`The District Court concluded:
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`[T]he appellants have merely repackaged the same facts underlying the Trustee’s
`claims without any new particularized injuries of the appellants that are directly
`traceable to the Picower defendants. Thus, all of the claims in the New Fox
`Complaint “impermissibly attempt to “plead around” the bankruptcy court’s
`injunction barring all “derivative claims.”
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`Id. at 354 (quoting Marshall, 740 F.3d at 96).
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`F.
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`Goldman III
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`Against this history, the Goldman Parties filed their current class action complaint, dated
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`August 28, 2014 (the “Complaint”), in the Florida District Court.6 The Complaint contains many
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`of the same conclusory allegations in the Goldman II complaint (the “Prior Complaint”).7 For
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`example, the Prior Complaint alleged that Picower controlled BLMIS based on (i) his close
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`business and social relationship with Madoff, (ii) his knowledge of the Ponzi scheme, (iii)
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`causing BLMIS to disseminate false and misleading financial information to its customers, (iv)
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`directing the recording of phony transactions, including backdated trades, in his own accounts,
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`and (v) his ability to obtain an improper $6 billion margin loan. (Prior Complaint at ¶¶ 63-77.)
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`This Court held that those allegations were conclusory and based on activity in the Picower
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`Parties’ own accounts. Goldman II, 511 B.R. at 391-93. Without the allegations regarding the
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`6
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`A copy of the Complaint is attached as Exhibit 1 to the Harris Declaration.
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`The Prior Complaint is attached to the Declaration of Keith R. Murphy in Support of Application for
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`Enforcement of the Permanent Injunction and Automatic Stay, dated Nov. 17, 2014 (“Murphy Declaration”) (Adv.
`Pro. No. 14-02407 ECF Doc. # 4) as Exhibit L.
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`Picower Parties’ fraudulent withdrawals, “there [was] nothing left,” thus the alleged injuries
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`were “inseparable” from the Trustee’s already settled fraudulent transfer claims. Id. at 393
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`(quoting Marshall, 740 F.3d at 92). Likewise, the Complaint includes conclusory allegations
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`regarding Picower’s8 and Madoff’s close relationship (Complaint at ¶¶ 5, 64, 117), Picower’s
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`knowledge of the Ponzi scheme, (id. at ¶¶ 64, 111), his ability to cause BLMIS to send false and
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`misleading financial information to its customers, (e.g., id. at ¶¶ 1, 7, 10, 65, 74, 91-96), booking
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`phony, back-dated transactions in his own accounts, (id. at ¶¶ 83-86), and the $6 billion margin
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`loan for Defendant Decisions Incorporated stolen from the accounts of other BLMIS customers.9
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`(Id. at ¶¶ 88-90.) These allegations suffer from the same deficiencies noted in Goldman II.
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`The Goldman Parties argue that the Complaint should nevertheless be spared the same
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`fate as their prior pleadings based on the “Propping Up” and “Counterparty” Allegations. (See
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`Defendants’ Objection to Application for Enforcement of Permanent Injunction and Automatic
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`Stay, dated Dec. 15, 2014 at 6 (“Goldman Memo”) (Adv. Pro. No. 14-02407 ECF Doc. # 11).)
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`The source of these new allegations appears to be “criminal proceedings against . . . other
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`BLMIS employees, including without limitation the sworn testimony of Enrica Cotellessa-Pitz,
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`Frank DiPascali, Jr., and Annette Bongiorno in the criminal action, United States v. Bonventre,
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`et al., 10-cr-228(LTS) (S.D.N.Y.),” as this is the only new source of information referred to in
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`The Complaint defines “Picower” as Jeffry Picower and affiliated defendants (Complaint at ¶ 1), and also
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`alleges that the entity defendants were dominated, controlled and used as a mere instrumentality of Picower. (Id. at
`¶ 42.) In this opinion, the Court will sometimes use “Picower” synonymously with the previously defined “Picower
`Parties.”
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`Exhibit 7 annexed to the Harris Declaration includes a lengthy chart comparing the allegations in the
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`Complaint with the allegations in the Prior Complaint and the Trustee Complaint.
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`the preamble to the Complaint.10 (Compare Complaint, at pp. 1-2 with Prior Complaint, at 1-2.)
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`1.
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`Propping Up Allegations
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`According to the Complaint, Picower “propped up” the Ponzi scheme by making two
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`loans to BLMIS, aggregating $200 million, and but for these loans, BLMIS would have been
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`unable to pay off redeeming investors and the Ponzi scheme would have collapsed. (Complaint
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`at ¶ 67.) There was no formal documentation pertaining to either loan, and it was essential to
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`keep them secret because the Financial Institution Regulatory Authority (FINRA) would have
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`had to approve the loans, and Picower would have had to sign agreements subordinating the
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`loans to certain other liabilities of BLMIS. (Id. at ¶¶ 71-72.)
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` The first loan was made in 1992 or 1993. Avellino & Bienes, a BLMIS feeder fund, had
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`failed and was under SEC investigation. BLMIS needed cash to pay back Avellino’s investors
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`As a consequence, the Picower Parties cited to portions of their testimony to show that the Propping Up and
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`Counterparty Allegations actually relate to transactions in the Picower Parties’ own accounts and/or that Madoff
`unilaterally inserted Picower’s name as a counterparty. The Goldman Parties objected contending that I am limited
`to the allegations in the Complaint as I would be on a motion to dismiss under Rule 12(b)(6) of the Federal Rules of
`Civil Procedure. (Goldman Memo at 31.)
`The Trustee and the Picower Parties are not seeking to dismiss the Complaint; they are seeking to enforce
`the Permanent Injunction and the automatic stay, and the Second Circuit has instructed me to inquire into the factual
`origins of the injury and the legal claims asserted in the Complaint. Marshall, 740 F.3d at 89. Although this does
`not mean that I should conduct a trial on the “control person” allegations to decide whether the Goldman Parties
`may proceed to trial on their “control person” claim in Florida, the inquiry identified by the Second Circuit
`nevertheless implies that I may consider facts outside the pleading in appropriate circumstances to determine the
`bona fides of the “control person” claim. For example, if the Goldman Parties had attributed a statement of fact to a
`specific witness at the criminal trial, I would not have to blindly accept their characterization of that testimony and
`could review the transcript to determine whether the witness actually said what the Goldman Parties’ claim he or she
`said. Rieger v. Drabinksy (In re Livent, Inc. Noteholders Sec. Litig.), 151 F. Supp. 2d 371, 405–06 (S.D.N.Y. 2001)
`(“[A] court need not feel constrained to accept as truth . . . pleadings . . . that are contradicted either by statements i