Vol 6 (2009) - Issue 4

Article preview

Cross Border Data Transfer: In The Matter of Madoff International Securities Limited [2009] EWHC 442 (Ch)

The Madoff fraud and its denouement

On 11 December 2008, the world awoke to the astonishing news that Bernard L Madoff, a former chairman of the Nasdaq stock exchange in New York and highly respected Wall Street investment manager, had admitted that his investment company, Bernard L Madoff Investment Securities LLC (‘BMIS’), was nothing more than a giant ‘Ponzi’ scheme. Losses to the upwards of 4500 investors in BMIS are estimated to be between USD 50 and 65 billion. On 12 March 2009, Mr Madoff pleaded guilty to various charges including securities fraud, investment adviser fraud, mail fraud and perjury.

Almost immediately after Mr Madoff confessed to his crimes in December 2008, the Securities and Exchange Commission (‘SEC’) in New York moved rapidly to bring BMIS and Mr Madoff ’s assets under its control by making applications to the United States District Court, Southern District, which resulted in the following orders:

(a) On 12 December 2008, a temporary restraining order (‘TRO’) was made against Mr Madoff and BMIS and a Mr Lee Richards of Richards Kibbe & Orbe LLP was appointed receiver (the ‘US Receiver’) over the assets of various entities including Madoff Securities International Limited (‘MSIL’).

(b) On 15 December 2008, pursuant to the Securities Investment Protection Act (codified in Title 15 of the United States Code sections 78aaa-111) a trustee (‘the SIPA Trustee’) of the assets of BMIS was appointed.

(c) On 18 December 2008, the TRO and the appointment of the US Receiver were continued.

MSIL is an English private limited company incorporated on 11 March 1983 whose shares are wholly owned by Mr Madoff and members of his family. Although authorised by the FSA MSIL appeared to carry out proprietary trading activities for Mr Madoff ’s personal account alone. As a result of the orders made on 12 December 2008 in New York, various banks who were notified of the orders and who held accounts for MSIL refused to carry out further instructions on behalf of MSIL. The result was that MSIL’s business was frozen and the directors felt that they had no option but to petition for the appointment of provisional liquidators.

On 19 December 2008, Sir John Lindsey appointed Mark Byers, Andrew Hosking and Stephen Akers of Grant Thornton LLP joint provisional liquidators (the ‘JPLs’) of MSIL. The FSA expressly approved the appointment of the JPLs and the very extensive powers and functions that they were given by the order including the power to investigate the affairs of the MSIL. The order of appointment further provided that the JPLs would cooperate as appropriate with the US Receiver, the SIPA Trustee and the FSA and that the JPLs would use their best endeavours to provide the US Department of Justice and the SEC the same information as that provided to the US Receiver the SIPA Trustee and the FSA.

The cooperation provisions were included in recognition of the fact that the Madoff fraud was multijurisdictional involving investors and assets situated throughout the world and that the job of identifying and realising those assets would be best accomplished if the various regulatory authorities and court -appointed officers cooperated in the collation and exchange of information in order to avoid duplication and save costs.