Vol 8 (2011) - Issue 3

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Picard (Foreign Representative Of Bernard L Madoff Investment Securities LLC) v Fim Advisers LLP: Disclosure of Documents and Whether the Court Should Make an Order under Article 21 of Schedule 1 to the Cross-Border Insolvency Regulations 2006

1. Introduction

In the recent judgment of Kitchin J in Picard Foreign Representative of Bernard L Madoff Investment Securities LLC (the ‘Trustee’) v FIM Advisers LLP1 (previously known as FIM Ltd) (‘FIM Advisers’)2 the High Court considered an application made by the Trustee, in which the Trustee sought disclosure of documents and information under the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) (‘CBIR’) against three English companies which were directly or indirectly involved with BLMIS as investors and investment managers.



2. The background

Bernard L Madoff Securities LLC (‘BLMIS’) was a New York limited liability company wholly owned by Mr Bernard Madoff who was its founder, chairman and chief executive officer. It operated an investment advisory business with approximately 8000 customers and appeared to be extraordinarily successful, generating returns of at least 12% regardless of the market conditions. In reality the business was being conducted fraudulently which became clear when BLMIS no longer was able to meet the redemption requests made by its investors.

On 15 December 2008, the Securities and Investor Protection Corporation (‘SIPC’) filed an application at the US District Court for the Southern District of New York seeking an order that the customers of BLMIS needed protection under the Securities Investor Protection Act 1070 (‘SIPA’). The Trustee was appointed with all the powers and duties of a trustee as set out in SIPA. At the same time the proceedings were moved to the United States Bankruptcy Court of the Southern District of New York (the ‘Bankruptcy Court’) where they are now pending.

Kingate Global Fund Ltd (‘Kingate Global’) and Kingate Euro Ltd (‘Kingate Euro’) (together, the ‘Kingate Funds’), both incorporated under the laws of the British Virgin Islands, engaged in an investment strategy by which the shares in the Kingate Funds were sold to investors and the vast majority of monies were invested with BLMIS. The Kingate Funds paid 1.5% of the net value of their respective funds annually to Kingate Management Ltd (‘Kingate Management’) which was a company incorporated in Bermuda. The net value was calculated on the basis of the false statements of accounts prepared by BLMIS. Kingate Management received millions of US dollars in fees which they subsequently used to pay fees to FIM Advisers pursuant to several consulting services and distribution agreements. It was believed by the Trustee that the principals of FIM Advisers, Mr Grosso and Mr Ceretti, were the owners of and in control of Kingate Management and were responsible for setting up the investment strategy of the Kingate Funds.



3. The trustee’s duties and agreed issues

Under SIPA the Trustee has a statutory duty, among other things, to investigate the conduct, property, liabilities and financial condition of BLMIS, the operation of its business and any other matter to the extent relevant to a SIPA liquidation. In addition, the Trustee has a statutory duty to report to the Bankruptcy Court any facts ascertained by him with respect to fraud, misconduct, mismanagement and irregularities as well as any causes of action available to the estate.