In re: Bernard L. Madoff Inv. Sec. LLC

Summary

The United States Court of Appeals for the Second Circuit affirmed a district court judgment upholding the bankruptcy court’s approval of Trustee Irving H. Picard’s denial of claims against Bernard L. Madoff Investment Securities LLC. The court held that investors who invested through intermediary feeder funds were not “customers” of BLMIS under the Securities Investor Protection Act because they did not directly entrust cash or securities to BLMIS or maintain accounts with it.

Holdings

1. Investors who purchased ownership interests in feeder funds, rather than depositing cash or securities with BLMIS or maintaining accounts with BLMIS, do not qualify as separate BLMIS customers under SIPA.
2. Even if the appellants had exercised some degree of control over the Feeder Funds' investments, that fact alone would not establish SIPA customer status because the appellants individually made no purchases, transacted no business, and had no dealings with BLMIS.
3. An investor's intent that money invested in a partnership ultimately be invested with BLMIS does not establish SIPA customer status when the investor purchased only an ownership interest in the partnership and never entrusted cash or securities to BLMIS.
4. The Feeder Funds were not shown to be BLMIS agents, and their purported agency relationship could not establish customer status for the appellants.

Questions Presented

1. Whether investors who purchased ownership interests in feeder funds that invested with BLMIS qualify as BLMIS customers under SIPA.
2. Whether the appellants' alleged control over, or intent concerning, the Feeder Funds' investments was sufficient to establish customer status.
3. Whether the Feeder Funds acted as agents of BLMIS for purposes of establishing the appellants' customer status.

Disposition

affirmed