Madoff Feeder Sues Abu Dhabi Fund For $300M

Law360–Fairfield Sentry Ltd., the largest feeder fund implicated in Bernard L. Madoff’s Ponzi scheme, lodged a suit in New York on Monday seeking to claw back
$300 million in redemption payments made during the fraud to Abu Dhabi’s state-owned investment fund.

The money used to redeem Abu Dhabi Investment Authority’s shares in Sentry were — unbeknownst to Sentry — the misappropriated assets of other Madoff investors, and must be recovered in order for the feeder fund to satisfy its own liabilities stemming from the Ponzi scheme, Sentry said in a complaint filed in the
U.S. Bankruptcy Court for the Southern District of New York.

“[T]o the extent such liabilities and claims must be satisfied solely from the funds’ current assets, defendants will have been unjustly enriched as they will not bear their proportionate share of such liabilities and claims, but rather will retain a windfall at the expense of other shareholders and creditors of the funds,” Sentry said.

Foremost among Sentry’s liabilities is a $3.2 billion suit filed by Irving H. Picard, the trustee charged with liquidating Bernard L. Madoff Investment Securities LLC, seeking to recover all of the money used by Sentry and associated funds for redemption payments to shareholders for the six years prior to the December 2008 disclosure of the Madoff fraud.

Sentry filed its complaint as an adversary suit in its Chapter 15 bankruptcy, where the federal court has recognized its foreign bankruptcy proceeding so as to bar creditors from coming after Sentry’s assets in the U.S.

Tortola, British Virgin Islands-based Sentry filed for bankruptcy in April 2009 in the territory’s Commercial Division of the High Court of Justice. Two units, Fairfield Sigma Ltd. and Fairfield Lambda Ltd., have also sought protection.

The suit contends that the redemptions amount to “mistaken payments” because Sentry erroneously believed the used funds were derived from the sale of investments held for Sentry by BLMIS.

“Instead, any amounts obtained directly by Sentry from BLMIS to make redemption payments to Abu Dhabi Investment Authority were proceeds of Madoff’s Ponzi scheme, obtained from other BLMIS investors or other Sentry investors invested in BLMIS,” the complaint said.

Therefore, the redemption payments “generally represent” assets of Sentry’s estate and Abu Dhabi Investment Authority is not entitled to keep them, the fund says.

Sentry also filed similar suits on Monday against Banque Benedict Hentsch & Cie SA, seeking to recover $9 million in redemption payments, and Banca Privada d’Andorra SA, looking to recoup $11 million. All three suits also target the defendants’ beneficial shareholders.

Sentry wants the money returned plus interest, according to the suit, and seeks to impose a constructive trust on the redemption payments.

Sentry and its affiliated funds are represented by Brown Rudnick LLP.

Counsel information for the defendants was not immediately available.

The case is Fairfield Sentry Ltd. et al. v. Abu Dhabi Investment Authority, adversary case number 11-01719, in the U.S. Bankruptcy Court for the Southern District of New York.

The bankruptcy is In re: Fairfield Sentry Ltd., case number 10-bk-13164, in the U.S. Bankruptcy Court for the Southern District of New York.