Fairfield Funds Liquidator Seeks 130M in Five New Suits

Law360–Kenneth Krys, the trustee charged with liquidating Bernard Madoff feeder fund Fairfield Sentry Ltd., fired off a new round of clawback suits Friday, this time seeking nearly $130 million in five suits, including $115 million from Atlantic Security Bank.

Besides ASB, Krys — Sentry’s foreign representative overseeing the recovery of allegedly fraudulent transfers to Bernard L. Madoff Investment Securities LLC’s largest fund — targets Paribas Espana, Capital Global Management Ltd., HSH Nordbank Securities SA and Somers Nominees (Far East) Ltd.

Krys says any payments made from BLMIS to Sentry and sister funds Fairfield Sigma Ltd. and Fairfield Lambda Ltd. were made to further the ends of Madoff’s enormous Ponzi scheme and avoid its detection. In turn, he argues that the redemption payments made to redeeming Fairfield shareholders were also fraudulent.

“At the time such payments were made, Sentry mistakenly believed that such payments were in the amount of the net asset value of the shares tendered at the time of redemption,” the complaints said.

“In fact, however … the redemption payments made to [the defendants] far exceeded the actual net asset value of the shares redeemed,” they added. “Moreover, the source of these redemption payments was not, as Sentry believed them to be, proceeds of the liquidation of securities or investments held for their accounts.”

The suits are the latest sally in Krys’ ongoing quest to claw back money for the funds’ estates. On April 6 he launched seven more adversary proceedings seeking more than $2.6 million, and on April 4 he lodged nine other clawback suits against investors that totaled more than $65.5 million.

Sentry was the largest feeder fund that kept accounts with BLMIS, and Sigma and Lambda were indirect feeder funds that invested in BLMIS through Sentry, according to the complaints. The funds are themselves the subject of a $3.2 billion clawback suit filed by BLMIS liquidator Irving H. Picard, and they are seeking to recover money in connection with that action.

The redemption payments didn’t conform to the funds’ subscription agreements and other offering documents because their source was not the sale of securities or a return of investments, the suits say.

Instead, the payments were derived from uninvested funds of other BLMIS investors or other uninvested deposits made by Sentry in BLMIS and represented the fraudulent gains of Madoff’s Ponzi scheme, distributed by BLMIS to Sentry, the suits contend.

“In light of the fraudulent nature of BLMIS and its operation as a massive Ponzi scheme, at all relevant times the assets purportedly held at BLMIS for Sentry were nonexistent, and the funds were insolvent at the time redemption payments were made or they were rendered insolvent by those payments,” the complaints said. “As a result, at all relevant times, the net asset value of the shares redeemed was miscalculated, and redemption payments were mistakenly made for amounts far in excess of the actual net asset value of shares redeemed.”

Krys filed more than 45 similar proceedings in mid-March seeking to recover more than $300 million that was paid out to the funds’ shareholders before Madoff’s massive Ponzi scheme unfolded.

Krys is represented by Kerry L. Quinn, David J. Molton, May Orenstein and Daniel J. Saval of Brown Rudnick LLP.

Counsel information for the defendants was not immediately available.
The cases are Fairfield Sentry Ltd. et al. v. Atlantic Security Bank et al., case number 1:12-ap-01550; Fairfield Sentry Ltd. et al. v. Paribas Espana f/k/a Fortis Bank (Espana), case number 1:12-ap-01551; Fairfield Sentry Ltd. et al. v. Capital Global Management Ltd., case number 1:12-ap-01552; Fairfield Sentry Ltd. et al. v. HSH Nordbank Securities SA et al., case number 1:12-ap-01555; and Fairfield Sentry Ltd. et al. v. Somers Nominees (Far East) Ltd., case number 1:12-ap-01556, all in the U.S. Bankruptcy Court for the Southern District of New York.