Madoff Feeder Fund Sues Citigroup Unit to Recover $130 Million
Citigroup Global Markets Ltd. is facing a lawsuit seeking to claw back $130 million in redemption payments it received from Fairfield Sentry Ltd., the biggest feeder of investor funds into Bernard Madoff’s massive Ponzi scheme.
Fairfield Sentry’s liquidators on Thursday filed the lawsuit in the U.S. Bankruptcy Court in Manhattan, seeking to recover the redemption payments on the grounds that they were paid out fraudulently to Citigroup.
“The redemption payments that the funds made to redeeming shareholders were not made in the ordinary course of any business or for any legitimate purposes,” liquidators Kenneth Krys and Joanna Lau said in the suit. Rather, “they represented the fraudulent and ill-gotten gains of Madoff’s Ponzi scheme distributed by [Madoff’s investment firm] to Sentry.”
Because Citigroup was paid more than its shares were worth, and because other investors received nothing, the liquidators said Fairfield Sentry is entitled to recoup those payments.
“[Citigroup] has been unjustly enriched to the detriment of Sentry and other shareholders and creditors of Sentry,” the liquidators said. “It would offend principles of equity and good conscience to permit [Citigroup] to retain the redemption payments it received from Sentry.”
Reached Friday, a Citigroup spokeswoman said “we believe the suit is without merit.”
The lawsuit is the latest to be filed in a bid to recover funds for all investors in Fairfield Sentry and its related funds. The liquidators on Thursday filed two similar suits seeking another $13.5 million in redemption payments, and they’ve previously filed others. The suits target major investors worldwide and are deemed critical to the funds’ wind-down.
“Unless redemption payments paid to shareholders are recovered for the funds’ estates, the funds will be unable to satisfy their liabilities and claims that have been made or may be made against them,” the liquidators said.
Fairfield Sentry and its related funds were created to funnel investor dollars into Madoff’s investment firm, Bernard L. Madoff Investment Securities LLC. The liquidators said the feeder funds were essential to Madoff’s Ponzi scheme because the new funds constantly coming in allowed him to satisfy redemption requests from early investors.
“These payments and other payments made to BLMIS investors were crucial in perpetuating the Ponzi scheme and maintaining the illusion that Madoff was making actual investments and employing a successful investment strategy,” the liquidators said.
Fairfield Sentry, based in the British Virgin Islands, entered court-overseen liquidation proceedings there in April 2009. It has since sought the protection of a U.S. court to allow it to pursue lawsuits here.