Can the Madoff Trustee Recover Disbursements of Fictitious Investment Returns Made to “Remote” Transferees?

What happens under the Bankruptcy Code if the recipient of a voidable transfer has transferred the property received from a bankrupt debtor to a third party?  Specifically, can the bankruptcy trustee, or the trustee in a proceeding under the Securities Investor Protection Act of 1970, seek the property in question from the third party, or would the trustee be limited to seeking its value from the original transferee?  The short answer is that trustees generally may have the statutory authority to bring recovery actions against remote transferees with respect to such property, but such remote transferees may have robust defenses that render it legally and practically difficult to collect from them.  Recent actions brought by Irving Picard, the Madoff trustee, against the Fairfield Greenwich Group and Jeffrey Picower and his foundation and related entities exemplify the disconnect between available legal remedies and the low likelihood of collection.  This article examines the statutory landscape and the factual context of Picard’s recent actions.

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