irving picard vs richard m. glantz and family
DESCRIPTION
Lawsuit filed by Madoff trustee against Richard Glantz and family for $113 million, Glantz and his father, Edward, were bagged by the SEC in 1992 for selling unregistered securities through Aveelino & BienesTRANSCRIPT
Baker & Hostetler LLP45 Rockefeller PlazaNew York, NY 10111Telephone: (212) 589-4200Facsimile: (212) 589-4201David J. SheehanKeith R. MurphyGeraldine E. PontoJonathan B. NewAndrew W. ReichEssence Liburd
Attorneys for Irving H. Picard, Trusteefor the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff
UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORKSECURITIES INVESTOR PROTECTIONCORPORATION,
Plaintiff-Applicant,
v.
BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
Defendant.
Adv. Pro. No. 08-01789 (BRL)
SIPA LIQUIDATION
(Substantively Consolidated)
In re:
BERNARD L. MADOFF,
Debtor.IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC,
Plaintiff,
v.
RICHARD M. GLANTZ, individually, as trustee of the Richard M. Glantz 1991 Living Trust, the Edward R. Glantz Living Trust, the Thelma Glantz Living Trust, the Jerald Ostrin Trust, the Scott Ostrin Trust, the Glantz-Ostrin Trust I, and the Glantz-Ostrin Trust II, and as executor of the Estate
Adv. Pro. No. 10-_______ (BRL)
COMPLAINT
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of Edward R. Glantz and the Estate of Thelma Glantz;
ELAINE OSTRIN, individually and as trustee of the Edward R. Glantz Living Trust;
JERALD OSTRIN;
SCOTT OSTRIN;
THE RICHARD M. GLANTZ 1991 LIVING TRUST;
THE EDWARD R. GLANTZ LIVING TRUST;
THE ESTATE OF EDWARD R. GLANTZ;
THE THELMA GLANTZ LIVING TRUST;
THE ESTATE OF THELMA GLANTZ;
THE JERALD OSTRIN TRUST;
THE SCOTT OSTRIN TRUST;
THE GLANTZ-OSTRIN TRUST I;
THE GLANTZ-OSTRIN TRUST II;
ROBERTA COHEN;
TAJ INAYAT a/k/a TAJ INAYAT-KHAN a/k/a CAROLYN TAJ GLANTZ a/k/a CAROLYN BUCKMASTER;
RALEIGH DOW BUCKMASTER, SR.;
BARBARA BUCKMASTER,
RALEIGH DOW BUCKMASTER, JR.;
DREW BUCKMASTER;
OWEN BUCKMASTER;
JOELLEN BUCKMASTER;
MIRZA INAYAT KHAN;
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ZIA INAYAT KHAN;
ZIA’S CHILDREN EDUCATION TRUST;
NATHAN JOHNSON, individually and as trustee of Zia’s Children Education Trust;
CHRISTOPHER L. DINGMAN;
AMANDA SAVASKY;
AUSTIN BOSARGE;
GRACE & COMPANY;
EJS ASSOCIATES, L.P.;
JELRIS & ASSOCIATES, L.P.;
THE GLANTZ FAMILY FOUNDATION, INC;
MERLIN & ASSOCIATES, LTD.;
ENHANCEMENT GROUP;
LAKEVIEW INVESTMENT, LP;
VISTA MANAGEMENT CO.;
BUCKMASTER FARMS, L.P.;
NTC & CO. LLP, as former custodian for an Individual Retirement Account for the benefit of RICHARD M. GLANTZ; and
NTC & CO. LLP, as former custodian for an Individual Retirement Account for the benefit of EDWARD R. GLANTZ,
Defendants.
Irving H. Picard, (the “Trustee”), as trustee for the liquidation of the business of Bernard
L. Madoff Investment Securities LLC (“BLMIS”), under the Securities Investor Protection Act,
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15 U.S.C. §§ 78aaa, et seq. (“SIPA”)1 and the substantively consolidated estate of Bernard L.
Madoff, individually (“Madoff”), by and through his undersigned counsel, for his complaint (the
“Complaint”), states as follows:
NATURE OF PROCEEDING
1. This adversary proceeding arises from the massive Ponzi scheme perpetrated by
Madoff. Over the course of the scheme, there were more than 8,000 client accounts at BLMIS.
In early December 2008, BLMIS generated client account statements for its approximately 4,900
open client accounts. These statements purport that clients of BLMIS had invested an aggregate
of approximately $65 billion with BLMIS. In reality, BLMIS had assets on hand worth a small
fraction of that amount. On March 12, 2009, Madoff admitted to engaging in a fraudulent
scheme and pled guilty to 11 felony counts and was sentenced on June 29, 2009 to 150 years in
prison. The defendants received, directly or indirectly, avoidable transfers from BLMIS totaling
more than $113 million, and the purpose of this proceeding is to avoid and recover the transfers
received by these defendants.
2. Richard M. Glantz (“Glantz”) and his father, Edward R. Glantz, now deceased
(“Edward Glantz”), were beneficiaries of this Ponzi scheme for more than 30 years. Since 1992,
they and the other defendants collectively profited from this scheme through the withdrawal of
more than $113 million. The Trustee’s investigation to date has revealed that over $40 million
of this amount was fictitious profits from the Ponzi scheme. In other words, the defendants have
received more than $40 million of other people’s money.
3. Glantz and Edward Glantz knew or should have known that they were profiting
from the fraud because, among other reasons, they had an extensive and special relationship with
BLMIS and Madoff, having created and managed entities that pooled many millions of dollars of
1 For convenience, future reference to SIPA will not include “15 U.S.C.”
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investor funds so that they could be funneled into BLMIS. As a result of their activities, Glantz
and Edward Glantz, and entities they created and managed, were investigated and sued by the
Securities and Exchange Commission (“SEC”) for violations of the federal securities laws. In
1993, Glantz, Edward Glantz and the entities they controlled were permanently enjoined by
federal courts from future securities law violations.
4. In connection with the SEC proceedings, Glantz, Edward Glantz and their entities
were forced to return all money to their investors. Nevertheless, millions of dollars of that
money was almost immediately reinvested directly with BLMIS by the investors. Madoff
rewarded Glantz and Edward Glantz with a fraudulent side payment each year thereafter for
referring investors to BLMIS.
5. In addition, Glantz continued to funnel his own money, his family’s money, and
other people’s money into BLMIS through new entities. Defendants Grace & Company
(“Grace”), EJS Associates, L.P. (“EJS”), Jelris & Associates, L.P. (“Jelris”), The Glantz Family
Foundation, Inc. (“GFF”), Merlin & Associates, Ltd., Enhancement Group (“Enhancement”),
and the Richard M. Glantz 1991 Living Trust (the “RMG Trust”) all had accounts with BLMIS
that, upon information and belief, were managed, controlled, and/or overseen by Glantz. Glantz
has been trustee of the RMG Trust. As detailed below, the general partners of Grace, EJS and
Jelris have included the RMG Trust, the Edward R. Glantz Living Trust (the “ERG Trust”), the
Thelma Glantz Living Trust (the “TG Trust”), the Jerald Ostrin Trust, the Scott Ostrin Trust,
Glantz, Elaine Ostrin, Jerald Ostrin, Scott Ostrin, Roberta Cohen, Taj Inayat, Raleigh Dow
Buckmaster, Sr., Barbara Buckmaster, Raleigh Dow Buckmaster, Jr., Drew Buckmaster, Owen
Buckmaster, JoEllen Buckmaster, Mirza Inayat Khan, Zia Inayat Khan, Zia’s Children Education
Trust, Nathan Johnson, Christopher L. Dingman, and Amanda Savasky. All of the entities
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(including trusts), trustees and general partners identified in this paragraph are collectively
referred to as “Defendants.”
6. NTC & Co. LLP, as former custodian of the Individual Retirement Account for
the benefit of Glantz, is either an initial transferee of avoidable Transfers (as defined below)
from BLMIS, or a conduit of such Transfers for the benefit of Glantz (“FBO Defendant R.
Glantz”).
7. NTC & Co. LLP, as former custodian of the Individual Retirement Account
initially for the benefit of Edward Glantz, and later, upon information and belief, for the benefit
of Thelma Glantz, is either an initial transferee of avoidable Transfers (as defined below) from
BLMIS, or a conduit of such Transfers for the benefit of Edward Glantz and Thelma Glantz.
The Estate of Edward R. Glantz and the executors thereof (collectively, the “Edward Glantz
Estate”) and/or the ERG Trust (and the trustees thereof), as successors-in-interest to Edward
Glantz, are collectively referred to as “FBO Defendant E. Glantz.” The Estate of Thelma Glantz
and the executors thereof (collectively, the “Thelma Glantz Estate”) and/or the TG Trust (and the
trustees thereof), as successors-in-interest to Thelma Glantz, are collectively referred to as “FBO
Defendant T. Glantz.” FBO Defendant E. Glantz and FBO Defendant T. Glantz are collectively
referred to as “FBO Defendants Edward Glantz.”
8. FBO Defendant R. Glantz and FBO Defendants Edward Glantz are collectively
referred to as “FBO Defendants.”
9. NTC & Co. LLP, as former custodian of both Individual Retirement Accounts for
the benefit of FBO Defendants, is referred to herein as “Defendant NTC.” If Defendant NTC is
the initial transferee, then FBO Defendants are the subsequent transferees of such transfers for
purposes of this Complaint. To the extent Defendant NTC served as a conduit for the funds
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withdrawn for the benefit of FBO Defendants, FBO Defendants are the initial transferees of the
transfers for whose benefit such transfers were made for purposes of this Complaint.
10. Defendants, Defendant NTC and/or FBO Defendants were beneficiaries of
Madoff’s Ponzi scheme and received avoidable and recoverable transfers from BLMIS. Since
the opening of their various accounts at BLMIS, Defendants, Defendant NTC and/or FBO
Defendants collectively withdrew the amount of $113,385,537 from BLMIS in respect of such
accounts. Defendants, Defendant NTC and/or FBO Defendants received such funds under
circumstances that should have put Defendants and/or FBO Defendants on notice of the fraud.
11. Upon information and belief, Glantz, Elaine Ostrin, Jerald Ostrin, Scott Ostrin,
the RMG Trust, the ERG Trust, the TG Trust, the Jerald Ostrin Trust, the Scott Ostrin Trust, the
Glantz-Ostrin Trust I, the Glantz-Ostrin Trust II, Roberta Cohen, Taj Inayat, Raleigh Dow
Buckmaster, Sr., Barbara Buckmaster, Raleigh Dow Buckmaster, Jr., Drew Buckmaster, Owen
Buckmaster, JoEllen Buckmaster, Mirza Inayat Khan, Zia Inayat Khan, Zia’s Children Education
Trust, Nathan Johnson, Christopher L. Dingman, Amanda Savasky, Austin Bosarge, Grace, EJS,
Jelris, Lakeview Investment, LP (“Lakeview”), Vista Management Co. (“Vista”), and
Buckmaster Farms, L.P. (collectively, “Subsequent Transferee Defendants”) received subsequent
transfers of the avoidable transfers referenced above. To the extent the funds transferred from
BLMIS were for the benefit of Subsequent Transferee Defendants, the transfers are recoverable
from Subsequent Transferee Defendants pursuant to § 550(a) of title 11 of the United States
Code (the “Bankruptcy Code”), and Subsequent Transferee Defendants are included as
Defendants for purposes of Counts One through Seven herein.
12. This adversary proceeding is brought pursuant to §§ 78fff(b), 78fff-1(a), and
78fff-2(c)(3) of SIPA, §§ 105(a), 502(d), 510(c), 544, 548(a), 550(a) and 551 of the Bankruptcy
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Code, the New York Fraudulent Conveyance Act (New York Debtor & Creditor § 270, et seq.
(McKinney 2001) (“DCL”)), NY CPLR 203(g) and 213(8), and other applicable law, for the
avoidance and recovery of fraudulent conveyances made by BLMIS to or for the benefit of
Defendants, Defendant NTC and/or FBO Defendants, and Subsequent Transferee Defendants.
The Trustee seeks to avoid such transfers and preserve and recover the property for the benefit of
BLMIS’s defrauded customers.
JURISDICTION AND VENUE
13. This is an adversary proceeding brought before the Court in which the main
underlying SIPA proceeding, No. 08-01789 (BRL) (the “SIPA Proceeding”), is pending. The
SIPA Proceeding was originally brought in the United States District Court for the Southern
District of New York (the “District Court”) as Securities Exchange Commission v. Bernard L.
Madoff Investment Securities LLC et al., No. 08 CV 10791 (the “District Court Proceeding”) and
has been referred to this Court. This Court has jurisdiction over this adversary proceeding under
28 U.S.C. § 1334(b) and § 78eee(b)(2)(A) and (b)(4) of SIPA.
14. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (H) and (O).
15. Venue in this District is proper under 28 U.S.C. § 1409.
16. This Court has personal jurisdiction over all of the above-captioned Defendants
pursuant to Bankruptcy Rule 7004.
DEFENDANTS
Account Holder Defendants
Grace & Company
17. Upon information and belief, and based on documents submitted to the Trustee,
Grace is a general partnership. Grace maintains its principal place of business at 100 Smith
Ranch Road, Suite 116, San Rafael, California 94903.
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18. Grace holds a BLMIS account, No. 1T0026 (the “Grace Account”), in the name
“Grace & Company,” with the account address reported as 100 Smith Ranch Road, Suite 116,
San Rafael, California 94903. The Grace Account was opened as, and was previously held in the
name, “Taj Family.” For convenience, the terms “Grace” and “Grace Account” will include
reference to any previous title. Grace received avoidable and recoverable transfers from BLMIS
in respect of this account.
19. Upon information and belief, Glantz formed Grace to serve as an investment
vehicle at BLMIS for members of the Buckmaster family, relatives of his then-wife, Taj Inayat
(a/k/a Carolyn Buckmaster). Glantz opened the Grace Account with BLMIS, handled
correspondence with BLMIS on behalf of Grace, and at all times has been the manager of Grace
and the Grace Account.
20. Upon information and belief, and based on documents submitted to the Trustee,
general partners of Grace have included Glantz, Taj Inayat, Raleigh Dow Buckmaster, Sr.,
Barbara Buckmaster, Raleigh Dow Buckmaster, Jr., Drew Buckmaster, Owen Buckmaster,
JoEllen Buckmaster, Mirza Inayat Khan, Zia Inayat Khan, Zia’s Children Education Trust,
Nathan Johnson (individually and as trustee of Zia’s Children Education Trust), Christopher L.
Dingman, and Amanda Savasky. Grace and the general partners of Grace are collectively
referred to as “Grace Defendants.”
21. Upon information and belief, the RMG Trust, EJS, Lakeview, Vista, Buckmaster
Farms, L.P., and Raleigh Buckmaster, as general partner of Buckmaster Farms, L.P.
(collectively, “Grace Subsequent Transferee Defendants”) received subsequent transfers of the
avoidable transfers received by Grace.
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EJS Associates, L.P.
22. Upon information and belief, EJS was formed on October 15, 1993 as a general
partnership. Upon information and belief, EJS was reorganized as a limited partnership under
the laws of the State of Delaware, effective January 1, 1998. Upon information and belief, EJS
maintains its principal place of business at 100 Smith Ranch Road, Suite 116, San Rafael,
California 94903.
23. EJS holds a BLMIS account, No. 1ZA192 (the “EJS Account”), in the name “EJS
& Associates,” with the account address reported as 100 Smith Ranch Road, Suite 116, San
Rafael, California 94903. EJS received avoidable and recoverable transfers from BLMIS in
respect of this account.
24. Upon information and belief, Glantz formed EJS to serve as an investment vehicle
at BLMIS for Glantz’s own funds, as well as for funds of his close relatives. Glantz opened the
EJS Account with BLMIS, handled correspondence with BLMIS on behalf of EJS, and at all
times has been the managing partner of EJS and the EJS Account. Based on documents
recovered from BLMIS, both Edward Glantz and Glantz’s sister, Elaine Ostrin, were control
persons of EJS and regularly corresponded with BLMIS on behalf of EJS.
25. As a general partnership, EJS’s general partners included Glantz, Elaine Ostrin,
Jerald Ostrin, Scott Ostrin, the RMG Trust, the ERG Trust, the TG Trust, the Jerald Ostrin Trust,
and the Scott Ostrin Trust. Upon information and belief, at all times that EJS has been a limited
partnership, Glantz has been the sole general partner of EJS. EJS and each of these general
partners are collectively referred to herein as “EJS Defendants.”
26. Upon information and belief, during the period of time that EJS has been a limited
partnership, the limited partners of EJS have included Elaine Ostrin, Jerald Ostrin, Scott Ostrin,
Roberta Cohen, the RMG Trust, the ERG Trust, the TG Trust, the Jerald Ostrin Trust, and the
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Scott Ostrin Trust. Upon information and belief, each of these limited partners of EJS received
subsequent transfers of the avoidable transfers received by EJS. In addition, Jelris, Vista, and
Lakeview also received subsequent transfers of the transfers received by EJS. Elaine Ostrin,
Jerald Ostrin, Scott Ostrin, Roberta Cohen, the RMG Trust, the ERG Trust, the TG Trust, the
Jerald Ostrin Trust, the Scott Ostrin Trust, Jelris, Vista, and Lakeview are collectively referred to
herein as “EJS Subsequent Transferee Defendants.”
27. In addition to his individual capacity, Glantz is included in the definition of EJS
Defendants as trustee of the RMG Trust, the TG Trust, the Jerald Ostrin Trust, and the Scott
Ostrin Trust. As trustee of each of these trusts, Glantz is also included in the definition of EJS
Subsequent Transferee Defendants.
Jelris & Associates, L.P.
28. Upon information and belief, Jelris was formed on October 15, 1993 as a general
partnership. It was reorganized as a limited partnership under the laws of the State of Delaware,
effective March 28, 1995. Upon information and belief, Jelris maintains its principal place of
business at 100 Smith Ranch Road, Suite 116, San Rafael, California 94903.
29. Jelris holds a BLMIS account, No. 1ZB143 (the “Jelris Account”), in the name
“Jelris & Associates,” with the account address reported as 100 Smith Ranch Road, Suite 116,
San Rafael, California 94903. Jelris received avoidable and recoverable transfers from BLMIS
in respect of this account.
30. Upon information and belief, Glantz formed Jelris to serve as an investment
vehicle at BLMIS for Glantz’s own funds, as well as for funds of his close relatives. Glantz
opened the Jelris Account with BLMIS, handled correspondence with BLMIS on behalf of Jelris,
and at all times has been the managing partner of Jelris and the Jelris Account. Based on
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documents recovered from BLMIS, Edward Glantz and Elaine Ostrin also were control persons
of Jelris and regularly corresponded with BLMIS on behalf of Jelris.
31. As a general partnership, Jelris’s general partners included Glantz, Elaine Ostrin,
Jerald Ostrin, Scott Ostrin, the RMG Trust, the ERG Trust, and the TG Trust. Upon information
and belief, at all times that Jelris has been a limited partnership, Glantz has been the sole general
partner of Jelris. Jelris and each of these general partners are collectively referred to herein as
“Jelris Defendants.”
32. Upon information and belief, during the time that Jelris has been a limited
partnership, the limited partners of Jelris have included Elaine Ostrin, Jerald Ostrin, Scott Ostrin,
the RMG Trust, the ERG Trust, and the TG Trust. Upon information and belief, each of these
limited partners of Jelris received subsequent transfers of the avoidable transfers received by
Jelris. In addition, the Glantz-Ostrin Trust I, the Glantz-Ostrin Trust II, Austin Bosarge,
Lakeview, and Vista also received subsequent transfers of the transfers received by Jelris. Elaine
Ostrin, Jerald Ostrin, Scott Ostrin, the RMG Trust, the ERG Trust, the TG Trust, the Glantz-
Ostrin Trust I, the Glantz-Ostrin Trust II, Austin Bosarge, Lakeview, and Vista are collectively
referred to herein as “Jelris Subsequent Transferee Defendants.”
33. In addition to his individual capacity, Glantz is included in the definition of Jelris
Defendants as trustee of the RMG Trust, the ERG Trust and the TG Trust. As trustee of each of
these trusts, as well as the Glantz-Ostrin Trust I and the Glantz-Ostrin Trust II, Glantz is also
included in the definition of Jelris Subsequent Transferee Defendants.
The Glantz Family Foundation, Inc.
34. Upon information and belief, GFF is a corporation that was incorporated in 1986
under the laws of the State of Florida. Upon information and belief, GFF maintains its principal
place of business at 100 Smith Ranch Road, Suite 116, San Rafael, California 94903.
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35. GFF holds a BLMIS account, No. 1ZB010 (the “GFF Account”), in the name
“Glantz Family Foundation c/o Mr. Richard Glantz,” with the account address reported as 100
Smith Ranch Road, Suite 116, San Rafael, California 94903. GFF received avoidable and
recoverable transfers from BLMIS in respect of this account.
36. Upon information and belief, Glantz and Elaine Ostrin have been directors and
officers of GFF at all times relevant hereto. Upon information and belief, Edward Glantz was
president from at least 1995 until his death, and Glantz has been president thereafter. Edward
Glantz and Glantz have been vested with the authority, and have exercised the authority, to act
on behalf of GFF, including making deposits and withdrawals in respect of the GFF Account.
Merlin & Associates, Ltd.
37. Upon information and belief, Merlin & Associates, Ltd. is or was a corporation
incorporated in 1989 under the laws of the State of California. Upon information and belief,
Merlin & Associates, Ltd. was the successor to The Merlin Group, a corporation incorporated in
1984 or 1985 under the laws of the State of Nevada. For purposes of this Complaint, the Merlin
Group and Merlin & Associates, Ltd. are collectively referred to as “Merlin.” Upon information
and belief, Glantz at all times was the sole owner, officer and director of Merlin, and dominated
and controlled Merlin. Glantz is included in the definition of “Merlin.”
38. Merlin holds or held a BLMIS account, No. 1M0057 (the “Merlin Account”), in
the name “Merlin & Associates Ltd c/o Richard Glantz.” Merlin received avoidable and
recoverable transfers from BLMIS in respect of this account.
Enhancement Group
39. Upon information and belief, Enhancement is or was a corporation incorporated
in 1986 under the laws of the State of California. Upon information and belief, Glantz at all
times was an owner and the president of Enhancement, the only officer with an active role in
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Enhancement’s operations, and dominated and controlled Enhancement. Glantz is included in
the definition of “Enhancement.”
40. Enhancement holds or held a BLMIS account, No. 1E0128 (the “Enhancement
Account”), in the name “Enhancement Group c/o Richard Glantz.” Enhancement received
avoidable and recoverable transfers from BLMIS in respect of this account.
The Richard M. Glantz 1991 Living Trust
41. Upon information and belief, the RMG Trust is a trust formed under the laws of
the State of California. The RMG Trust holds a BLMIS account, No. 1ZA169 (the “RMG Trust
Account”), in the name “Richard M. Glantz 1991 Trust,” with the account address reported as
100 Smith Ranch Road, Suite 116, San Rafael, California 94903. The RMG Trust received
avoidable and recoverable transfers from BLMIS in respect of this account.
42. Upon information and belief, Glantz has been trustee of the RMG Trust. The
RMG Trust and Glantz, as trustee, are collectively referred to herein as “RMG Trust
Defendants.”
Richard M. Glantz and FBO Defendant R. Glantz
43. Upon information and belief, Glantz maintained his last known residence in San
Rafael, California. Upon information and belief, he is or was a general partner of Grace, EJS
and Jelris, sole owner of Merlin, part owner and control person of Enhancement, trustee of the
RMG Trust, the ERG Trust, the TG Trust, the Jerald Ostrin Trust, the Scott Ostrin Trust, the
Glantz-Ostrin Trust I and the Glantz-Ostrin Trust II, and executor of the Edward Glantz Estate
and the Thelma Glantz Estate.
44. FBO Defendant R. Glantz holds a BLMIS account, No. 1ZR010 (the “R. Glantz
IRA Account”). Defendant NTC and/or FBO Defendant R. Glantz received avoidable and
recoverable transfers from BLMIS in respect of this account.
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Edward Glantz (FBO Defendant E. Glantz)
45. Edward Glantz died on or about February 9, 2007. During his lifetime, he was the
beneficiary of the BLMIS account held by Defendant NTC for his benefit, No. 1ZR176 (the “E.
Glantz IRA Account”). Upon information and belief, during his lifetime, Edward Glantz and/or
the ERG Trust directly (or as a subsequent transferee of Defendant NTC) received avoidable and
recoverable transfers from BLMIS in respect of this account. If Edward Glantz received the
avoidable transfers, the Edward Glantz Estate and/or the ERG Trust are successors-in-interest to
those transfers.
46. Upon Edward Glantz’s death, upon information and belief, the beneficial interest
in the E. Glantz IRA Account transferred to his wife, Thelma Glantz, as designated beneficiary
and successor-in-interest to such account. Upon information and belief, after Edward Glantz’s
death, Thelma Glantz and/or the TG Trust directly (or as a subsequent transferee of Defendant
NTC) received transfer(s) from the E. Glantz IRA Account during her lifetime. If Thelma
Glantz received the avoidable transfers, the Thelma Glantz Estate and/or the TG Trust are
successors-in-interest to those transfers.
47. The Trustee seeks recovery of these transfers from FBO Defendant E. Glantz and
FBO Defendant T. Glantz, as transferees of avoidable transfers in respect of the E. Glantz IRA
Account, parties for whose benefit avoidable transfers were made, and/or successors-in-interest
to the same.
NTC & Co. LLP
48. Defendant NTC is a limited liability partnership that was formed under the laws
of the State of Colorado. Its principal place of business is located at 717 17th Street, Suite 2100,
Denver, Colorado 80202.
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Non-Account Holder Defendants
49. Upon information and belief, Elaine Ostrin maintains her residence in San
Francisco, California. She is Glantz’s sister and the daughter of Edward Glantz and Thelma
Glantz. Elaine Ostrin is or was a general partner and a limited partner of both EJS and Jelris and
a trustee of the ERG Trust.
50. Upon information and belief, Jerald Ostrin, a son of Elaine Ostrin, maintains his
residence in San Francisco, California. Jerald Ostrin is or was a general partner and a limited
partner of both EJS and Jelris.
51. Upon information and belief, Scott Ostrin, a son of Elaine Ostrin, maintains his
residence in Broomfield, Colorado. Scott Ostrin is or was a general partner and a limited partner
of both EJS and Jelris.
52. Upon information and belief, the ERG Trust is a trust formed under the laws of
the State of Florida. The ERG Trust is or was a general partner and a limited partner of both EJS
and Jelris. The ERG Trust was formed through a trust agreement dated June 6, 1993 and
subsequently amended, most recently on August 7, 2006. Edward Glantz was settlor and initial
trustee of the ERG Trust. Upon information and belief, the ERG Trust received initial and/or
subsequent transfers of the avoidable transfers referenced above.
53. Upon information and belief, following Edward Glantz’s death, Glantz, Thelma
Glantz and Elaine Ostrin became trustees of the ERG Trust. Upon information and belief,
following Edward Glantz’s death, assets of the Edward Glantz Estate and the ERG Trust,
including the avoidable and recoverable transfers and subsequent transfers referenced herein,
were transferred to beneficiaries of the Edward Glantz Estate and/or beneficiaries of the ERG
Trust. As stated above, upon information and belief, Glantz was executor of the Edward Glantz
Estate.
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54. Upon information and belief, the TG Trust is a trust formed under the laws of the
State of Florida. The TG Trust is or was a general partner and a limited partner of both EJS and
Jelris. Thelma Glantz (Edward Glantz’s widow and Glantz’s mother) was settlor and initial
trustee of the TG Trust. Upon information and belief, during Thelma Glantz’s lifetime, the TG
Trust received initial and/or subsequent transfers of the avoidable transfers referenced above.
55. Thelma Glantz died on or about July 23, 2010. Upon information and belief,
following Thelma Glantz’s death, assets of the Thelma Glantz Estate and the TG Trust, including
the avoidable and recoverable transfers and subsequent transfers referenced herein, were or will
be transferred to beneficiaries of the Thelma Glantz Estate and/or beneficiaries of the TG Trust.
As stated above, upon information and belief, Glantz is or was executor of the Thelma Glantz
Estate.
56. Upon information and belief, the Jerald Ostrin Trust is a trust formed under the
laws of the State of California. Upon information and belief, Glantz has been trustee of the
Jerald Ostrin Trust. The Jerald Ostrin Trust is or was a general partner and a limited partner of
EJS.
57. Upon information and belief, the Scott Ostrin Trust is a trust formed under the
laws of the State of California. Upon information and belief, Glantz has been trustee of the Scott
Ostrin Trust. The Scott Ostrin Trust is or was a general partner and a limited partner of EJS.
58. Upon information and belief, Taj Inayat maintains her residence in Petaluma,
California. She is a former wife of Glantz, and has also been known as Taj Inayat-Khan,
Carolyn Taj Glantz and Carolyn Buckmaster. Upon information and belief, Taj Inayat is or was
a general partner of Grace. As such, she is included in the definition of Grace Defendants.
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59. Upon information and belief, Raleigh Dow Buckmaster, Sr. maintains his
residence in Lansing, Nevada. Upon information and belief, Raleigh Dow Buckmaster, Sr. is or
was a general partner of Grace. As such, he is included in the definition of Grace Defendants.
60. Upon information and belief, Barbara Buckmaster maintains her residence in
Asheville, North Carolina. Upon information and belief, Barbara Buckmaster is or was a general
partner of Grace. As such, she is included in the definition of Grace Defendants.
61. Upon information and belief, Raleigh Dow Buckmaster, Jr. maintains his
residence in Big Sky, Montana. Upon information and belief, Raleigh Dow Buckmaster, Jr. is or
was a general partner of Grace. As such, he is included in the definition of Grace Defendants.
62. Upon information and belief, Drew Buckmaster maintains his residence in
Truckee, California. Upon information and belief, Drew Buckmaster is or was a general partner
of Grace. As such, he is included in the definition of Grace Defendants.
63. Upon information and belief, Owen Buckmaster maintains his residence in Tahoe
City, California. Upon information and belief, Owen Buckmaster is or was a general partner of
Grace. As such, he is included in the definition of Grace Defendants.
64. Upon information and belief, JoEllen Buckmaster maintains her residence in
Lansing, Iowa. Upon information and belief, JoEllen Buckmaster is or was a general partner of
Grace. As such, she is included in the definition of Grace Defendants.
65. Upon information and belief, Mirza Inayat Khan maintains his residence in
Fairfax, California. Upon information and belief, Mirza Inayat Khan is or was a general partner
of Grace. As such, he is included in the definition of Grace Defendants.
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66. Upon information and belief, Zia Inayat Khan maintains his residence in New
Lebanon, New York. Upon information and belief, Zia Inayat Khan is or was a general partner
of Grace. As such, he is included in the definition of Grace Defendants.
67. Upon information and belief, Zia’s Children Education Trust is a trust formed
under the laws of the State of California. Upon information and belief, Zia’s Children Education
Trust is or was a general partner of Grace. As such, it is included in the definition of Grace
Defendants. Upon information and belief, Nathan Johnson has been trustee of Zia’s Children
Education Trust.
68. Upon information and belief, Nathan Johnson maintains his residence in Fairfax,
California. Upon information and belief, Nathan Johnson is or was a general partner of Grace.
As such, he is included in the definition of Grace Defendants. He is also included in the
definition of Grace Defendants as trustee of Zia’s Children Education Trust.
69. Upon information and belief, Christopher L. Dingman maintains his residence in
Aptos, California. Upon information and belief, Christopher L. Dingman is or was a general
partner of Grace. As such, he is included in the definition of Grace Defendants.
70. Upon information and belief, Amanda Savasky maintains her residence in Aptos,
California. Upon information and belief, Amanda Savasky is or was a general partner of Grace.
As such, she is included in the definition of Grace Defendants.
71. Upon information and belief, the Glantz-Ostrin Trust I is a trust formed under the
laws of the State of California. Upon information and belief, Glantz has been trustee of the
Glantz-Ostrin Trust I, and its principal place of business is located at 100 Smith Ranch Road,
Suite 116, San Rafael, California 94903. It has received subsequent transfers of the avoidable
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transfers received by Jelris, and is included in the definition of Jelris Subsequent Transferee
Defendants.
72. Upon information and belief, the Glantz-Ostrin Trust II is a trust formed under the
laws of the State of California. Upon information and belief, Glantz has been trustee of the
Glantz-Ostrin Trust II, and its principal place of business is located at 100 Smith Ranch Road,
Suite 116, San Rafael, California 94903. It has received subsequent transfers of the avoidable
transfers received by Jelris, and is included in the definition of Jelris Subsequent Transferee
Defendants.
73. Upon information and belief, Roberta Cohen maintains her residence in San
Diego, California. Roberta Cohen is or was a limited partner of EJS. She has received
subsequent transfers of the avoidable transfers referenced above, and is included in the definition
of EJS Subsequent Transferee Defendants.
74. Upon information and belief, Austin Bosarge maintains his residence in Petaluma,
California. He has received subsequent transfers of the avoidable transfers received by Jelris,
and is included in the definition of Jelris Subsequent Transferee Defendants.
75. Upon information and belief, Lakeview is a limited partnership formed in 2006
under the laws of the State of Delaware. Its principal place of business is located at 100 Smith
Ranch Road, Suite 116, San Rafael, California 94903. It has received subsequent transfers from
Grace, EJS, and Jelris of the avoidable transfers referenced above, and is included in the
definition of Grace Subsequent Transferee Defendants, EJS Subsequent Transferee Defendants,
and Jelris Subsequent Transferee Defendants.
76. Upon information and belief, Vista is a corporation incorporated in 2004 under
the laws of the State of California. Its principal place of business is located at 100 Smith Ranch
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Road, Suite 116, San Rafael, California 94903. As discussed below, Vista is the general partner
of Lakeview and other limited partnerships. Upon information and belief, Glantz at all times has
solely owned and controlled Vista, and been its president. Austin Bosarge has been Vista’s Vice
President. Vista has received subsequent transfers from Grace, EJS, and Jelris of the avoidable
transfers referenced above, and is included in the definition of Grace Subsequent Transferee
Defendants, EJS Subsequent Transferee Defendants, and Jelris Subsequent Transferee
Defendants.
77. Upon information and belief, Buckmaster Farms, L.P. is a limited partnership
formed in 1994 under the laws of the State of Iowa. Upon information and belief, Raleigh Dow
Buckmaster, Sr. has been general partner of Buckmaster Farms, L.P. Its principal place of
business is located in Lansing, Iowa. It has received subsequent transfers from Grace of the
avoidable transfers referenced above, and is included in the definition of Grace Subsequent
Transferee Defendants.
BACKGROUND, THE TRUSTEE AND STANDING
78. On December 11, 2008 (the “Filing Date”),2 Madoff was arrested by federal
agents for violation of the criminal securities laws, including, inter alia, securities fraud,
investment adviser fraud, and mail and wire fraud. Contemporaneously, the SEC filed a
complaint in the District Court, which commenced the District Court Proceeding against Madoff
and BLMIS. The District Court Proceeding remains pending in the District Court. The SEC
2 Section 78lll(7)(B) of SIPA states that the filing date is “the date on which an application for a protective decree is filed under section 78eee(a)(3),” except, where the debtor is the subject of a proceeding pending before a United States court “in which a receiver, trustee, or liquidator for such debtor has been appointed and such proceeding was commenced before the date on which such application was filed, the term ‘filing date’ means the date on which such proceeding was commenced.” § 78lll(7)(B). Thus, even though the application for a protective decree was filed on December 15, 2008, the Filing Date in this action is December 11, 2008.
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complaint alleged that Madoff and BLMIS engaged in fraud through the investment advisor
activities of BLMIS.
79. On December 12, 2008, The Honorable Louis L. Stanton of the District Court
entered an order appointing Lee S. Richards, Esq. as receiver (“Receiver”) for the assets of
BLMIS.
80. On December 15, 2008, pursuant to § 78eee(a)(4)(A) of SIPA, the SEC consented
to a combination of its own action with an application of the Securities Investor Protection
Corporation (“SIPC”). Thereafter, pursuant to § 78eee(a)(4)(B) of SIPA, SIPC filed an
application in the District Court alleging, inter alia, that BLMIS was not able to meet its
obligations to securities customers as they came due and, accordingly, its customers needed the
protections afforded by SIPA.
81. Also on December 15, 2008, Judge Stanton granted the SIPC application and
entered an order pursuant to SIPA (the “Protective Decree”), which, in pertinent part:
a. appointed the Trustee for the liquidation of the business of BLMIS
pursuant to § 78eee(b)(3) of SIPA;
b. appointed Baker & Hostetler LLP as counsel to the Trustee pursuant to §
78eee(b)(3) of SIPA;
c. removed the case to this Bankruptcy Court pursuant to § 78eee(b)(4) of
SIPA; and
d. released the Receiver as Receiver for BLMIS.
82. By orders dated December 23, 2008 and February 4, 2009, respectively, the
Bankruptcy Court approved the Trustee’s bond and found that the Trustee was a disinterested
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person. Accordingly, the Trustee is duly qualified to serve and act on behalf of the estate of
BLMIS.
83. At a plea hearing on March 12, 2009 in the case captioned United States v.
Madoff, Case No. 09-CR-213 (DC), Madoff pled guilty to an eleven-count criminal information
filed against him by the United States Attorney’s Office for the Southern District of New York.
At the plea hearing, Madoff admitted that he “operated a Ponzi scheme through the investment
advisory side of [BLMIS].” See Plea Allocution of Bernard L. Madoff at 23, United States v.
Madoff, No. 09-CR-213 (DC) (S.D.N.Y. March 12, 2009) (Docket No. 50). Additionally,
Madoff asserted, “[a]s I engaged in my fraud, I knew what I was doing [was] wrong, indeed
criminal.” (Id. at 23:20-21.) On June 29, 2009, Madoff was sentenced to 150 years in prison.
84. On August 11, 2009, a former BLMIS employee, Frank DiPascali, pled guilty to
participating and conspiring to perpetuate the Ponzi scheme. At a plea hearing on August 11,
2009 in the case captioned United States v. DiPascali, Case No. 09-CR-764 (RJS), DiPascali
pled guilty to a ten-count criminal information. Among other things, DiPascali admitted that the
Ponzi scheme had begun at BLMIS since at least the 1980s. See Plea Allocution of Frank
DiPascali at 46, United States v. DiPascali, No. 09-CR-764 (RJS) (S.D.N.Y. August 11, 2009)
(Docket No. 11).
85. As the Trustee appointed under SIPA, the Trustee has the statutory responsibility
of, among other duties, investigating the acts, conduct, property, liabilities and financial
condition of BLMIS, recovering and paying out customer property to BLMIS’s customers,
assessing claims, and liquidating any other assets of the firm for the benefit of the estate and its
creditors. The Trustee is in the process of marshalling BLMIS’s assets, and the liquidation of
BLMIS’s assets is well underway. However, such assets will not be sufficient to reimburse the
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customers of BLMIS for the billions of dollars that they invested with BLMIS over the years.
Consequently, the Trustee must use his authority under SIPA and the Bankruptcy Code to pursue
recovery from BLMIS account holders who received preferences and/or payouts of fictitious
profits to the detriment of other defrauded customers whose money was consumed by the Ponzi
scheme. Absent this or other recovery actions, the Trustee will be unable to satisfy the claims
described in subparagraphs (A) through (D) of § 78fff-2(c)(1) of SIPA.
86. Pursuant to § 78fff-1(a) of SIPA, the Trustee has the general powers of a
bankruptcy trustee in a case under the Bankruptcy Code in addition to the powers granted by
SIPA pursuant to § 78fff-1(b). Pursuant to SIPA § 78fff(b), “chapters 1, 3, 5 and subchapters I
and II of Chapter 7 of the Bankruptcy Code” are applicable to this case, “to the extent consistent
with SIPA.”
87. Pursuant to §§ 78fff-(b) and 78lll (7)(B) of SIPA, the Filing Date is deemed to be
the date of the filing of the petition within the meanings of § 548 of the Bankruptcy Code and the
date of the commencement of the case within the meaning of § 544 of the Bankruptcy Code.
88. The Trustee has standing to bring these claims pursuant to § 78fff-1 of SIPA and
the Bankruptcy Code, including §§ 323(b) and 704(a)(1), because, among other reasons:
a. Defendants, Defendant NTC and/or FBO Defendants received
“customer property” as defined in § 78lll(4) of SIPA;
b. BLMIS incurred losses as a result of the claims set forth herein;
c. BLMIS’s customers were injured as a result of the conduct detailed
herein;
d. SIPC cannot by statute advance funds to the Trustee to fully reimburse
all customers for all of their losses;
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e. the Trustee will not be able to fully satisfy all claims;
f. the Trustee, as bailee of customer property, can sue on behalf of
customer bailors;
g. the Trustee is the assignee of claims paid, and to be paid, to customers of
BLMIS who have filed claims in the liquidation proceeding (such claim-filing customers,
collectively, “Accountholders”). As of the date hereof, the Trustee has received multiple express
unconditional assignments of the applicable Accountholders’ causes of action, which actions
could have been asserted against Defendants, Defendant NTC and/or FBO Defendants and
Subsequent Transferee Defendants. As assignee, the Trustee stands in the shoes of persons who
have suffered injury in fact, and a distinct and palpable loss for which the Trustee is entitled to
reimbursement in the form of monetary damages;
h. SIPC is the subrogee of claims paid, and to be paid, to customers of
BLMIS who have filed claims in the liquidation proceeding. SIPC has expressly conferred upon
the Trustee enforcement of its rights of subrogation with respect to payments it has made and is
making to customers of BLMIS from SIPC funds; and
i. the Trustee has the power and authority to avoid and recover transfers
pursuant to §§ 544, 548, 550(a) and 551 of the Bankruptcy Code and § 78fff-2(c)(3) of SIPA.
THE FRAUDULENT PONZI SCHEME
89. BLMIS was founded in 1959 by Madoff and, for most of its existence, operated
from its principal place of business at 885 Third Avenue, New York, New York. Madoff, as
founder, chairman, chief executive officer, and sole owner, operated BLMIS together with
several of his friends and family members. BLMIS was registered with the SEC as a securities
broker-dealer under § 15(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78o(b). By
virtue of that registration, BLMIS is a member of SIPC. BLMIS had three business units: the
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investment advisory (“IA”) business (the “IA Business”), market-making, and proprietary
trading.
90. Outwardly, Madoff ascribed the consistent success of the IA Business to his so-
called “split-strike conversion” strategy (“SSC Strategy”). Pursuant to that strategy, Madoff
purported to invest BLMIS customers’ funds in a basket of common stocks within the S&P 100
Index – a collection of the 100 largest publicly traded companies. He asserted that he would
carefully time purchases and sales to maximize value, and correspondingly, BLMIS customers’
funds would, intermittently, be out of the equity markets. While out of the market, those funds
were purportedly invested in United States Treasury bills or in mutual funds holding Treasury
bills. The second part of the SSC Strategy was the hedge of Madoff’s stock purchases with S&P
100 Index option contracts. Those option contracts functioned as a “collar,” limiting both the
potential gains and the potential losses. Madoff purported to use proceeds from the sale of S&P
100 Index call options to finance the cost of purchasing S&P 100 Index put options. Madoff also
told IA Business customers that he would enter and exit the market between six and ten times
each year.
91. BLMIS’s IA Business customers received fabricated monthly or quarterly
statements showing that securities were held in, or had been traded through, their accounts. The
securities purchases and sales shown in such account statements never occurred and the profits
reported were entirely fictitious. At the plea hearing, Madoff admitted that he never purchased
any of the securities he claimed to have purchased for the IA Business’s customer accounts. In
fact, there is no record of BLMIS having cleared a single purchase or sale of securities in
connection with the SSC Strategy. Madoff’s SSC Strategy was entirely fictitious.
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92. At times prior to his arrest, Madoff generally assured customers and regulators
that he purchased and sold the put and call options over-the-counter (“OTC”) rather than through
an exchange. Yet, like the underlying securities, the Trustee has yet to uncover any evidence
that Madoff ever purchased or sold any of the options described in customer statements related to
the SSC Strategy. The Options Clearing Corporation, which clears all option contracts based
upon the stocks of S&P 100 companies, has no record of the IA Business having bought or sold
any exchange-listed options on behalf of any of the IA Business customers.
93. Additionally, Madoff periodically wired hundreds of millions of dollars to
BLMIS’s affiliate, Madoff Securities International Ltd. (“MSIL”), a London-based entity
substantially owned by Madoff and his family. There are no records that MSIL ever used the
wired funds to purchase securities for the accounts of the IA Business clients. In fact, MSIL
wired hundreds of millions of dollars back into the bank accounts of BLMIS’s proprietary
trading and market making businesses in an attempt to create a record of revenues purportedly
related to trades in Europe.
94. For all periods relevant hereto, the IA Business was operated as a Ponzi scheme.
The money received from investors was not invested in stocks and options. Rather, BLMIS used
its IA Business customers’ deposits to pay redemptions by other customers, and to make other
transfers, which are avoidable by the Trustee. Many of these transfers were to enrich Madoff,
his associates, and his family.
95. The falsified monthly account statements reported that the accounts of IA
Business customers had made substantial gains, but, in reality, because it was a Ponzi scheme,
BLMIS did not have the funds to pay investors. BLMIS was only able to survive for as long as it
did by using the stolen principal invested by some customers to pay other customers.
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96. The payments to investors constituted an intentional misrepresentation of fact
regarding the underlying accounts and were an integral and essential part of the fraud. The
payments were necessary to validate the false account statements and were made to avoid
detection of the fraud, to retain existing investors, and to lure other investors into the Ponzi
scheme.
97. Madoff’s scheme continued until December 2008, when the requests for
redemptions overwhelmed the flow of new investments and caused the inevitable collapse of the
Ponzi scheme.
98. During the scheme, certain investors requested and received distributions of the
“profits” listed for their accounts, which were nothing more than fictitious profits. Other
investors, from time to time, redeemed or closed their accounts, or removed portions of the
purportedly available funds, and were paid consistently with the statements they had been
receiving.
99. When payments were made to or on behalf of these investors, including
Defendants, Defendant NTC and/or FBO Defendants, the falsified monthly statements of
accounts reported that the accounts of such investors included substantial gains. In reality,
BLMIS had not invested the investors’ principal as reflected on customer statements. To conceal
the ongoing fraud and thereby hinder, delay or defraud other current and prospective investors,
BLMIS paid to or on behalf of certain investors, such as Defendants, Defendant NTC and/or
FBO Defendants, the inflated amounts reflected in the falsified financial statements, including
principal and/or fictitious profits.
100. BLMIS used the funds deposited from new investments to continue operations
and pay withdrawals to or on behalf of other investors and to make other transfers. Due to the
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siphoning and diversion of new investments to fund payments requested by other investors,
BLMIS did not have the funds to pay investors. BLMIS was able to stay afloat only by using the
principal invested by some clients to pay other investors or their designees.
101. In an effort to hinder, delay or defraud authorities from detecting the fraud,
BLMIS did not register as an Investment Adviser until August 2006.
102. In or about January 2008, BLMIS filed with the SEC an Amended Uniform
Application for Investment Adviser Registration. The application represented, inter alia, that
BLMIS had 23 customer accounts and assets under management of approximately $17.1 billion.
In fact, in January 2008, BLMIS had approximately 4,900 active client accounts with a purported
value of approximately $68 billion under management.
103. Not only did Madoff seek to evade regulators, Madoff also had false audit reports
“prepared” by Friehling & Horowitz, a three-person accounting firm located in a strip mall in
Rockland County, New York. Of the two accountants at the firm, one was semi-retired and
living in Florida for many years prior to the Filing Date and who has since deceased.
104. At all times relevant hereto, the liabilities of BLMIS were billions of dollars
greater than the assets of BLMIS. At all relevant times, BLMIS was insolvent in that (i) its
assets were worth less than the value of its liabilities; (ii) it could not meet its obligations as they
came due; and (iii) at the time of the transfers, BLMIS was left with insufficient capital.
105. To the extent that any of the avoidance and/or recovery counts may be
inconsistent with each other, they are to be treated as being pled in the alternative.
THE WRONGFUL ACTIVITIES
106. Defendants and FBO Defendants knew or should have known that Madoff’s IA
Business was predicated on fraud, that they were benefitting from fraudulent transactions in their
accounts, and that purported activity in their accounts was inconsistent with legitimate trading
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activity and credible returns. Defendants, Defendant NTC and/or FBO Defendants were
beneficiaries of the Ponzi scheme, receiving $40,954,338 of other people’s money since these
accounts opened.
107. Both Glantz and Edward Glantz had backgrounds and experiences that should
have made them particularly aware of the fraudulent activity at BLMIS. Glantz has been a
practicing attorney since 1971. Glantz’s legal expertise includes securities matters, including
work as an attorney at the SEC. Upon information and belief, Glantz “invested” his own funds
and/or his family’s funds directly or indirectly with BLMIS since at least 1972.
108. Edward Glantz was a Certified Public Accountant and, upon information and
belief, a principal at the accounting firm Glantz & Levey for over forty years. Upon information
and belief, Glantz & Levey had ties to Madoff. Upon information and belief, Edward Glantz
“invested” his own funds and/or his family’s funds directly or indirectly with BLMIS since at
least 1968.
109. Defendants and FBO Defendants willfully turned a blind eye to indicia of
BLMIS’s fraud based upon the information available to them. They knew of, and/or were on
inquiry notice of, irregularities and problems concerning the trades reported by BLMIS, and
strategically chose to ignore these concerns to enrich themselves through their relationship with
Madoff and BLMIS. On the basis of their backgrounds and extensive experience with BLMIS,
as discussed more fully below, Glantz and Edward Glantz knew or should have known of the
fraudulent nature of Madoff’s operation. Moreover, Glantz’s and Edward Glantz’s knowledge
and notice should be imputed to all Defendants and FBO Defendants on the basis of Glantz’s and
Edward Glantz’s domination and control over Defendants and FBO Defendants, Glantz’s and
Edward Glantz’s direct, equitable and/or beneficial ownership of Defendants and FBO
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Defendants, and Glantz’s and Edward Glantz’s control over Defendants’ and FBO Defendants’
BLMIS accounts.
A. Glantz and Edward Glantz Acted as Feeders to the BLMIS PonziScheme Until the SEC Shut Down Their Illegal Operations
110. Upon information and belief, Glantz and Edward Glantz modeled their initial
activities as “feeders” to BLMIS on similar activity already engaged in by the accounting firm
Avellino & Bienes (“A&B”), which was owned and operated by Frank Avellino (“Avellino”)
and Michael Bienes (“Bienes”).3 Indeed, both Glantz and Edward Glantz funneled investor
money that they pooled in their own entities into A&B, which, in turn, gave it to Madoff.
111. Avellino and Bienes were accountants who had joined the accounting firm of
Alpern & Heller in approximately 1958 and 1968, respectively. Saul Alpern, one of the name
partners of Alpern & Heller, was the father of Madoff’s wife Ruth, and Alpern & Heller had
extensive ties with Madoff and BLMIS. Avellino and Bienes became partners in Alpern &
Heller, and eventually became the leaders of the firm, re-naming it Avellino & Bienes in
approximately 1974.
112. A&B, including its prior incarnation as Alpern & Heller, operated as a significant
feeder fund for BLMIS from the early 1960s through the early 1990s. A&B achieved great
success in raising hundreds of millions of dollars for investment with BLMIS while retaining
tens of millions of dollars in profits for placing money into the Ponzi scheme.
113. To attract new investors, A&B collected money from individuals and entities by
promising a guaranteed rate of return that ranged from 13% - 18% of the original investment. So
3 The Trustee has filed or will file suit against Avellino, Bienes, certain of their family members and certain entities they owned and controlled, to avoid initial and subsequent transfers of customer property to them.
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as to avoid scrutiny from regulators, A&B termed these investments “loans” and provided letters
with the specified rate of return for the particular investor. A&B successfully raised hundreds of
millions of dollars using this methodology, and deposited this money for investment with
BLMIS and the Ponzi scheme.
114. As the operators of one of Madoff’s first and oldest sources of funds for his Ponzi
scheme, Avellino and Bienes enjoyed special access and privileges, such as higher rates of
return, that were not available to other BLMIS investors. As an incentive to increase cash inflow
and maintain the Ponzi scheme operations, Madoff guaranteed significant returns to A&B. In
turn, A&B retained the difference between the returns promised by Madoff and the returns
promised to the underlying A&B investors. For example, there were certain periods where
Madoff promised A&B annual returns of 20%. A&B in turn promised 18% or less to its
investors, retaining the difference as profits in order to enrich themselves.
Glantz’s Illicit Feeder Fund Activities
115. Upon information and belief, Glantz modeled his scheme of funneling money to
BLMIS for profit on the activity by A&B. From 1976 to 1992, he operated various BLMIS
feeder entities he whimsically named Frodo & Co. (“Frodo”), the Merlin Group, Merlin &
Associates, Ltd. (collectively, “Merlin,” as defined above) and Enhancement Group
(“Enhancement,” defined above). Glantz followed the A&B model, in that instead of treating the
money received by his clients as an investment, he characterized the funds received from his
investors as “loans” from “lenders.” Frodo, Merlin and Enhancement then channeled the money
“loaned” by investors to A&B, which, in turn, gave it to Madoff.
116. Upon information and belief, Glantz formed the first of his feeder fund entities,
Frodo, in 1976 and used it to funnel money to BLMIS through A&B. In approximately 1985,
Glantz shut down Frodo and created Merlin. In approximately 1986, Glantz created
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Enhancement, yet another entity created to pool investors’ money to be funneled to BLMIS
through A&B.
117. Upon information and belief, Frodo and Merlin were wholly owned by Glantz,
and Enhancement was partly owned by Glantz. Upon information and belief, Glantz was
responsible for soliciting investors, depositing investors’ money with A&B, communicating
investors’ requests to have parts of their “loans” repaid, and dealing directly with investors to
address their various inquiries. Upon information and belief, Glantz earned as much as $100,000
or more annually in profit through Merlin and Enhancement merely for placing investors’ money
with A&B.
Edward Glantz’s Illicit Feeder Fund Activities
118. Edward Glantz likewise operated his own, similar, BLMIS feeder fund operation.
In 1989, Edward Glantz, along with Steven Mendelow (“Mendelow”), started Telfran Associates
Ltd. Telfran Associates Ltd.’s general partner was Telfran Associates Corp., an entity they
owned and formed in 1982. (Telfran Associates Ltd. and Telfran Associates Corp. are
collectively referred to as “Telfran.”). Using a similar model as used by Glantz with his feeder
fund entities, Edward Glantz and Mendelow, through Telfran, funneled money to A&B, which,
in turn, provided it to Madoff.
119. From at least 1989 to 1992, Telfran operated as an unregistered investment
company selling unregistered securities to the public. Telfran solicited approximately 800
clients to invest through Telfran, promising them a guaranteed rate of return on their original
investment. As done by the other entities, Edward Glantz and Telfran called these investments
“loans” and promised investors a fixed rate of return. Telfran had two accounts with A&B. In
the “payout account,” investors received their interest quarterly, while in the “rollover account,”
investors compounded their interest. Telfran was able to guarantee the rate of return to its
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investors by simply turning around and making similar arrangements with A&B, with a higher
guaranteed rate of return. Telfran profited by the spread in the guaranteed rates of return.
In 1992 and 1993, the SEC’s Actions Resulted In Injunctions and Fines Against Glantz, Edward Glantz and Others For Violating the FederalSecurities Laws Through Their Illicit BLMIS Feeder Fund Activities
120. On or about November 18, 1992, the SEC filed a complaint in the United States
District Court for the Southern District of New York (“SDNY”), against A&B and Avellino and
Bienes individually (the “SEC A&B Defendants”), alleging that, from at least 1984 to 1992, the
SEC A&B Defendants operated A&B as an unregistered investment company and engaged in the
unlawful sale of unregistered securities. See Securities and Exchange Commission v. Avellino &
Bienes, Frank J. Avellino and Michael S. Bienes, 92 Civ. 8314 (JES).
121. On or about November 25, 1992, the United States District Court for the SDNY
entered a preliminary injunction order, on consent of the SEC A&B Defendants, appointing a
trustee to, among other things, take control of the brokerage accounts under A&B’s control and
distribute the proceeds from the accounts to the noteholders.
122. On or about November 25, 1992, in Securities and Exchange Commission v.
Telfran Associates, Ltd., Telfran Associates Corp., Steven Mendelow and Edward Glantz, 92
Civ. 8564 (JES), the SEC brought a nearly identical action against Telfran, Mendelow and
Edward Glantz (the “SEC Telfran Defendants”), as it had against A&B, Avellino and Bienes.
The SEC’s complaint against the SEC Telfran Defendants alleged that, from 1989 to 1992, the
SEC Telfran Defendants sold unregistered securities to the public in the form of notes, accepted
funds from customers, guaranteed those customers fixed interest rates, usually 15%, and used the
funds to purchase notes from A&B paying a fixed interest rate of between 15 and 19%. The
complaint alleged that the SEC Telfran Defendants operated or aided and abetted the operation
of Telfran as an unregistered investment company. The complaint alleged that, as of November
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16, 1992, Telfran had raised approximately $89 million through the sale of unregistered notes to
more than 800 investors.
123. Likewise, on or about November 29, 1993, in Securities and Exchange
Commission v. Merlin & Associates, Ltd., the Enhancement Group, and Richard M. Glantz, 93
Civ. 7171 (LEW), the SEC brought an action in the United States District Court for the Central
District of California against Glantz, Merlin and Enhancement (the “SEC Glantz Defendants”).
In this complaint, the SEC alleged that, from 1985 to 1992, Glantz and these entities solicited
and raised $30 million from about 345 investors across the United States. The complaint
detailed that Merlin had raised about $26 million from about 300 investors, and Enhancement
had raised about $4 million from about 45 investors. Merlin and Enhancement promised to pay
investors, who invested in securities in the form of notes, interest at fixed annual rates ranging
from 14 to 19%. The funds raised were pooled and almost exclusively invested with A&B,
which in turn invested the funds at “a New York-based registered broker-dealer” (a reference to
BLMIS). Merlin and Enhancement had profited by retaining the difference between the interest
they obtained from A&B and the interest they paid to investors. The SEC Glantz Defendants
were charged with operating as unregistered investment companies and engaging in the unlawful
sale of unregistered securities.
124. Pursuant to final judgments issued on consent in 1993, the SEC A&B Defendants,
SEC Telfran Defendants and SEC Glantz Defendants were all permanently enjoined from
violating §§ 5(a) and 5(c) of the Securities Act of 1933 [15 U.S.C. §§ 77e(a) and (c)] and § 7 of
the Investment Company Act of 1940 [15 U.S.C. § 80a-7]. The SEC A&B Defendants were
fined a total of $350,000 in penalties, with A&B ordered to pay a $250,000 civil penalty, and
Avellino and Bienes each ordered to pay a $50,000 civil penalty. The SEC Telfran Defendants
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were fined a total of $350,000 in penalties, with Telfran ordered to pay a $250,000 civil penalty,
and Mendelow and Edward Glantz each ordered to pay a $50,000 civil penalty. The SEC Glantz
Defendants were fined a total of $300,000 in penalties, with Merlin and Enhancement each
ordered to pay a $125,000 civil penalty, and Glantz ordered to pay a $50,000 civil penalty.
125. As a result of the SEC investigations, and in an effort to avoid possible exposure
to regulators of his own fraudulent operation, Madoff agreed to “return” money to A&B and/or
the Court-appointed receiver for A&B, which was distributed to its investors, including those
invested through Telfran. In or about November 1992, Telfran received approximately $89
million dollars from A&B, which corresponds to the approximate amount of money Telfran had
invested with A&B for investment in BLMIS, and returned such funds to Telfran’s investors.
Similarly, Merlin and Enhancement returned to their investors approximately $30 million
dollars, which corresponds to the approximate amount of money Merlin and Enhancement had
invested with A&B for investment in BLMIS.
126. Upon information and belief, Madoff recorded fraudulent trading activity in
customer statements to create the appearance of sufficient value in their accounts to cover the
A&B and Telfran investors. In or about June 1992, at Madoff’s direction, BLMIS employees
scrambled to create a fictitious and backdated IA account with Account No. 1A0053 in the name
of A&B. Unlike the six existing A&B accounts which had been in existence for more than a
decade, BLMIS records indicate this account did not exist until in or around June 23, 1992.
BLMIS generated fictitious and backdated account statements for this account going back to at
least November 1989.
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B. Even After the SEC Actions, Glantz and Edward GlantzContinued to Reap Extraordinary Profits from the PonziScheme in the Form of Fraudulent Side Payments from BLMIS
127. Even after the SEC investigations and court actions involving Glantz and Edward
Glantz and the other individuals and entities discussed above, Glantz and Edward Glantz
continued to profit from the Ponzi scheme. For one thing, as detailed below, the BLMIS
accounts that Glantz and Edward Glantz owned and controlled showed apparent sizable gains
that Glantz, Edward Glantz and their family members withdrew over time for their benefit, at the
expense of other BLMIS customers. Further, Glantz and Edward Glantz received additional
fraudulent side payments (the “Fraudulent Side Payments”) on account of investor funds they
were credited with having funneled to BLMIS.
128. Upon information and belief, following the 1992 and 1993 SEC actions, to keep
the Ponzi scheme afloat, Madoff provided inducements or rewards to individuals who had
solicited or pooled investor funds for the Ponzi scheme. Among other means, BLMIS provided
annual Fraudulent Side Payments to various accounts owned or controlled by individuals who
helped fund the Ponzi scheme, including accounts owned or controlled by Glantz and Edward
Glantz.
129. Upon information and belief, by March 31, 1993, approximately $372 million of
the $441 million that had been returned to the original A&B investors by Madoff (including
those who invested through Telfran) was reinvested directly with BLMIS. Of this $372 million,
$62 million was attributable to Telfran investors. Similarly, a substantial portion of the funds
returned to former Merlin and Enhancement clients was reinvested directly with BLMIS.
130. Upon information and belief, Glantz received Fraudulent Side Payments from
Madoff based on the amount of money former Merlin and Enhancement clients reinvested
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directly with BLMIS after A&B, Telfran, Merlin and Enhancement were shut down by the SEC.
Similarly, upon information and belief, Edward Glantz received Fraudulent Side Payments from
Madoff based on the amount of money former Telfran clients reinvested directly with BLMIS.
131. Upon information and belief, Glantz received a 2% Fraudulent Side Payment
based on approximately $10 million reinvested by former Merlin and Enhancement investors that
BLMIS attributed specifically to him. Based on this calculation, Glantz received approximately
$196,000 per year in Fraudulent Side Payments.
132. Similarly, upon information and belief, Edward Glantz and his Telfran business
associates received a combined 1% Fraudulent Side Payment primarily based on reinvested
amounts attributable to them. Of the 1%, 37.5% of those fees went to Edward Glantz. Based on
this calculation, Edward Glantz received approximately $232,500 per year. Also, based on
documents recovered at BLMIS, Edward Glantz received an additional side payment of
approximately $100,000 from BLMIS for 1993.
133. Based on documents recovered at BLMIS, the calculation of Fraudulent Side
Payments for Glantz and Edward Glantz changed in 2002, with their percentages cut in half.
This change resulted in payments to Glantz of approximately $98,000 per year from 2002
through 2007, and to Edward Glantz of approximately $116,000 per year from 2002 through
2007.
134. To identify, track and reconcile accounts of dozens of different BLMIS customers
who had been promised Fraudulent Side Payments, BLMIS employees created handwritten
schedules indicating the amounts to be paid in Fraudulent Side Payments. The schedule used to
determine the amounts owed to these customers was referred to internally at BLMIS as either
“Shupt” or “Schupt” (hereinafter “Schupt”).
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135. To provide the Fraudulent Side Payments for the accounts, as set forth in the
Schupt schedules, additional value was added to those accounts through fictitious options
transactions that would deliver the amount of the Fraudulent Side Payments.
136. In addition to calculating the amount owed, the handwritten Schupt schedules also
indicated the number of options contracts that would be “purchased” or “sold” to create the
predetermined gain. An account statement was generated to reflect these purported transactions
and the associated gains generated. The balance within these accounts, including the Fraudulent
Side Payments, was then available for withdrawal by the accountholder.
137. Documents recovered from BLMIS indicate that, from 1994 through 1995, the
Fraudulent Side Payments for Glantz were allocated to the Grace Account, Account No. 1T0026,
of which Glantz was a general partner. Glantz evidently wanted to make it clear to Madoff that
gains placed in the Grace Account would be for his benefit. In a letter to BLMIS regarding the
Grace Account dated November 23, 1992, Glantz pointedly requested, “Would you please alert
Bernard that this is my personal account.” Upon information and belief, starting in 1996, and
continuing through 2007, the Fraudulent Side Payments for Glantz were allocated to the R.
Glantz IRA account, Account No. 1ZR010. From 1994 through 2007, the Grace Account and
the R. Glantz IRA account received Fraudulent Side Payments totaling approximately
$2,305,811.
138. Documents recovered from BLMIS indicate that, in 1993, and from 1996 through
2007, the Fraudulent Side Payments for Edward Glantz were allocated to the Jelris Account,
Account No. 1ZB143. In 1994 and 1995, the Fraudulent Side Payments for Edward Glantz were
allocated to the EJS Account, Account No. 1ZA192. From 1993 through 2007, the Jelris
Account and the EJS Account received Fraudulent Side Payments totaling approximately
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$2,487,010. As stated above, the ERG Trust has been a general partner and a limited partner of
both Jelris and EJS.
139. Their receipt of these Fraudulent Side Payments, and the magnitude of such
payments, placed Glantz and Edward Glantz on inquiry notice of fraudulent activity at BLMIS.
Further, the manner of payment of the Fraudulent Side Payments should have been a significant
red flag for Glantz and Edward Glantz. The Fraudulent Side Payments were effected in Glantz’s
and Edward Glantz’s accounts not by having BLMIS deposit a check or place an identifiable
credit in the accounts. Rather, BLMIS effected the payments by making entries of purported
options transactions in the accounts.
140. These purported options transactions were noticeably different from the purported
options transactions typically represented as occurring in BLMIS IA accounts. Consistent with
Madoff’s claimed implementation of his so-called SSC Strategy, the purported options
transactions typically represented as occurring in BLMIS IA accounts were represented as
occurring at such times and in such volumes so as to operate as a hedge against purported
contemporaneous holdings of equities in those accounts. The options transactions that
purportedly occurred in the accounts controlled by Glantz and Edward Glantz to yield the
Fraudulent Side Payments, in contrast, did not purport to operate as a hedge against
contemporaneous holdings of equities in those accounts. Glantz and Edward Glantz, who were
well familiar with Madoff’s purported investment methods, were thus further placed on inquiry
notice of fraudulent activity at BLMIS in connection with these purported transactions.
141. Further, based on documents recovered at BLMIS, the Fraudulent Side Payments
for both Glantz and Edward Glantz were effected through fictitious options transactions
predominantly entered in December of each year, with the result that the purported rates of
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returns of those accounts appeared to spike most Decembers. This consistent spike in purported
returns occurring in December, apparent on the face of the customer statements for the Grace
Account, the R. Glantz IRA Account, the EJS Account, and the Jelris Account, further placed
Glantz and Edward Glantz on inquiry notice of Madoff’s fraudulent activities.
142. Finally, upon information and belief, the ability to create gains each year that
matched the fixed annual Fraudulent Side Payment further placed Glantz and Edward Glantz on
inquiry notice that BLMIS was engaged in illegitimate purported trading activity.
C. Starting in Approximately 2004, Glantz Created NewEntities and Developed New Methods to Reap Even FurtherProfit from the Madoff Ponzi Scheme
143. As discussed supra, Glantz formed various entities and managed various pooled
BLMIS accounts, through which he and his family members “invested” with BLMIS. Glantz
and these family members and entities thereby profited handsomely from the Ponzi scheme. For
example, from 1993 to 2008, Jelris withdrew fictitious profits of almost $17 million; from 1992
to 2008, EJS withdrew fictitious profits of almost $10 million; and from 1992 to 2008, Grace
withdrew fictitious profits of over $7 million.
144. Starting in approximately 2004, Glantz undertook a series of activities and formed
a number of entities through which he could provide additional funds to support the Ponzi
scheme and further profit from the fraud being perpetrated at BLMIS.
145. In 2004, Glantz formed Vista. Upon information and belief, at all times Glantz
has been the sole owner of Vista. Glantz thereafter established Vista as the general partner
and/or purported unregistered investment advisor of a number of limited partnerships.
146. For example, in 2004, Glantz formed Fern Creek Limited Partnership (“Fern
Creek”) as a vehicle through which investors unrelated to Glantz could invest with BLMIS,
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through a BLMIS account in the name of “Ostrin Family Partnership,” BLMIS Account No.
1ZB511.
147. Glantz established Vista as Fern Creek’s general partner.
Rather, Glantz and Vista merely served as the
gateway through which Fern Creek’s investors could invest with BLMIS, and Glantz could
further support the Ponzi scheme.
150. As another example, in 2006, Glantz formed Lakeview as a vehicle through which
investors, including investors unrelated to Glantz, could invest directly or indirectly with
REDACTED
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BLMIS. Upon information and belief, Glantz arranged for Lakeview funds to be invested with
BLMIS through BLMIS accounts held by (i) Rye Select Broad Market Fund (one of the BLMIS
feeder funds associated with Rye Investment Management, a division of Tremont Group
Holdings, Inc.), BLMIS Account No. 1T0027 and (ii) Senator Fund SPC (one of the BLMIS
feeder funds associated with Bank Medici), BLMIS Account No. 1FR128.
151. Glantz established Vista as Lakeview’s general partner.
153. As another example, in 2007, Glantz created Glantz Family Partners, LP (“GFP”)
as a vehicle through which investors unrelated to Glantz could invest with BLMIS through a
BLMIS account in the name of “Glantz Family Partners,” BLMIS Account No. 1G0387, so that
Glantz could direct yet more funds to support the Ponzi scheme.
154. Upon information and belief, Glantz arranged for GFP’s partnership agreement to
hold Vista out as the “investment advisor” to GFP. As with Lakeview, upon information and
REDACTED
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belief, Glantz arranged for GFP’s partnership agreement to provide (i) that Vista would receive
both a monthly “management fee” as “compensation to [Vista] for [Vista]’s services in
managing the investments of the Partnership,” and a quarterly “special profit allocation”; and (ii)
that such “management fees” and “special profit allocations” would be deducted from the capital
account of each GFP limited partner.
155. Glantz, however, upon information and belief, never registered Vista with the
SEC as an investment adviser. Nor did Vista ever perform any actual investment management
services on behalf of GFP. Rather, Glantz and Vista merely served as the gateway through
which GFP and its investors could gain access to BLMIS.
D. Additional Indicia of Fraud
156. Glantz and Edward Glantz ignored numerous other indicia of irregularity and
fraud from the general manner in which BLMIS operated. Among other things, Defendants and
FBO Defendants were on notice of the following additional indicia of irregularity and fraud but
failed to make sufficient inquiry.
Madoff’s Veil of Secrecy
157. Madoff maintained a veil of secrecy regarding the details of his operations and
supposed investment methods, flatly refusing to allow potential investors the ability to conduct
standard due diligence.
REDACTED
REDACTED
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REDACTED
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BLMIS’s Purported Auditors
161. As stated above, BLMIS, which reputedly ran the world’s largest hedge fund, was
purportedly audited by Friehling & Horowitz (“F&H”), an accounting firm that had three
employees, one of whom was semi-retired, with offices located in a strip mall.
162. Glantz and Edward Glantz knew or should have known that all accounting firms
that perform audit work must enroll in the American Institute of Certified Public Accountants’
(“AICPA”) peer review program. This program involves having experienced auditors assess a
firm’s audit quality each year. F&H, while a member of the AICPA, had not been peer reviewed
since 1993. The results of these peer reviews are on public file with the AICPA. F&H never
appeared on the public peer review list because F&H had notified the AICPA that it did not
perform audits. F&H’s absence on the list was another major red flag of possible fraud at
BLMIS.
163. No sophisticated investor, especially individuals as knowledgeable about the
securities industry and accounting as Glantz and Edward Glantz, could reasonably have believed
it possible for any firm such as F&H to have competently audited an entity the size of BLMIS.
This is particularly true for Edward Glantz, a Certified Public Accountant and principal of an
established accounting firm where, upon information and belief, he worked for more than forty
years.
Other Indicia of Fraud
164. Financial industry press reports, including a May 27, 2001 article in Barron’s
entitled “Don’t Ask, Don’t Tell: Bernie Madoff is so secretive, he even asks investors to keep
mum,” and a May, 2001 article in MAR/Hedge, a widely read industry newsletter, entitled
“Madoff Tops Charts; Skeptics Ask How,” raised serious questions about the legitimacy of
BLMIS and Madoff and their ability to achieve the IA Business returns they purportedly had
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achieved using the investment strategy Madoff claimed to employ for most clients. Defendants
and FBO Defendants were invested with BLMIS when these reports were issued.
165. BLMIS purportedly functioned as investment manager, executing broker and
custodian of securities. This arrangement eliminated another frequently utilized check and
balance in investment management by excluding an independent custodian of securities from the
process, and thereby furthering the lack of transparency of BLMIS to other investors, regulators
and outside parties.
166. Despite its immense size in terms of assets under management, BLMIS was
substantially a family-run operation, employing many of Madoff’s relatives and virtually no
outside professionals.
167. Notably, when questioned under oath about his involvement in pooling funds for
the Madoff Ponzi scheme up to 1992, his various manners of involvement with Madoff after the
1992 and 1993 SEC actions, and his overall knowledge of and participation in Madoff’s fraud,
Glantz invoked his Fifth Amendment Rights and refused to answer any questions on these or any
related topics.
THE TRANSFERS
168. According to BLMIS’s records, multiple accounts (Nos. 1E0128, 1M0057,
1T0026, 1ZA169, 1ZA192, 1ZB010, 1ZB143, 1ZR010, and 1ZR176) were maintained with
BLMIS on behalf of Defendants, Defendant NTC and/or FBO Defendants, as set forth on Exhibit
A (collectively, the “Accounts”). Upon information and belief, for each Account, a
Customer Agreement, an Option Agreement, and/or a Trading Authorization Limited to
Purchases and Sales of Securities and Options (collectively, the “Account Agreements”) was
executed and delivered to BLMIS at BLMIS’s headquarters at 885 Third Avenue, New York,
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New York. At all times relevant hereto, Defendant NTC was the custodian of FBO Defendants’
Accounts.
169. The Account Agreements were to be performed in New York, New York,
through securities trading activities that would take place in New York, New York. The
Accounts were held in New York, New York, and Defendants, Defendant NTC and/or FBO
Defendants sent funds to BLMIS and/or to BLMIS’s account at JPMorgan Chase & Co.,
Account #XXXXXXXXXXXX1703 (the “BLMIS Bank Account”) in New York, New York for
application to the Accounts and the purported conducting of trading activities. Defendants,
Defendant NTC and/or FBO Defendants made deposits to BLMIS through checks and/or wire
transfers into bank accounts controlled by BLMIS, including the BLMIS Bank Account, and/or
received inter-account transfers from other BLMIS accounts.
170. Prior to the Filing Date, BLMIS made payments or other transfers
(collectively, the “Transfers”) directly or indirectly to Defendants, Defendant NTC and/or FBO
Defendants totaling $113,385,537.
171. Of the Transfers, $40,954,338 constituted non-existent profits supposedly
earned in the Accounts (“Fictitious Profits”), and $72,431,199 constituted the return of principal.
The Fictitious Profits received by Defendants, Defendant NTC and/or FBO Defendants came
from other people’s money. The Transfers were directly or indirectly made to Defendants,
Defendant NTC and/or FBO Defendants and include, but are not limited to, the Transfers listed
on Exhibit B.
172. The Transfers are avoidable and recoverable under §§ 544, 548, 550(a) and
551 of the Bankruptcy Code, applicable provisions of SIPA, particularly § 78fff-2(c)(3), and
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applicable provisions of N.Y. CPLR 203(g) and 213(8) (McKinney 2001) and DCL §§ 273-279
(McKinney 2001).
173. Prior to the Filing Date, BLMIS made payments to Grace in the total amount of
$27,966,431 in connection with the Grace Account, No. 1T0026 (the “Grace Transfers”). Of the
Grace Transfers, $7,374,165 constituted Fictitious Profits. The Grace Transfers are set forth in
Columns 12 and 13 on Exhibit B annexed hereto.
174. Of the Grace Transfers, BLMIS made payments to Grace of $12,720,000 (the
“Grace Six Year Transfers”) during the six years prior to the Filing Date, which are avoidable
and recoverable under §§ 544(b), 550(a)(1) and 551 of the Bankruptcy Code, applicable
provisions of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of N.Y. CPLR 203(g)
and 213(g) (McKinney 2001) and DCL §§ 273 – 279 (McKinney 2001). Of the Grace Six Year
Transfers, $7,374,165 represented Fictitious Profits from the Ponzi scheme, which constitutes
other people’s money. See Exhibit B, Columns 9 and 10.
175. Of the Grace Six Year Transfers, BLMIS made payments to Grace of
$6,750,000 (the “Grace Two Year Transfers”) during the two years prior to the Filing Date,
which are avoidable and recoverable under §§ 548(a), 550(a)(1) and 551 of the Bankruptcy Code
and applicable provisions of SIPA, particularly § 78fff-2(c)(3). All of the Grace Two Year
Transfers represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s
money. See Exhibit B, Column 7.
176. Prior to the Filing Date, BLMIS made payments to EJS in the total amount of
$16,924,380 in connection with the EJS Account, No. 1ZA192 (the “EJS Transfers”). Of the
EJS Transfers, $9,947,031 constituted Fictitious Profits. The EJS Transfers are set forth in
Columns 12 and 13 on Exhibit B annexed hereto.
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177. Of the EJS Transfers, BLMIS made payments to EJS of $11,150,000 (the
“EJS Six Year Transfers”) during the six years prior to the Filing Date, which are avoidable and
recoverable under §§ 544(b), 550(a)(1) and 551 of the Bankruptcy Code, applicable provisions
of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of N.Y. CPLR 203(g) and 213(g)
(McKinney 2001) and DCL §§ 273 – 279 (McKinney 2001). Of the EJS Six Year Transfers,
$9,947,031 represented Fictitious Profits from the Ponzi scheme, which constitutes other
people’s money. See Exhibit B, Column 10.
178. Of the EJS Six Year Transfers, BLMIS made payments to EJS of $7,700,000
(the “EJS Two Year Transfers”) during the two years prior to the Filing Date, which are
avoidable and recoverable under §§ 548(a), 550(a)(1) and 551 of the Bankruptcy Code and
applicable provisions of SIPA, particularly § 78fff-2(c)(3). All of the EJS Two Year Transfers
represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s money.
See Exhibit B, Column 6.
179. Prior to the Filing Date, BLMIS made payments to Jelris in the total amount of
$22,088,220 (the “Jelris Transfers”) in connection with the Jelris Account, No. 1ZB143. Of the
Jelris Transfers, $16,954,688 constituted Fictitious Profits. The Jelris Transfers are set forth in
Columns 12 and 13 on Exhibit B annexed hereto.
180. Of the Jelris Transfers, BLMIS made payments to Jelris of $15,325,000 (the
“Jelris Six Year Transfers”) during the six years prior to the Filing Date, which are avoidable and
recoverable under §§ 544(b), 550(a)(1) and 551 of the Bankruptcy Code, applicable provisions
of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of N.Y. CPLR 203(g) (McKinney
2001) and DCL §§ 273 – 279 (McKinney 2001). All of the Jelris Six Year Transfers represented
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Fictitious Profits from the Ponzi scheme, which constitutes other people’s money. See
Exhibit B, Columns 9 and 10.
181. Of the Jelris Six Year Transfers, BLMIS made payments to Jelris of
$11,500,000 (the “Jelris Two Year Transfers”) during the two years prior to the Filing Date,
which are avoidable and recoverable under §§ 548(a), 550(a)(1) and 551 of the Bankruptcy Code
and applicable provisions of SIPA, particularly § 78fff-2(c)(3). All of the Jelris Two Year
Transfers represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s
money. See Exhibit B, Columns 6 and 7.
182. Prior to the Filing Date, BLMIS made payments to GFF in the total amount of
$1,527,500 (the “GFF Transfers”) in connection with the GFF Account, No. 1ZB010. Of the
GFF Transfers, $507,500 constituted Fictitious Profits. The GFF Transfers are set forth in
Columns 12 and 13 on Exhibit B annexed hereto.
183. Of the GFF Transfers, BLMIS made payments to GFF of $785,000 (the “GFF
Six Year Transfers”) during the six years prior to the Filing Date, which are avoidable and
recoverable under §§ 544(b), 550(a)(1) and 551 of the Bankruptcy Code, applicable provisions
of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of N.Y. CPLR 203(g) (McKinney
2001) and DCL §§ 273 – 279 (McKinney 2001). Of the GFF Six Year Transfers, $507,500
represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s money.
See Exhibit B, Columns 9 and 10.
184. Of the GFF Six Year Transfers, BLMIS made payments to GFF of $385,000
(the “GFF Two Year Transfers”) during the two years prior to the Filing Date, which are
avoidable and recoverable under §§ 548(a), 550(a)(1) and 551 of the Bankruptcy Code and
applicable provisions of SIPA, particularly § 78fff-2(c)(3). All of the GFF Two Year Transfers
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represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s money.
See Exhibit B, Columns 6 and 7.
185. Prior to the Filing Date, BLMIS made payments to Defendant NTC and/or
FBO Defendant R. Glantz in the total amount of $9,307,173 (the “FBO R. Glantz Transfers”) in
connection with the R. Glantz IRA Account, No. 1ZR010. Of the FBO R. Glantz Transfers,
$3,327,989 constituted Fictitious Profits. The FBO R. Glantz Transfers are set forth in Columns
12 and 13 on Exhibit B annexed hereto.
186. Of the FBO R. Glantz Transfers, BLMIS made payments to Defendant NTC
and/or FBO Defendant R. Glantz of $7,100,000 (the “FBO R. Glantz Six Year Transfers”)
during the six years prior to the Filing Date, which are avoidable and recoverable under
§§ 544(b), 550(a)(1) and 551 of the Bankruptcy Code, applicable provisions of SIPA,
particularly § 78fff-2(c)(3), and applicable provisions of N.Y. CPLR 203(g) (McKinney 2001)
and DCL §§ 273 – 279 (McKinney 2001). Of the FBO R. Glantz Six Year Transfers, $3,327,989
represented Fictitious Profits from the Ponzi scheme, which constitutes other people’s money.
See Exhibit B, Columns 9 and 10.
187. Of the FBO R. Glantz Six Year Transfers, BLMIS made payments to
Defendant NTC and/or FBO Defendant R. Glantz of $6,000,000 (the “FBO R. Glantz Two Year
Transfers”) during the two years prior to the Filing Date, which are avoidable and recoverable
under §§ 548(a), 550(a)(1) and 551 of the Bankruptcy Code and applicable provisions of SIPA,
particularly § 78fff-2(c)(3). Of the FBO R. Glantz Two Year Transfers, $3,327,989 represented
Fictitious Profits from the Ponzi scheme, which constitutes other people’s money. See
Exhibit B, Columns 6 and 7.
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188. Prior to the Filing Date, BLMIS made payments to Defendant NTC and/or
FBO Defendants Edward Glantz and/or their predecessors-in-interest in the total amount of
$4,867,979 (the “FBO Edward Glantz Transfers”) in connection with the E. Glantz IRA
Account, No. 1ZR176. Of the FBO Edward Glantz Transfers, $2,817,965 constituted Fictitious
Profits. The FBO Edward Glantz Transfers are set forth in Columns 12 and 13 on Exhibit B
annexed hereto.
189. Of the FBO Edward Glantz Transfers, BLMIS made payments to Defendant
NTC and/or FBO Defendants Edward Glantz and/or their predecessors-in-interest of $2,275,000
(the “FBO Edward Glantz Six Year Transfers”) during the six years prior to the Filing Date,
which are avoidable and recoverable under §§ 544(b), 550(a)(1) and 551 of the Bankruptcy
Code, applicable provisions of SIPA, particularly § 78fff-2(c)(3), and applicable provisions of
N.Y. CPLR 203(g) (McKinney 2001) and DCL §§ 273 – 279 (McKinney 2001). All of the FBO
Edward Glantz Six Year Transfers represented Fictitious Profits from the Ponzi scheme, which
constitutes other people’s money. See Exhibit B, Columns 9 and 10.
190. Of the FBO Edward Glantz Six Year Transfers, BLMIS made payments to
Defendant NTC and/or FBO Defendants Edward Glantz and/or their predecessors-in-interest of
$765,000 (the “FBO Edward Glantz Two Year Transfers”) during the two years prior to the
Filing Date, which are avoidable and recoverable under §§ 548(a), 550(a)(1) and 551 of the
Bankruptcy Code and applicable provisions of SIPA, particularly § 78fff-2(c)(3). All of the FBO
Edward Glantz Two Year Transfers represented Fictitious Profits from the Ponzi scheme, which
constitutes other people’s money. See Exhibit B, Columns 6 and 7.
191. Prior to the Filing Date, BLMIS made payments to the RMG Trust in the
amount of $525,000 (the “RMG Trust Transfers”) in connection with the RMG Trust Account,
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No. 1ZA169. Of the RMG Trust Transfers, $25,000 constituted Fictitious Profits. The RMG
Trust Transfers are set forth in Columns 12 and 13 on Exhibit B annexed hereto.
192. Prior to the Filing Date, BLMIS made payments to Merlin in the amount of
$26,981,338 (the “Merlin Transfers”) in connection with the Merlin Account, No. 1M0057. The
Merlin Transfers are set forth in Column 13 on Exhibit B annexed hereto. All of the Merlin
Transfers were a return of principal. See Exhibit B Column 11.
193. Prior to the Filing Date, BLMIS made payments to Enhancement in the amount
of $3,197,516 (the “Enhancement Transfers”) in connection with the Enhancement Account, No.
1E0128. The Enhancement Transfers are set forth in Column 13 on Exhibit B annexed hereto.
All of the Enhancement Transfers were a return of principal. See Exhibit B Column 11.
194. Upon information and belief, some or all of the Transfers were subsequently
transferred by Defendants, directly or indirectly, to Subsequent Transferee Defendants
(collectively, the “Subsequent Transfers”).
195. The Subsequent Transfers are recoverable from Subsequent Transferee
Defendants pursuant to § 550(a) of the Bankruptcy Code.
196. Upon information and belief, all of the Transfers received by Defendant NTC
were subsequently transferred by Defendant NTC to FBO Defendants and/or their predecessors-
in-interest (collectively, the “NTC Subsequent Transfers”).
197. The NTC Subsequent Transfers are recoverable from FBO Defendants
pursuant to § 550(a) of the Bankruptcy Code.
198. The Trustee’s investigation is ongoing and the Trustee reserves the right to (i)
supplement the information regarding the Transfers, Subsequent Transfers, and any additional
transfers and (ii) seek recovery of such additional transfers.
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199. To the extent that any of the avoidance and/or recovery counts may be
inconsistent with each other, they are to be treated as being pled in the alternative.
CUSTOMER CLAIMS
Claims by Account Holder Defendants
200. On or about February 27, 2009, FBO Defendant R. Glantz filed a customer
claim with the Trustee related to the R. Glantz IRA Account, which the Trustee has designated as
Claim # 4163. This claim was withdrawn by FBO Defendant R. Glantz on or about June 12,
2009. On or about June 30, 2009 FBO Defendant R. Glantz re-filed a customer claim with the
Trustee related to the R. Glantz IRA Account, which the Trustee has designated as Claim #
13423 (the “FBO R. Glantz Customer Claim”).
201. On or about October 19, 2009, the Trustee issued a Notice of Trustee’s
Determination of Claim to FBO Defendant R. Glantz (the “FBO R. Glantz Determination”),
denying the FBO R. Glantz Customer Claim.
202. FBO Defendant Glantz did not file an objection to the FBO R. Glantz
Determination with the Court.
203. On or about February 27, 2009, Thelma Glantz, as beneficiary of the account at
NTC that held the BLMIS account of FBO Defendant E. Glantz, filed a customer claim with the
Trustee related to the E. Glantz IRA Account, which the Trustee has designated as Claim # 4164
(the “FBO E. Glantz Customer Claim”).
204. On or about October 19, 2009, the Trustee issued a Notice of Trustee’s
Determination of Claim to FBO Defendant E. Glantz c/o Glantz (the “FBO E. Glantz
Determination”), denying the FBO E. Glantz Customer Claim.
205. Neither Thelma Glantz, nor any successor in interest, filed an objection to the
FBO E. Glantz Determination with the Court.
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206. On or about March 3, 2009, Grace filed a customer claim with the Trustee
related to the Grace Account, which the Trustee has designated as Claim # 5118 (the “Grace
Customer Claim”).
207. On or about October 19, 2009, the Trustee issued a Notice of Trustee’s
Determination of Claim to Grace (the “Grace Determination”), denying the Grace Customer
Claim.
208. Grace did not file an objection to the Grace Determination with the Court.
209. On or about June 30, 2009, GFF filed a customer claim with the Trustee related
to GFF Account, which the Trustee has designated as Claim # 13321 (the “GFF Customer
Claim”).
210. On or about March 9, 2010, the Trustee issued a Notice of Trustee’s
Determination of Claim to GFF (the “GFF Determination”), denying the GFF Customer Claim.
211. GFF did not file an objection to the GFF Determination with the Court.
212. No objections having been filed to the Trustee's denials of the FBO R. Glantz
Customer Claim, the FBO E. Glantz Customer Claim, the Grace Customer Claim, and the GFF
Customer Claim, pursuant to the Claims Procedures Order, the respective Determinations are
final, and these claims are disallowed for all purposes.
Related Claim
213. Ostrin Family Partnership (“OFP”) holds a BLMIS account in the name
“Ostrin Family Partnership,” designated as BLMIS Account No. 1ZB511 (the “Related
Account”).
214. On or about March 3, 2009, a customer claim was filed with the Trustee in
respect of OFP and the Related Account, which the Trustee has designated as Claim # 5120 (the
“Related Account Customer Claim”). The Trustee has yet to issue a determination with respect
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to the Related Account Customer Claim and/or make distributions on the Related Account
Customer Claim.
215. OFP is either a limited partnership or a general partnership. The business form
of OFP is unclear because there appear to be both a limited partnership agreement and a general
partnership agreement, each purporting to establish an entity named Ostrin Family Partnership.
According to the purported limited partnership agreement, the general partners of OFP are or
were Glantz and Jerald Ostrin and/or Elaine Ostrin. According to the purported general
partnership agreement, the partners of OFP are or were Fern Creek and Vista.
216. Upon information and belief, Glantz is the sole owner of Vista, and Vista is the
general partner of Fern Creek. Thus, if the purported limited partnership agreement of OFP
applies, Glantz, as well as Jerald Ostrin and/or Elaine Ostrin, are general partners. If the
purported general partnership agreement of OFP applies, Glantz is the sole owner of one general
partner (Vista), and the sole owner of the general partner (Vista) of the other general partner
(Fern Creek). In either event, Glantz is a control person of OFP. According to documents
recovered from BLMIS, Glantz has acted as manager of the OFP Account. In the event that the
limited partnership agreement of OFP applies, Jerald Ostrin and/or Elaine Ostrin are also control
persons of OFP.
217. Upon information and belief, Glantz, Jerald Ostrin, Elaine Ostrin, Roberta
Cohen, Mirza Inayat Khan, Pir Zia Inayat Khan and/or Austin Bosarge have beneficial or
equitable interests in the Related Account. In the alternative, Glantz, Jerald Ostrin, Elaine
Ostrin, Mirza Inayat Khan, Pir Zia Inayat Khan and/or Austin Bosarge are subsequent transferees
of transfers from BLMIS to the Related Account.
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218. On December 23, 2008, this Court entered an Order on Application for Entry
of an Order Approving Form and Manner of Publication and Mailing of Notices, Specifying
Procedures for Filing, Determination and Adjudication of Claims, and Providing Other Relief
(“Claims Procedures Order”; Docket No. 12). The Claims Procedures Order includes a process
for determination and allowance of claims under which the Trustee has been operating. The
Trustee intends to resolve the Related Account Customer Claim through a separate hearing as
contemplated by the Claims Procedures Order.
COUNT ONE FRAUDULENT TRANSFER – 11 U.S.C. §§ 548(a)(1)(A), 550 AND 551
(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,Defendant NTC and/or FBO Defendants)
219. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
220. Each of the Two Year Transfers was made on or within two years before the
Filing Date.
221. Each of the Two Year Transfers constituted a transfer of an interest of BLMIS in
property within the meaning of §§ 101(54) and 548(a) of the Bankruptcy Code and pursuant to §
78fff-2(c)(3) of SIPA.
222. Each of the Two Year Transfers was made by BLMIS with the actual intent to
hinder, delay or defraud some or all of BLMIS’s then existing or future creditors.
223. Each of the Two Year Transfers constitutes a fraudulent transfer avoidable by the
Trustee pursuant to § 548(a)(1)(A) of the Bankruptcy Code and recoverable from Grace
Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants
pursuant to § 550(a) of the Bankruptcy Code and § 78fff-(2)(c)(3) of SIPA.
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224. As a result of the foregoing, pursuant to §§ 548(a)(1)(A), 550(a), and 551 of the
Bankruptcy Code, the Trustee is entitled to a judgment against Grace Defendants, EJS
Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants: (a) avoiding and
preserving the Two Year Transfers, (b) directing that the Two Year Transfers be set aside, and
(c) recovering the Two Year Transfers, or the value thereof, for the benefit of the estate of
BLMIS.
COUNT TWOFRAUDULENT TRANSFER – 11 U.S.C. §§ 548(a)(1)(B), 550 AND 551
(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,Defendant NTC and/or FBO Defendants)
225. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
226. Each of the Two Year Transfers was made on or within two years before the
Filing Date.
227. Each of the Two Year Transfers constitutes a transfer of an interest of BLMIS in
property within the meaning of §§ 101(54) and 548(a) of the Bankruptcy Code and pursuant to §
78fff-2(c)(3) of SIPA.
228. BLMIS received less than a reasonably equivalent value in exchange for each of
the Two Year Transfers.
229. At the time of each of the Two Year Transfers, BLMIS was insolvent, or became
insolvent as a result of the Two Year Transfer in question.
230. At the time of each of the Two Year Transfers, BLMIS was engaged in a business
or a transaction, or was about to engage in a business or a transaction, for which any property
remaining with BLMIS was an unreasonably small capital.
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231. At the time of each of the Two Year Transfers, BLMIS intended to incur, or
believed that it would incur, debts that would be beyond BLMIS’s ability to pay as such debts
matured.
232. Each of the Two Year Transfers constitutes fraudulent transfers avoidable by the
Trustee pursuant to § 548(a)(1)(B) of the Bankruptcy Code and recoverable from Grace
Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants
pursuant to § 550(a) of the Bankruptcy Code and § 78fff-(2)(c)(3) of SIPA.
233. As a result of the foregoing, pursuant to §§ 548(a)(1)(B), 550(a), and 551 of the
Bankruptcy Code, the Trustee is entitled to a judgment against Grace Defendants, EJS
Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants: (a) avoiding and
preserving the Two Year Transfers, (b) directing that the Two Year Transfers be set aside, and
(c) recovering the Two Year Transfers, or the value thereof, for the benefit of the estate of
BLMIS.
COUNT THREEFRAUDULENT TRANSFER – NEW YORK DEBTOR AND CREDITOR LAW
§§ 276, 276-a, 278 AND/OR 279, AND 11 U.S.C. §§ 544(b), 550(a) AND 551(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants)
234. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
235. At all times relevant to the Six Year Transfers, there have been and are one or
more creditors who have held and still hold matured or unmatured unsecured claims against
BLMIS that were and are allowable under § 502 of the Bankruptcy Code or that were and are not
allowable only under § 502(e) of the Bankruptcy Code.
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236. Each of the Six Year Transfers constitutes a conveyance by BLMIS as defined
under DCL § 270.
237. Each of the Six Year Transfers was made by BLMIS with the actual intent to
hinder, delay or defraud the creditors of BLMIS. BLMIS made the Six Year Transfers to or for
the benefit of Grace Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC
and/or FBO Defendants and/or their predecessors-in-interest in furtherance of a fraudulent
investment scheme.
238. Each of the Six Year Transfers was received by Grace Defendants, EJS
Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants and/or their
predecessors-in-interest with the actual intent to hinder, delay or defraud the creditors of BLMIS
at the time of each of the Transfers, and/or future creditors of BLMIS.
239. As a result of the foregoing, pursuant to DCL §§ 276, 276-a, 278 and/or 279, §§
544(b), 550(a), and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA, the Trustee is
entitled to a judgment against Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants: (a) avoiding and preserving the Six Year Transfers, (b)
directing that the Six Year Transfers be set aside, (c) recovering the Six Year Transfers, or the
value thereof, for the benefit of the estate of BLMIS, and (d) recovering attorneys’ fees, except
from Defendant NTC.
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COUNT FOURFRAUDULENT TRANSFER – NEW YORK DEBTOR AND CREDITOR LAW
§§ 273, 278 AND/OR 279, AND 11 U.S.C. §§ 544(b), 550(a) AND 551(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants)
240. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
241. At all times relevant to the Six Year Transfers, there have been and are one or
more creditors who have held and still hold matured or unmatured unsecured claims against
BLMIS that were and are allowable under § 502 of the Bankruptcy Code or that were and are not
allowable only under § 502(e) of the Bankruptcy Code.
242. Each of the Six Year Transfers constitutes a conveyance by BLMIS as defined
under DCL § 270.
243. BLMIS did not receive fair consideration for the Six Year Transfers.
244. BLMIS was insolvent at the time it made each of the Six Year Transfers or, in the
alternative, BLMIS became insolvent as a result of each of the Six Year Transfers.
245. As a result of the foregoing, pursuant to DCL §§ 273, 278 and/or 279, §§ 544(b),
550(a), and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA, the Trustee is entitled to a
judgment against Grace Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC
and/or FBO Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that
the Six Year Transfers be set aside, and (c) recovering the Six Year Transfers, or the value
thereof, for the benefit of the estate of BLMIS.
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COUNT FIVEFRAUDULENT TRANSFER – NEW YORK DEBTOR AND CREDITOR LAW
§§ 274, 278 AND/OR 279, AND 11 U.S.C. §§ 544(b), 550(a) AND 551(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants)
246. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
247. At all times relevant to the Six Year Transfers, there have been and are one or
more creditors who have held and still hold matured or unmatured unsecured claims against
BLMIS that were and are allowable under § 502 of the Bankruptcy Code or that were and are not
allowable only under § 502(e) of the Bankruptcy Code.
248. Each of the Six Year Transfers constitutes a conveyance by BLMIS as defined
under DCL § 270.
249. BLMIS did not receive fair consideration for the Six Year Transfers.
250. At the time BLMIS made each of the Six Year Transfers, BLMIS was engaged or
was about to engage in a business or a transaction for which the property remaining in its hands
after each of the Six Year Transfers was an unreasonably small capital.
251. As a result of the foregoing, pursuant to DCL §§ 274, 278 and/or 279, §§ 544(b),
550(a), and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA, the Trustee is entitled to a
judgment against Grace Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC
and/or FBO Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that
the Six Year Transfers be set aside, and (c) recovering the Six Year Transfers, or the value
thereof, for the benefit of the estate of BLMIS.
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COUNT SIXFRAUDULENT TRANSFER – NEW YORK DEBTOR AND CREDITOR LAW
§§ 275, 278 AND/OR 279, AND 11 U.S.C. §§ 544(b), 550(a) AND 551(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants)
252. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
253. At all times relevant to the Six Year Transfers, there have been and are one or
more creditors who have held and still hold matured or unmatured unsecured claims against
BLMIS that were and are allowable under § 502 of the Bankruptcy Code or that were and are not
allowable only under § 502(e) of the Bankruptcy Code.
254. Each of the Six Year Transfers constitutes a conveyance by BLMIS as defined
under DCL § 270.
255. BLMIS did not receive fair consideration for the Six Year Transfers.
256. At the time BLMIS made each of the Six Year Transfers, BLMIS had incurred,
was intending to incur, or believed that it would incur, debts beyond its ability to pay them as the
debts matured.
257. As a result of the foregoing, pursuant to DCL §§ 275, 278 and/or 279, §§ 544(b),
550(a), and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA, the Trustee is entitled to a
judgment against Grace Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC
and/or FBO Defendants: (a) avoiding and preserving the Six Year Transfers, (b) directing that
the Six Year Transfers be set aside, and (c) recovering the Six Year Transfers, or the value
thereof, for the benefit of the estate of BLMIS.
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COUNT SEVENRECOVERY OF ALL FRAUDULENT TRANSFERS – NEW YORK
CIVIL PROCEDURE LAW AND RULES §§ 203(g) AND 213(8) AND NEWYORK DEBTOR AND CREDITOR LAW§§ 276, 276-a, 278 AND/OR 279,
AND 11 U.S.C. §§ 544(b), 550(a) AND 551(Grace Defendants, EJS Defendants, Jelris Defendants, GFF,
Defendant NTC and/or FBO Defendants,RMG Trust Defendants, Merlin and Enhancement)
258. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
259. At all times relevant to the Transfers, the fraudulent scheme perpetrated by
BLMIS was not reasonably discoverable by at least one unsecured creditor of BLMIS.
260. At all times relevant to the Transfers, there have been and are one or more
creditors who have held and still hold matured or unmatured unsecured claims against BLMIS
that were and are allowable under § 502 of the Bankruptcy Code or that were and are not
allowable only under § 502(e) of the Bankruptcy Code.
261. Each of the Transfers prior to the six years before the Filing Date constitutes a
conveyance by BLMIS as defined under DCL § 270.
262. Each of the Transfers was made by BLMIS with the actual intent to hinder, delay
or defraud the creditors of BLMIS. BLMIS made the Transfers to or for the benefit of Grace
Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants
and/or their predecessors-in-interest, RMG Trust Defendants, Merlin and Enhancement in
furtherance of a fraudulent investment scheme.
263. Each of the Transfers was received by Grace Defendants, EJS Defendants, Jelris
Defendants, GFF, Defendant NTC and/or FBO Defendants and/or their predecessors-in-interest,
RMG Trust Defendants, Merlin and Enhancement with the actual intent to hinder, delay or
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defraud the creditors of BLMIS at the time of each of the Transfers, and/or future creditors of
BLMIS.
264. As a result of the foregoing, pursuant to NY CPLR §§ 203(g) and 213(8), DCL §§
276, 276-a, 278 and/or 279, §§ 544(b), 550(a), and 551 of the Bankruptcy Code, and SIPA §
78fff-2(c)(3), the Trustee is entitled to a judgment against Grace Defendants, EJS Defendants,
Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants, RMG Trust Defendants,
Merlin and Enhancement: (a) avoiding and preserving the Transfers, (b) directing that the
Transfers be set aside, (c) recovering the Transfers, or the value thereof, for the benefit of the
estate of BLMIS, and (d) recovering attorneys’ fees, except from Defendant NTC.
COUNT EIGHTRECOVERY OF SUBSEQUENT TRANSFERS – NEW YORK DEBTOR AND
CREDITOR LAW §§ 273-279 AND 11 U.S.C. §§ 544, 548, 550(a) AND 551(FBO Defendants)
265. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
266. Each of the Transfers to Defendant NTC is avoidable under §§ 544 and 548 of the
Bankruptcy Code, DCL §§ 273-279 and § 78fff-2(c)(3) of SIPA.
267. Upon information and belief, the NTC Subsequent Transfers were transferred by
Defendant NTC to FBO Defendants and/or their predecessors-in-interest.
268. FBO Defendants and/or their predecessors-in-interest are immediate or mediate
transferees of the NTC Subsequent Transfers from Defendant NTC.
269. Each of the NTC Subsequent Transfers was made directly or indirectly to or for
the benefit of FBO Defendants and/or their predecessors-in-interest.
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270. Each of the NTC Subsequent Transfers was received by FBO Defendants and/or
their predecessors-in-interest with the actual intent to hinder, delay or defraud creditors of
BLMIS at the time of each of the NTC Subsequent Transfers, and/or future creditors of BLMIS.
271. As a result of the foregoing, pursuant to DCL §§ 273-279, §§ 544(b), 548(a),
550(a) and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA, the Trustee is entitled to a
judgment against FBO Defendants: (a) recovering the NTC Subsequent Transfers, or the value
thereof, from FBO Defendants to or for the benefit of the estate of BLMIS and (b) recovering
attorneys’ fees from FBO Defendants.
COUNT NINERECOVERY OF SUBSEQUENT TRANSFERS – NEW YORK DEBTOR AND
CREDITOR LAW §§ 273-279 AND 11 U.S.C. §§ 544, 548, AND 550(a)(Subsequent Transferee Defendants)
272. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein.
273. Each of the Transfers is avoidable under §§ 544 and 548 of the Bankruptcy Code,
DCL §§ 273-279 and § 78fff-2(c)(3) of SIPA.
274. Upon information and belief, the Subsequent Transfers were transferred by
Defendants to Subsequent Transferee Defendants.
275. Each of the Subsequent Transfers by Defendants was made directly or indirectly
to or for the benefit of Subsequent Transferee Defendants.
276. Each of the Subsequent Transfers was received by Subsequent Transferee
Defendants with the actual intent to hinder, delay or defraud creditors of BLMIS at the time of
each of the Subsequent Transfers, and/or future creditors of BLMIS.
277. Subsequent Transferee Defendants are immediate or mediate transferees of the
Transfers.
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278. As a result of the foregoing and the avoidance of the within Transfers, pursuant to
DCL §§ 273- 279, §§ 544(b), 548(a), and 550(a) of the Bankruptcy Code, and § 78fff-2(c)(3) of
SIPA, the Trustee is entitled to a judgment against Subsequent Transferee Defendants: (a)
recovering the Subsequent Transfers, or the value thereof, for the benefit of the estate of BLMIS,
and (b) recovering attorneys’ fees from Subsequent Transferee Defendants.
COUNT TENDISALLOWANCE OF RELATED ACCOUNT CUSTOMER CLAIM
279. To the extent applicable, the Trustee incorporates by reference the allegations
contained in the previous paragraphs of this Complaint as if fully rewritten herein.
280. OFP filed the Related Account Customer Claim, which has not yet been
determined.
281. The Related Account Customer Claim should not be allowed pursuant to § 502(d)
of the Bankruptcy Code. Upon information and belief, Glantz, Jerald Ostrin, Elaine Ostrin,
Roberta Cohen, Mirza Inayat Khan, Pir Zia Inayat Khan and/or Austin Bosarge have beneficial
or equitable interests in the Related Account and/or are subsequent transferees of transfers of
BLMIS’s property which are avoidable and recoverable under §§ 544, 547, 548 and/or 550(a) of
the Bankruptcy Code, DCL §§ 273, 274, 275 and 276 and § 78fff-2(c)(3). As set forth above,
Glantz, Jerald Ostrin, Elaine Ostrin, Roberta Cohen, Mirza Inayat Khan, Pir Zia Inayat Khan
and/or Austin Bosarge have not returned the transfers to the Trustee.
282. The Claims Procedures Order includes a process for determination and allowance
of claims under which the Trustee has been operating. As a result of the foregoing, the Trustee
intends to resolve the Related Account Customer Claim and any related objections through the
mechanisms contemplated by the Claims Procedures Order.
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COUNT ELEVENEQUITABLE SUBORDINATION OF THE OSTRIN
FAMILY PARTNERSHIP CUSTOMER CLAIM
283. The Trustee incorporates by reference the allegations contained in the previous
paragraphs of this Complaint as if fully rewritten herein.
284. As stated above, Glantz is either a general partner of OFP or, if the partners of
OFP are Fern Creek and Vista, Glantz is the sole owner of one general partner (Vista), and the
sole owner of the general partner (Vista) of the other general partner (Fern Creek). In either
event, Glantz is a control person of OFP and has acted as manager of the OFP Account. In
addition, upon information and belief, Glantz has a beneficial or equitable interest in the Related
Account or is a subsequent transferee of transfers from BLMIS to the Related Account.
285. Glantz engaged in inequitable conduct, including behavior described in this
Complaint, that has resulted in injury to the customers and creditors of the estate and has
conferred an unfair advantage on Glantz.
286. Based on Glantz’s inequitable conduct as described above, the customers of
BLMIS have been misled as to BLMIS’s true financial condition, customers have been induced
to invest without knowledge of the actual facts regarding BLMIS’s financial condition, and/or
customers and creditors are less likely to recover the full amounts due to them.
287. The Court should exercise the full extent of its equitable powers to ensure that the
Related Account Customer Claim, and any other claims, payments, or benefits, of whatever kind
or nature, which are asserted or sought by OFP directly or indirectly against the estate – and only
to the extent such claims are allowed – are subordinated for distribution purposes pursuant to §§
510(c)(1) and 105(a) of the Bankruptcy Code.
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288. Equitable subordination as requested herein is consistent with the provisions and
purposes of the Bankruptcy Code.
WHEREFORE, the Trustee respectfully requests that this Court enter judgment in favor
of the Trustee and against Defendants, NTC Defendants and/or FBO Defendants, and
Subsequent Transferee Defendants as follows:
i. On the First Claim for Relief, pursuant to §§ 548(a)(1)(A), 550(a) and 551 of the
Bankruptcy Code and § 78fff-2(c)(3) of SIPA: (a) avoiding and preserving the Two Year
Transfers, (b) directing that the Two Year Transfers be set aside, and (c) recovering the Two
Year Transfers, or the value thereof, from Grace Defendants, EJS Defendants, Jelris Defendants,
GFF, Defendant NTC and/or FBO Defendants for the benefit of the estate of BLMIS;
ii. On the Second Claim for Relief, pursuant to §§ 548(a)(1)(B), 550(a) and 551 of
the Bankruptcy Code: (a) avoiding and preserving the Two Year Transfers, (b) directing that the
Two Year Transfers be set aside, and (c) recovering the Two Year Transfers, or the value
thereof, from Grace Defendants, EJS Defendants, Jelris Defendants, GFF, Defendant NTC
and/or FBO Defendants for the benefit of the estate of BLMIS;
iii. On the Third Claim for Relief, pursuant to DCL §§ 276, 276-a, 278 and/or 279,
§§ 544(b), 550(a) and 551 of the Bankruptcy Code and § 78fff-2(c)(3) of SIPA: (a) avoiding and
preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside, (c)
recovering the Six Year Transfers, or the value thereof, from Grace Defendants, EJS Defendants,
Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants for the benefit of the estate of
BLMIS, and (d) recovering attorneys’ fees, except from Defendant NTC;
iv. On the Fourth Claim for Relief, pursuant to DCL §§ 273, 278 and/or 279, §§
544(b), 550 and 551 of the Bankruptcy Code and § 78fff-2(c)(3) of SIPA: (a) avoiding and
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preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside, and (c)
recovering the Six Year Transfers, or the value thereof, from Grace Defendants, EJS Defendants,
Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants for the benefit of the estate of
BLMIS;
v. On the Fifth Claim for Relief, pursuant to DCL §§ 274, 278 and/or 279, §§
544(b), 550 and 551 of the Bankruptcy Code and § 78fff-2(c)(3) of SIPA: (a) avoiding and
preserving the Six Year Fraudulent Transfers, (b) directing the Six Year Transfers be set aside,
and (c) recovering the Six Year Transfers, or the value thereof, from Grace Defendants, EJS
Defendants, Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants for the benefit of
the estate of BLMIS;
vi. On the Sixth Claim for Relief, pursuant to DCL §§ 275, 278 and/or 279, §§
544(b), 550 and 551 of the Bankruptcy Code and § 78fff-2(c)(3) of SIPA: (a) avoiding and
preserving the Six Year Transfers, (b) directing that the Six Year Transfers be set aside, and (c)
recovering the Six Year Transfers, or the value thereof, from Grace Defendants, EJS Defendants,
Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants for the benefit of the estate of
BLMIS;
vii. On the Seventh Claim for Relief, pursuant to NY CPLR 203(g) and 213(8) DCL
§§ 276, 276-a, 278 and/or 279, §§ 544(b), 550(a), and 551 of the Bankruptcy Code and § 78fff-
2(c)(3) of SIPA: (a) avoiding and preserving the Transfers, (b) directing that the Transfers be set
aside, (c) recovering the Transfers, or the value thereof, from Grace Defendants, EJS Defendants,
Jelris Defendants, GFF, Defendant NTC and/or FBO Defendants, RMG Trust Defendants,
Merlin and Enhancement for the benefit of the estate of BLMIS, and (d) recovering attorneys’
fees, except from Defendant NTC;
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viii. On the Eighth Claim for Relief, pursuant to DCL §§ 273-279, §§ 544, 548, 550(a)
and 551 of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA: (a) recovering the Subsequent
Transfers made by Defendant NTC, or the value thereof, from FBO Defendants, and (b)
recovering attorneys’ fees from FBO Defendants;
ix. On the Ninth Claim for Relief, pursuant to DCL §§ 273-279, §§ 544(b), 548 and
550(a) of the Bankruptcy Code, and § 78fff-2(c)(3) of SIPA: (a) recovering the Subsequent
Transfers made by Defendants, or the value thereof, from Subsequent Transferee Defendants,
and (b) recovering attorneys’ fees from Subsequent Transferee Defendants;
x. On the Tenth Claim for Relief, pursuant to § 502(d) of the Bankruptcy Code,
disallowing the Related Account Customer Claim unless and until the transfers that were
received by OFP are returned;
xi. On the Eleventh Claim for Relief, pursuant to §§ 105(a) and 510(c) of the
Bankruptcy Code, equitably subordinating the Related Account Customer Claim and any other
claims, payments or benefits, of whatever kind or nature, which are asserted or sought by OFP
directly or indirectly against the estate, to the extent such claims are allowed;
xii. On all Claims for Relief, pursuant to federal common law and N.Y. CPLR 5001
and 5004, awarding the Trustee prejudgment interest from the date on which the Transfers were
received;
xiii. On all Claims for Relief, establishment of a constructive trust over the proceeds of
the transfers in favor of the Trustee for the benefit of BLMIS’s estate;
xiv. On all Claims for Relief, assignment of all Defendants’, FBO Defendants’, and
Subsequent Transferee Defendants’ income tax refunds from the United States, state, and local
governments for taxes paid on fictitious profits during the course of the scheme;
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xv. Awarding the Trustee all applicable interest, costs, and disbursements of this
action; and
xvi. Granting Plaintiff such other, further, and different relief as the Court deems just,
proper, and equitable.
Date: December 9, 2010 New York, New York
By: /s/ David J. Sheehan /s/ Keith R. Murphy /s/ Geraldine E. Ponto /s/ Jonathan B. New /s/ Andrew W. Reich /s/ Essence Liburd BAKER & HOSTETLER LLP45 Rockefeller PlazaNew York, New York 10111Telephone: (212) 589-4200Facsimile: (212) 589-4201David J. SheehanEmail: [email protected] R. MurphyEmail: [email protected] E. PontoEmail: [email protected] B. NewEmail: [email protected] W. ReichEmail: [email protected] LiburdEmail: [email protected]
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff