N.Y. firm claims DOJ illegally changed terms of its Madoff victim fund

By Jessica Karmasek | Dec 12, 2017

NEW YORK (Legal Newsline) - A New York law firm has filed a lawsuit against the U.S. Department of Justice, claiming it has illegally changed the terms and conditions of its $4 billion fund designed to compensate victims of Ponzi scheme perpetrator Bernie Madoff.

The Barry Fischer Law Firm LLC filed its lawsuit in the U.S. District Court for the Southern District of New York Nov. 15.

The firm, which specializes in complex financial and commercial litigation, alleges the DOJ mailed checks directly to its client claimants and not to the firm, as the fund had contracted and promised in its Notice of Representations to do.

“The NOR was in law and in effect a tri-parte contract between DOJ, the claimant and the plaintiff in which each party agreed, in terms written solely by DOJ, to abide by certain procedures regarding the actual payment of claims,” the firm wrote in its eight-page complaint.

If a victim wished to have the assistance of counsel in preparing his or her claim and in interacting with the fund in support of the claim, it was necessary for the victim to execute a NOR, which would then be filed with the fund along with the various other claim forms. 

The firm said it learned on Nov. 14 that the Madoff Victim Fund -- created by the U.S. Attorney for the Southern District of New York, on behalf of the DOJ -- was starting to mail checks to the firm’s 200-plus clients, who are indirect victims of Madoff’s fraud and most of whom live in Mexico, Argentina, Panama, Colombia, Brazil, Panama, Chile, Costa Rica or Venezuela.

“Plaintiff has been engaged in this process for almost four years, having spent thousands of man-hours in this endeavor, without any form of compensation,” the firm wrote. 

“As heretofore stated, plaintiff agreed with each client to work on an 8 percent contingency fee basis to be paid by deducting this fee from the remission check sent to plaintiff on behalf of each client and remitting the balance to the client by check or wire transfer, at the client’s discretion.”

The firm said it is concerned its clients will not receive their compensation and, in turn, it will not receive its fees.

“After preparing an official form for each Madoff victim to sign appointing counsel of his or her choice and after accepting the filing of this form, it is arbitrary and capricious and inequitable for MVF to change the terms and conditions upon which plaintiff relied in deciding to take on Madoff victims as contingent fee clients and upon which the victims relied as a safe and secure method of receiving compensation for their losses,” according to the firm’s complaint.

The firm contends that from the start of the claims process, the fund ignored a portion of its terms and communicated directly with its clients, and failed to even copy the firm on some communication.

The firm alleges the fund also failed to send any notification as to any changes in the terms, nor did it modify certain sections of the website.

“If this court does not enjoin DOJ and MVF, its agent, from changing the original methodology that DOJ specified and each victim and plaintiff relied upon as to the protocol for distributing remission checks to victims represented by counsel, then plaintiff will be irreparably injured by being unable to collect compensation for almost four years of effort,” according to the complaint.

“Plaintiff’s clients will be irreparably harmed by having their remission checks transmitted to them in an unsafe and insecure manner, which they tried to avoid by hiring counsel and they will be precluded from receiving their claim funds in the exact location from which those funds were lost by the Madoff fraud.”

The firm seeks a permanent injunction prohibiting the DOJ from changing the original terms and conditions for the delivery of checks, and a preliminary injunction maintaining the status quo and prohibiting the DOJ from mailing checks to the firm’s clients until the court can rule on its permanent injunction request. 

“There is no way to compensate plaintiff or its clients for the damage which will occur if DOJ/MVF is not enjoined from unilaterally changing its contractual protocol for the delivery of remission checks to victims who have chosen to be represented by counsel and there is no adequate remedy at law for plaintiff and its clients,” the lawsuit states.

In 2008, Madoff confessed to operating a Ponzi scheme that is considered the largest financial fraud in U.S. history. The size of the fraud was estimated to be $64.8 billion, based on the amounts in the accounts of his nearly 5,000 clients as of November 2008.

Direct investors in Madoff’s company were compensated for their losses through the trustee in the BLMIS bankruptcy; indirect investors were not.

To provide compensation to those indirect investors, the DOJ, through the U.S. attorney, created the MVF with funds obtained through recoveries by the U.S. attorney in various criminal and civil forfeiture actions.

In 2013, MVF created a website where indirect investor victims or their counsel could obtain the appropriate forms to start the claim process. 

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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