The high-stakes arguments — the trustee is seeking $1 billion from Wilpon and Katz — are set to be heard, and perhaps decided, by Judge Jed S. Rakoff in United States District Court in Manhattan on Aug. 17. ...
Picard’s argument appears to result in part from the successful effort by Wilpon and Katz to transfer the trustee’s lawsuit from bankruptcy court to district court — a procedural victory for them.
Wilpon and Katz wanted the change so their dealings with Madoff might be judged under securities law, not the federal bankruptcy code. Seen merely as individual investors, they argued, they were under no special obligation to check out the trustworthiness of Madoff’s investing.
In a 25-page filing, though, Picard’s lawyers cite what they argue is a body of established New York and securities law that holds that ordinary individual investors — and not necessarily sophisticated ones — have real obligations to meaningfully check out warnings or hints of a possible fraud. ...
Rakoff could dismiss the case entirely or rule on certain critical issues, and return all or parts of the lawsuit to United States Bankruptcy Court.
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