Bahamas banks face $4m Madoff lawsuits
The Tribune–Three Bahamas-based financial institutions have been sued for the return of more than $4 million in redemptions that were generated through Bernard Madoff’s multi-billion Ponzi scheme, on the grounds that these payments represented an “unjust enrichment” because they were based on fraudulent Net Asset Value (NAV) calculations.
Documents obtained by Tribune Business from the US Bankruptcy Court in New York’s southern district reveal that KRyS Global, liquidators for the British Virgin Islands domiciled Fairfield Sentry investment fund, in lawsuits filed last month are seeking the return of the funds from Credit Suisse (Bahamas) Wealth Management, BIE Bank & Trust (Bahamas) and Pactual Overseas Bank & Trust.
The liquidators are alleging that Fairfield Sentry, which was “the largest of all so-called ‘feeder funds’ to maintain accounts with Bernard Madoff Investment Securities, holding a $6 billion investment with it at the time of collapse, paid out a series of redemptions to the two Bahamian financial institutions and their clients in the immediate months before the largest Ponzi scheme in world history unravelled in December 2008.
They are alleging that Credit Suisse and its clients received $2.032 million in redemption payments from Madoff, via Fairfield Sentry, via four separate transactions between May 15, 2008, and November 19, 2008. And the liquidators are further claiming that BIE Bank & Trust and its clients received $1.556 million in Madoff redemptions, through Fairfield Sentry, in seven separate transactions between June 17, 2008, and November 19, 2008. Four of those payments allegedly occurred on November 19, 2008.
Finally, the Fairfield Sentry liquidators are alleging that Pactual Overseas Bank & Trust and its clients received $442,330 from Madoff, via Fairfield Sentry, in two separate payments in 2005.
There is nothing to suggest that any of the three Bahamasbased financial institutions, their officers, directors or shareholders, or the relevant clients, have done anything wrong in relation to Fairfield Sentry or the Madoff Ponzi scheme.
However, the Fairfield Sentry liquidators are alleging that the redemption payments were based on inflated NAV values created by Madoff, and that the actual value of their shares in the former fund was effectively zero or certainly much less than calculated at the time. As a result, the three Bahamas-based financial institutions and their clients received a “windfall”, or “unjust enrichment”.
In their actions against the three Bahamas-based banks, the Fairfield Sentry liquidators alleged that to pay the redemptions they received, the investment fund received funds from Madoff that it believed represented the proceeds of securities and other investment sales. “As the world now knows, Madoff was operating a massive Ponzi scheme through Bernard Madoff Investment Securities (BLMIS),” the liquidators alleged.
“Thus, at all relevant times, the money that Sentry transferred to BLMIS was not invested but, rather, was used by Madoff to pay other BLMIS investors or was otherwise misappropriated by Madoff for unauthorised uses.
“Further, none of the securities shown on statements provided to Sentry by BLMIS were in fact purchased for Sentry. Additionally, none of the amounts withdrawn by Sentry from its accounts with BLMIS were proceeds of sales of securities or other investments. Instead, such amounts represented the monies of more recent investors into the Madoff scheme.”
As a result, the assets supposed to be held on Fairfield Sentry’s behalf were non-existent, and it was effectively insolvent. Payments made to it by Madoff, and passed on to the three Bahamian banks and their clients, came from new monies put into the scheme by other unsuspecting investors.
“As a result, at all relevant times, the Net Asset Value of the shares redeemed was miscalculated, and redemption payments were mistakenly made for amounts far in excess of the actual Net Asset Value of Shares redeemed,” the liquidators alleged.
As a result, the three Bahamas-based financial institutions received payments far in excess of what they should have done, with these monies coming from the proceeds of Madoff’s Ponzi scheme.
Now, Fairfield Sentry’s assets are much less than the amount needed to satisfy the $3.2 billion claim made against it by Madoff’s bankruptcy trustee, and the liquidators are alleging that unless they recover the previous redemptions they will be unable to meet this demand. As a result, they are alleging that the three Bahamas-based institutions, their clients and other Fairfield Sentry investors “will have been unjustly enriched as they will not bear their proportionate share of such liabilities and claims, but rather will retain a windfall at the expense of other shareholders and creditors of the Fund”.