Judge Rakoff Limits Madoff Clawbacks To "Protect Securities Market" - Despite Lack of Real Trades

Judge Rakoff ruled that Mr. Picard could only seek to reclaim profits withdrawn for the two years before Mr. Madoff's firm was forced into bankruptcy rather than the full six years otherwise provided by federal bankruptcy law. In addition, he concluded that the usual rule for voiding payments made within 90 days of a bankruptcy filing, called "preferences," also cannot be applied, further lowering the amount Mr. Picard can recover.

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Judge Rakoff's decision conflicts with the interpretation of the safe harbor provision by bankruptcy judge Burton R. Lifland in Mr. Picard's clawback suit against J. Erza Merkin, one of feeders for Mr. Madoff.

Judge Lifland found the protection afforded securities transactions inapplicable because insulating fraudulent payments would undermine investor confidence rather than protect it. So there are conflicting decisions in the same bankruptcy case, an unusual situation.

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Others who would appear to benefit from the two-year limitation on claims include David M. Becker, the former general counsel at the Securities and Exchange Commission, who was sued for an account held by his late mother that was closed in 2004, and members of Mr. Madoff's family for any withdrawals prior to Dec. 11, 2006, two years before Mr. Madoff was arrested.