– HELLO. I’M DAVID COAR, RETIRED DISTRICT
AND BANKRUPTCY JUDGE FOR THE NORTHERN DISTRICT
OF ILLINOIS. WELCOME TO OUR PROGRAM ABOUT
COOPERATION AND COORDINATION BETWEEN DISTRICT
AND BANKRUPTCY JUDGES WHO FIND THEMSELVES
WITH SIMULTANEOUS CASES INVOLVING ASSET FORFEITURE
AND BANKRUPTCY. OFTEN SUCH CASES ARISE
FROM CRIMINAL PROSECUTION OF A PONZI SCHEME
AND THE BANKRUPTCY FILING BY THE LEGITIMATE BUSINESS THROUGH WHICH THE SCHEME
WAS OPERATING. NOT ALL OF THESE CASES
INVOLVE PONZI SCHEMES, BUT THE COMMON ASPECT
IS ASSET FORFEITURE BY THE DEPARTMENT
OF JUSTICE. TO DISCUSS THIS WITH ME
ARE SEVERAL INDIVIDUALS WHO HAVE EXPERIENCE IN SOME
OF THE MOST INFAMOUS CASES, WHO WILL HELP US GAIN INSIGHT
AND CONFIDENCE IN DEALING WITH SUCH CASES,
LARGE AND SMALL. FIRST, DISTRICT JUDGE
ANN D. MONTGOMERY FROM THE DISTRICT
OF MINNESOTA WHO DEALT WITH
THE THOMAS PETTERS CASE; BANKRUPTCY JUDGE
MARTIN GLENN FROM THE SOUTHERN DISTRICT
OF NEW YORK, WHO DEALT WITH
THE MARC DREIER CASE; IRVING PICARD, TRUSTEE FOR THE SECURITIES INVESTOR
PROTECTION CORPORATION, WHO CONTINUES
TO LITIGATE CASES INVOLVING THE BERNARD MADOFF
PONZI SCHEME; AND SHARON COHEN LEVIN, WHO IS THE CHIEF
OF ASSET FORFEITURE UNIT– CHIEF OF THE ASSET
FORFEITURE UNIT FOR THE SOUTHERN DISTRICT
OF NEW YORK. WELCOME TO EACH OF YOU, AND THANK YOU FOR BEING
WITH US TODAY. MR. PICARD, LET ME ASK YOU
ABOUT THE PLAYERS IN BANKRUPTCY. WHO ARE THEY,
AND WHAT ARE THEIR ROLES? – THE PLAYERS ARE–
IF IT’S A BANKRUPTCY CASE, YOU HAVE
THE U.S. TRUSTEE, WHO PROBABLY WOULD BE CALLED
UPON TO APPOINT A TRUSTEE, OFTEN FROM A PANEL
IF IT’S A CHAPTER 7 CASE. BUT OTHERWISE, IN A CHAPTER 11,
WOULD APPOINT A TRUSTEE. AND IN…YOU COULD HAVE A STATE COURT OR A FEDERAL
COURT RECEIVERSHIP, AN SEC-TYPE RECEIVERSHIP,
FOR EXAMPLE, WHERE THE JUDGE WOULD BE
APPOINTING A RECEIVER. THAT WOULD BE A FEDERAL
OR A STATE COURT JUDGE. OR YOU WOULD HAVE,
AS IN MY CASE, A LIQUIDATION OF THE SECURITIES INVESTOR
PROTECTION ACT, WHERE THE SECURITIES INVESTOR
PROTECTION CORPORATION RECOMMENDS TO THE JUDGE
WHO SHOULD BE THE TRUSTEE, AND THEN THE TRUSTEE
GETS APPOINTED. AND THEN ONCE
YOU GET INTO THE CASE, YOU HAVE, OF COURSE,
THE DEBTOR, WHICH COULD BE AN INDIVIDUAL
OR A CORPORATION OR SOMETIMES
A COMBINATION. YOU HAVE…OF COURSE,
THERE ARE EMPLOYEES, AND IF IT’S A BUSINESS
AND A LOT OF VENDORS, YOU HAVE VICTIMS. AND THERE MAY BE
OTHER ACTIVITY GOING ON THAT BEARS
SOME RELATIONSHIP, LIKE THERE COULD BE
CLASS-ACTION CASES THAT ARE ALREADY ONGOING. AND OF COURSE,
THE PRIMARY… A PRIMARY PLAYER
WOULD BE A JUDGE, WHETHER IT’S THE DISTRICT JUDGE
OR A BANKRUPTCY JUDGE. – MS. LEVIN, WHAT IS
ASSET FORFEITURE? – WELL, ASSET FORFEITURE
IS A LEGAL PROCEDURE WHERE THE GOVERNMENT
REMOVES THE PROCEEDS OF CRIME OR PROPERTY USED
IN FURTHERANCE OF CRIME, AND IT’S A MANDATORY PART
OF MOST CRIMINAL CASES, AND IT’S FORFEITURES
ORDERED AT SENTENCING. IN ADDITION,
THERE ARE ACTUALLY– THE GOVERNMENT HAS THE ABILITY
TO BRING IN… BRING IN REM CIVIL ACTIONS
AGAINST CRIME PROCEEDS OR PROPERTY USED
IN FURTHERANCE OF CRIME BY THEMSELVES OR IN COORDINATION
WITH CRIMINAL PROSECUTIONS. AND ONE OF THE MOST IMPORTANT
PURPOSES OF ASSET FORFEITURE IS TO GATHER
AND SEIZE THE ASSETS SO THAT THEY CAN BE USED
FOR VICTIM COMPENSATION. – JUDGE MONTGOMERY,
WHAT WAS THE CASE THAT YOU WERE
INVOLVED IN? – I WAS INVOLVED
IN THE THOMAS PETTERS CASE. THOMAS PETTERS WAS A… MAYBE NOT
A HOUSEHOLD WORD, BUT A VERY WELL KNOWN PERSON
IN MINNESOTA, AN ENTREPRENEUR WHO HAD
STARTED SELLING ELECTRONICS WHEN HE WAS IN COLLEGE AND HAD ALLEGEDLY BUILT
AN INCREDIBLE EMPIRE OF A NUMBER OF
PETTERS-RELATED BUSINESSES, ULTIMATELY INCLUDING
POLAROID CORPORATION AND SUN COUNTRY AIRLINES. SO HE HAD BEEN SEEN
AS A VERY, VERY SUCCESSFUL ENTREPRENEUR
AND BUSINESS DEVELOPER. – AND JUDGE GLENN, WHAT CASE
WERE YOU INVOLVED IN? – I WAS INVOLVED IN
THE BANKRUPTCY OF DREIER LLP, A 200-PLUS LAWYER FIRM, THE UNDERLYING
CHAPTER 11 BANKRUPTCY, AND THE INDIVIDUAL CHAPTER 7
BANKRUPTCY OF MARC DREIER HAD BEEN PENDING
BEFORE MY COLLEAGUE, JUDGE STUART BERNSTEIN. AFTER THE CHAPTER 11 TRUSTEE
HAD FILED A GROUP OF FRAUDULENT CONVEYANCE
ADVERSARY PROCEEDINGS AND MOTIONS TO DISMISS
HAD BEEN MADE, FOUR OF THEM
WERE TRANSFERRED TO ME FOR A DECISION ON THE MOTIONS
TO DISMISS. AND THAT WAS
MY FIRST FORAY INTO THE AREA
OF CRIMINAL FORFEITURE. – MS. LEVIN,
WHAT HAPPENS IN… AS A PRACTICAL MATTER
IN THESE CASES? YOU’RE OUT, ON BEHALF
OF THE GOVERNMENT– REMOVING I THINK WAS
THE WORD YOU USED–PROPERTY. BUT THERE IS A TRUSTEE
OR A RECEIVER OUT THERE WHO IS ALSO
REMOVING PROPERTY. WHAT HAPPENS WHEN
THE TWO WORLDS COLLIDE? – WELL, I MEAN, THAT HAPPENS
MORE AND MORE FREQUENTLY, PARTICULARLY IN LARGE
FINANCIAL FRAUD CASES OR LARGE FRAUD CASES. AND THE GOVERNMENT… THE POWERS THAT WE HAVE
ARE WE’RE ABLE TO SEIZE OR RESTRAIN DIRECTLY
TRACEABLE CRIME PROCEEDS. AND UNDER ASSET
FORFEITURE LAW, TITLE VESTS
IN THE UNITED STATES AT THE TIME OF THE COMMISSION
OF THE CRIME. SO IT, YOU KNOW,
IT DOESN’T– THAT PROPERTY
DOESN’T BECOME PROPERTY OF
THE BANKRUPTCY ESTATE. SO THE GOVERNMENT’S
RESPONSIBILITY IS TO GO AROUND AND TO SEIZE OR TO FREEZE
THAT PROPERTY SO IT’S AVAILABLE
FOR FORFEITURE AND FOR RESTITUTION TO BE USED
TO COMPENSATE VICTIMS. AND IT HAPPENS A LOT
THAT IN THOSE CIRCUMSTANCES, WE RUN INTO
A BANKRUPTCY TRUSTEE WHO ALSO HAS SIMILAR
RESPONSIBILI– SIMILAR TYPE
OF RESPONSIBILITIES. AND WHAT WE TRY AND DO
IS TRY AND WORK IN COOPERATION, IN COORDINATION WITH
A BANKRUPTCY TRUSTEE. SOMETIMES THAT’S
SOMEWHAT CHALLENGING, BUT, YOU KNOW, IT’S SOMETHING
THAT WE, YOU KNOW, WILL STRIVE TO DO. – NOW, TELL ME ABOUT THIS
VESTING IN THE GOVERNMENT AT THE TIME
OF THE CRIME. THE GOVERNMENT
DOESN’T KNOW ABOUT THE CRIME AT THE TIME
USUALLY. SO HOW DOES THAT WORK? – WELL, IT’S
A LEGAL FICTION. IT’S THAT THE CRIME PROCEEDS,
ONCE THE CRIME IS COMMITTED AND THE DEFENDANT
OBTAINS PROPERTY, IT BECOMES
U.S. GOVERNMENT PROPERTY. TITLE VESTS IN THE UNITED STATES
AT THE TIME OF THE CRIME, BUT THE PROPERTY
DOESN’T ACTUALLY TRANSFER UNTIL THE DEFENDANT
IS CONVICTED AND SENTENCED. SO THERE’S SORT OF
AN AMORPHOUS PERIOD WHERE IT BECOMES–
IT IS U.S. PROPERTY, BUT UNLESS SOMEONE
BRINGS A PROSECUTION, THERE’S NO ONE TO ACTUALLY
TAKE POSSESSION OF IT. AND IT’S A LEGAL FICTION
THAT ENABLES THE GOVERNMENT TO OBTAIN PROPERTY
FROM THIRD PARTIES– FROM THE DEFENDANT
OR FROM THIRD PARTIES THAT A DEFENDANT WOULD TRANSFER
THE PROPERTY TO. THE FORFEITURE STATUTES
WEREN’T WRITTEN IN RECOGNITION
OR WEREN’T WRITTEN IN CONJUNCTION WITH
THE BANKRUPTCY LAWS. SO THAT IS OFTEN
A CIRCUMSTANCE WHERE THEY ACTUALLY RUN
HEAD INTO EACH OTHER. AND THE POSITION THAT
MOST COURTS HAVE COME TO IS THAT PROPERTY ISN’T PROPERTY
OF THE BANKRUPTCY ESTATE, BUT THAT THE… YOU KNOW, THERE ARE OTHER
PROPERTIES OF THE DEFENDANT OR HYBRID PROPERTIES
THAT, YOU KNOW, THAT ARE POTENTIALLY
PROPERTY OF THE ESTATE. – MR. PICARD, HOW DOES
THAT PLAY OUT FROM THE POINT OF VIEW
OF A TRUSTEE OR RECEIVER? – TWO WAYS.
THE FIRST WAY IS THE ONE WHERE ALL THE PROPERTY HAS BEEN
SEIZED BY THE GOVERNMENT, OR FORFEITED, AND THEN
YOU’RE THE TRUSTEE OF, IN EFFECT,
A NO-ASSET ESTATE. BUT THERE ARE OTHER CASES,
AS SHARON REFERRED TO, WHERE THERE ARE
OTHER PROPERTIES. IN THE MADOFF CASE,
FOR EXAMPLE, WE WORKED OUT AN ARRANGEMENT
WITH HER OFFICE THAT… THEY TOOK PERSONAL ASSETS, WHERE WE KEPT WHAT WE CALL
THE BUSINESS ASSETS. AND OUR CASE
IS A LIQUIDATION. IT’S NOT
AN OPERATING BUSINESS. BUT WE WENT ON,
AND WE WERE ABLE TO LIQUIDATE THE…
THE BUSINESS ASSETS. THERE WAS A LEGITIMATE
PART OF THE BUSINESS, WHICH WE SOLD
AFTER AN AUCTION. AND SO WE WERE
ABLE TO DO THAT. AND THERE ARE OTHER ASSETS
IN THE BUSINESS THAT WE HAVE BEEN SELLING
AND WILL CONTINUE TO SELL. AND WE HAVE WORKED OUT
VERY COOPERATIVELY WITH HER OFFICE
IN SORT OF DETERMINING WHAT BELONGS
IN WHICH CATEGORY. THERE WAS
A PERSONAL ASSET, FOR EXAMPLE,
THAT WAS AN AIRPLANE, BUT IT WAS IN A…
IN A CORPORATE ENTITY. AND WE HAD MADE
SOME WORK– DONE SOME WORK ON TRYING
TO SELL THE PLANE. AND WE WENT, AND WE EXPLAINED
WHAT WAS GOING ON, AND THEY SAID, “WELL, YOU’RE
ALREADY AHEAD OF THE GAME “WITH WHAT YOU’RE DOING, SO WHY DON’T YOU
CONTINUE THE JOB?” WE ALSO SOLD
AN AUTOMOBILE, A JAMES BOND
KIND OF AUTOMOBILE, AN ASTON MARTIN, AND A NUMBER OF OTHER
ASSETS LIKE THAT, WHERE WE JUST
SAT DOWN AND SAID, “THIS IS WHAT
WE’RE DOING,” AND IN OTHER CASES, THEY WERE
AHEAD OF US IN DOING IT, AND WE JUST SAID,
“WELL, THEN YOU FINISH.” SO IT…
WHAT IT REALLY TAKES, AND I THINK YOU’LL
HEAR MORE ON THIS, IS COMMUNICATION AND TALKING
AMONG THE PARTIES– THE U.S. ATTORNEY’S OFFICE,
THE TRUSTEE, THE RECEIVER, AND IN SOME CASES,
OF COURSE, YOU NEED
THE BANKRUPTCY JUDGE OR THE DISTRICT JUDGE
TO ENCOURAGE THAT. – LET’S STICK WITH THAT
FOR A SECOND. MS. LEVIN, I ASSUME
THAT WHEN THE GOVERNMENT FORFEITS PROPERTY,
COLLECTS THIS PROPERTY, AND THEN THERE’S AT SOME POINT
A FORFEITURE, THAT THAT– DOES THAT GO TO THE BENEFIT
OF THE GOVERNMENT, OR DOES IT GO TO THE BENEFIT
OF VICTIMS, OR WHO GETS
THE PROCEEDS? – TECHNICALLY, WHEN PROPERTY
IS FORFEITED, IT GOES TO THE GOVERNMENT AND THE UNITED STATES
MARSHALS SERVICE. TITLE IS TRANSFERRED
TO THE UNITED STATES, AND THE UNITED STATES
MARSHALS SERVICE, IN MOST… IN MOST CASES,
WILL LIQUIDATE THE PROPERTY. THEY’LL SELL IT. THEY HAVE WEBSITES
WHERE THEY DO IT. THEY HIRE THIRD PARTIES
TO SELL IT. THEY SELL IT.
THEY TURN IT INTO CASH. AND THEN IF THERE ARE
VICTIMS IN THE CASE, THE PRIORITY IS
VICTIMS COME FIRST. IF THERE ARE VICTIMS,
THEN THE MONEY IS GIVEN OUT TO VICTIMS IN ONE
OF TWO METHODS. ONE, IF IT’S PART
OF A CRIMINAL CASE AND THE DISTRICT COURT JUDGE
ENTERS A RESTITUTION ORDER, WHICH LISTS THE VICTIMS
AND THEIR LOSS AMOUNTS, THE MONEY IS TRANSFERRED
TO THE CLERK OF THE COURT, WHERE THE CLERK
OF THE COURT WILL DISTRIBUTE THE MONEY
TO THE VICTIM, THE FORFEITED FUNDS
TO THE VICTIMS UNDER THE TERMS OF THE COURT’S
RESTITUTION ORDER. IF THERE ISN’T
A RESTITUTION ORDER ENTERED IN A CRIMINAL CASE,
EITHER BECAUSE FOR SOME REASON, THERE…THERE ISN’T
A CRIMINAL CASE OR BECAUSE IN SOME CASES,
LIKE THE MADOFF CASE OR ANOTHER CASE,
THE ADELPHIA CASE, THERE’S BEEN A FINDING
BY THE COURT THAT ENTERING
A RESTITUTION ORDER WOULD BE TOO COMPLICATED AND
WOULD UNDULY DELAY SENTENCING, THEN IT COULD BE DONE
THROUGH ANOTHER PROCEDURE BY THE DEPARTMENT
OF JUSTICE, THE PETITION
FOR A MISSION PROCESS. BUT AGAIN THE MONEY IS GIVEN OUT
TO THE VICTIMS ESSENTIALLY BASED UPON
THEIR LOSS AMOUNTS. THERE’S ALWAYS ISSUES
IN HOW THAT’S CALCULATED, BUT BASED UPON
THEIR LOSS AMOUNTS, AND IF THERE’S NOT
ENOUGH MONEY, ON A PRO RATA BASIS
TO ALL THE VICTIMS. – MR. PICARD, IF THE MONEY
IS GOING TO GO TO THE VICTIMS ANYWAY, WHAT DIFFERENCE DOES IT MAKE
WHETHER THE TRUSTEE OR RECEIVER COLLECTS THE MONEY
AND DISTRIBUTES THE PROCEEDS OR THE GOVERNMENT
COLLECTS THE MONEY AND DISTRIBUTES
THE PROCEEDS? – WELL, YOU’RE REALLY TALKING
ABOUT THE REMISSION PROCESS. IT IS WHERE THAT
REALLY COMES…COMES OUT. I THINK IT DEPENDS. IN…IN A BANKRUPTCY CASE, IF THE TRUSTEE HAS HAD
A CLAIMS PROCESS AND AS IN MY CASE, WE’VE BEEN ABLE TO MAKE
INTERIM DISTRIBUTIONS BECAUSE OUR STATUTE
PROVIDES FOR THAT. UM…YOU KNOW,
SOMETIMES WE… THE TRUSTEE
IN THIS KIND OF CASE WOULD HAVE ALL THE INFORMATION
THAT’S NECESSARY. AND IT PROBABLY… EFFICIENCY WOULD
PROBABLY SUGGEST THAT THE TRUSTEE
SHOULD DO IT. ON THE OTHER HAND,
SOMETIMES THERE ARE ISSUES. FOR EXAMPLE,
IN THE BANKRUPTCY CASE, THE FUNDS MAY BE DISTRIBUTED
TO ALL GENERAL CREDITORS AND NOT ALL GENERAL CREDITORS
MAY BE DEEMED VICTIMS BY THE DEPARTMENT
OF JUSTICE. SO THEREFORE,
THEIR DISTRIBUTION SYSTEM WOULD BE
A LITTLE DIFFERENT. AND THAT, OF COURSE,
COULD RAISE A PROBLEM FOR A TRUSTEE
WHO’S A FIDUCIARY. IF YOU’RE WEARING TWO HATS AND WITH ONE HAT
YOU’RE DOING IT ONE WAY AND ONE HAT YOU’RE
DOING IT ANOTHER WAY, THERE’S A TENSION
AND A PROBLEM. SO, FOR EXAMPLE,
IN THE MADOFF CASE, WE HAD SOME
LONG DISCUSSIONS ABOUT WHETHER I COULD
DISPERSE THE MONEY. IT TURNED OUT, FOR…FOR
CONFLICT AND ETHICS ISSUES, I FELT I COULDN’T DO IT. BUT WE ARE WORKING
VERY CLOSELY WITH THEIR… WITH THE PERSON
WHO IS APPOINTED TO DISPERSE
THE FORFEITURE FUNDS. IN THE MADOFF CASE,
WE MADE ALL OUR CLAIMS MATERIAL AND ALL THE BACKUP
AND EVERYTHING AVAILABLE TO TRY TO ASSIST
IN MAKING THE… THE DISTRIBUTION ASPECT OF IT
MOVE SMOOTHLY. – WE’VE HEARD FROM MS. LEVIN
AND MR. PICARD THAT THEY ARE
TALKING TO EACH OTHER, THAT THERE’S SOME DEGREE
OF COOPERATION. IS THE COURT INVOLVED
IN THAT, JUDGE MONTGOMERY? – WELL, I THINK
THE COURT MUST BE AND HAS TO ENCOURAGE IT
FROM THE VERY BEGINNING. YOU KNOW, IT BECAME
VERY CLEAR TO ME, WITH THE BREADTH
OF THE PETTERS FRAUD AND THE NUMBER
OF VICTIMS, THAT WE WERE IN KIND OF
A KATRINA-LIKE MENTALITY IN A FINANCIAL WORLD, THAT THERE WERE PEOPLE OUT THERE
THAT HAD BEEN VICTIMIZED, WIDOWS AND ORPHANS
AS WELL AS HEDGE FUNDS, BUT PEOPLE HAD VARIOUS RIGHTS
AND VERY STRONG FEELINGS. I TRIED TO KEEP
MY EYE ON THE BALL, AND FOR ME THAT MEANT
TRYING TO MAKE CERTAIN THAT ALL THE PEOPLE
THAT HAD BEEN HURT BY THIS AND ALL THE JOBS
THAT WERE AT STAKE AS WELL AS FINANCIAL
REPERCUSSIONS… THAT WE WOULDN’T
DO ANY HARM. WE TRIED TO FREEZE EVERYTHING,
BUT I DIDN’T WANT THE PROCESS TO BE A SECOND VICTIMIZATION
OF THE VICTIMS. SO I WANTED TO MAKE SURE
THAT WE WERE EFFICIENT. I THOUGHT WE NEEDED
TOP-QUALITY LEGAL HELP IN THE APPOINTMENTS OF RECEIVERS
AND TRUSTEES AND SUCH. BUT THAT IT WAS IMPORTANT
THAT THERE NOT BE NEEDLESS WASTE
OF ENERGIES. I WANTED TWO THINGS– TO MAXIMIZE THE RECOVERY
TO THE VICTIMS BY NOT HAVING THE PROCESS
OVERLAPPING AND DUPLICATING
EACH OTHER’S, AND IT ALSO SEEMED TO ME
THAT THERE NEEDED TO BE REAL PUBLIC TRANSPARENCY TO
EVERYTHING THAT WAS HAPPENING, AND THAT’S WHY ALL HEARINGS
IN MY COURT, EVEN WITH THE APPROVAL OF FEES
OF THE RECEIVERSHIP AND SUCH, HAVE BEEN PUBLICLY HELD, AND ANYONE IS THERE
TO ATTEND, BECAUSE I THINK
WE SHOULD KEEP– AS JUDGES, WE NEED
TO KEEP OUR EYE ON THE PUBLIC PERCEPTION OF THE HANDLING
OF THESE MATTERS AS WELL. – JUDGE GLENN, ARE YOU AWARE
OF WHAT’S GOING ON BETWEEN THE TRUSTEE
AND THE GOVERNMENT, AND ARE YOU INVOLVED
IN ANY OF THAT? – JUDGE BERNSTEIN HAS BEEN
MOST DIRECTLY INVOLVED IN IT. I HAD THE FORFEITURE ISSUES
THAT AROSE, ACTUALLY DEFENSIVELY,
IN THE ADVERSARY PROCEEDINGS, WHERE THE DEFENDANTS,
IN TRYING TO DEFEND AGAINST THE ADVERSARY
PROCEEDINGS BY THE CHAPTER 11 TRUSTEE, ARGUED THAT THIS WAS NOT
PROPERTY OF THE ESTATE BECAUSE IT HAD ALREADY
BEEN FORFEITED. BUT ONE OF THE THINGS
THAT YOU SEE, AND I THINK IT WAS
A COMPLICATION IN DREIER, AND IT IS IN MANY
OF THE CASES. I MEAN, DREIER LLP WAS
A LEGITIMATE LAW FIRM. IT HAD CLIENTS, AND IT HAD
OVER 200 LAWYERS. SO MUCH OF THE MONEY THAT HAD
RUN THROUGH THE LAW FIRM WERE LEGITIMATE PROCEEDS
OF THE ONGOING BUSINESS. SEPARATING OUT WHAT WERE
PROCEEDS DERIVED FROM THE CRIME VERSUS PROCEEDS
OF LEGITIMATE BUSINESS ARE A COMPLICATION. SO UNDERSTANDING WHAT ARE ASSETS
THAT ARE FORFEITABLE, WHAT ARE ASSETS THAT ARE PART
OF THE BANKRUPTCY ESTATE REALLY DOES REQUIRE SOME
COOPERATION BETWEEN THE COURTS. SO THAT WAS AN ISSUE THAT’S
ALWAYS BEEN FRONT AND CENTER. THE ISSUE THAT SHARON
TALKED ABOUT AND THAT IRVING
TALKED ABOUT– THERE ARE THESE
POTENTIAL DIFFERENCES BETWEEN VICTIMS OF THE CRIME,
WHO ARE ENTITLED TO RESTITUTION UNDER PROVISIONS
IN THE CRIMINAL CODE, AND THAT MAY BE
DIFFERENT, A DIFFERENT GROUP
THAN CREDITORS, WHO ARE ENTITLED TO RECOVER
IN THE BANKRUPTCY… IN THE BANKRUPTCY CASE. THE DISTRIBUTION RULES
CAN DIFFER. OFTENTIMES, THERE’S
SUBSTANTIAL OVERLAP THAT MAY MAKE IT EASIER
TO HANDLE DISTRIBUTIONS THROUGH THE BANKRUPTCY
PROCEEDING, FOR EXAMPLE. OTHER TIMES, THERE ARE
DIFFERENT GROUPS, AND IT MAKES IT
MORE COMPLICATED BECAUSE DIFFERENT…
DIFFERENT VICTIMS MAY HAVE… OR CREDITORS MAY HAVE
A PRIORITY OVER OTHERS. SO SORTING OUT THOSE RULES INVOLVES BOTH
THE CRIMINAL PROCEEDING AND THE BANKRUPTCY
PROCEEDING. AND SO, ON AN ONGOING BASIS,
THE U.S. ATTORNEY’S OFFICE HAS BEEN INVOLVED
THROUGHOUT. THEY CERTAINLY FILED A BRIEF WHEN I WAS DEALING WITH
THE ADVERSARY PROCEEDINGS ABOUT WHAT THEIR VIEW
ABOUT…ABOUT FORFEITURE. – DO YOU HAVE ANY DIRECT CONTACT
WITH THE DISTRICT JUDGE WHO’S HANDLING
THE CRIMINAL CASE? – YES, AND IT’S
JUDGE RAKOFF. CERTAINLY WHEN I HAD TO DECIDE
THE MOTIONS TO DISMISS IN THE ADVERSARY PROCEEDINGS,
BECAUSE IT NECESSARILY INVOLVED AN INTERPRETATION
OF THE FORFEITURE ORDERS THAT JUDGE RAKOFF
HAD ENTERED, I WANTED TO BE SURE
THAT HE WAS AWARE OF WHAT THE ISSUES WERE
THAT WERE PENDING BEFORE ME. AND SO HE AND I
SPOKE ABOUT IT, AND I WENT AHEAD AND DECIDED
THE MOTIONS AS I DID IN A FAIRLY LENGTHY
WRITTEN OPINION THAT DEALT NOT ONLY
WITH THE FORFEITURE ISSUES, BUT FRAUDULENT
CONVEYANCE ISSUES. SO HE WAS CERTAINLY
AWARE OF THAT. BEFORE I GOT INVOLVED
IN THE CASE, JUDGE RAKOFF, WHO HAD
THE CRIMINAL CASE, JUDGE CEDARBAUM, WHO HAD AN SEC
ENFORCEMENT PROCEEDING, AND JUDGE BERNSTEIN,
WHO HAD BOTH THE CHAPTER 11 CASE
AND THE CHAPTER 7 CASE OF MARC DREIER, HAD A JOINT HEARING, AND THEY HAD
COMMUNICATIONS THROUGHOUT. – JOINT HEARINGS. TELL ME ABOUT
JOINT HEARINGS. WHAT’S A JOINT HEARING? – EARLY ON IN THE CASE–
AND I THINK SHARON MAY BE ABLE TO SHED MORE LIGHT ON IT–
BUT THERE WAS A JOINT HEARING EARLY ON AFTER
THE CHAPTER 11 CASE AND THE CHAPTER 7 CASE
STARTED WITH THE VARIOUS PARTIES, AND I’LL LET–
MAYBE I’LL LET SHARON, BECAUSE SHE WAS INVOLVED
AT THAT STAGE OF THE CASE. – YES. WHAT HAD HAPPENED
IN THE CASE WAS WE DID HAVE– WE ESSENTIALLY HAD
4 DIFFERENT GROUPS HERE. WE HAD AN SEC ACTION,
WE HAD THE CRIMINAL CASE, WHICH INCLUDED
THE FORFEITURE, AND THEN WE HAD
TWO BANKRUPTCY PROCEEDINGS. AND IT WASN’T SO MUCH
THAT THE INDIVIDUALS COULDN’T AGREE ON THINGS,
BUT IT’S MORE THAT THE NATURE OF… OF, YOU KNOW, HOW THESE
THINGS WORK OUT, THAT THERE WAS JUST
A LOT OF UNCERTAINTY. FOR EXAMPLE, VICTIMS
ARE ACTUALLY… JUST AS IN A BANKRUPTCY, THE CREDITORS ARE REALLY
A PARTY, TOO. THE…IN OUR CASE, THE VICTIMS
ALSO WERE A PARTY. THEY…OR SOMEWHAT
OF A PARTY. HERE THE VICTIMS
ARE ALL REPRESENTED BY COUNSEL AND HAD
AN OPPORTUNITY TO BE HEARD ON THINGS, AND FROM A PROSECUTOR’S
PERSPECTIVE, THE CRIME VICTIMS’ RIGHTS ACT
IMPOSES OBLIGATIONS ON THE DEPARTMENT
OF JUSTICE TO PROVIDE MEANINGFUL
RESTITUTION TO VICTIMS. AND UNDER THAT AUTHORITY,
VICTIMS HAVE A RIGHT TO CONSULT WITH
THE DEPARTMENT OF JUSTICE. SO A LOT OF ISSUES CAME UP IN TERMS OF WHAT
WAS GOING TO HAPPEN BETWEEN THE FORFEITURE
AND THE BANKRUPTCY AND WHO WAS GOING TO
DEAL WITH ASSETS, BECAUSE HOW THE VICTIMS
WERE GOING TO BE TREATED VERSUS HOW THE CREDITORS
OR CLAIMANTS WERE GOING TO BE TREATED
IN THE BANKRUPTCY WERE GOING TO BE
TWO DIFFERENT THINGS. AND IT BECAME
VERY PUBLIC. THERE WAS ACTUALLY A LOT
OF PUBLIC INFORMATION ABOUT IT, AND I THINK
IT WAS QUITE WELCOME THAT JUDGE RAKOFF SET
A THREE-JUDGE PANEL HEARING SO THAT…ESSENTIALLY
PUBLICLY EACH SIDE COULD TALK ABOUT SORT OF
WHAT THEIR POSITION WAS AND EXPLAIN WHAT THEY
COULD AND COULDN’T DO, AND WE ACTUALLY BRIEFED
WHAT OUR AUTHORITIES WERE. SO IT PUT EVERYBODY
ON THE SAME PAGE, WITH THE DISTRICT
COURT JUDGE HEARING IT, THE BANKRUPTCY JUDGE
HEARING IT, AND THE JUDGE WHO PRESIDED OVER
THE SEC ACTION HEARING IT. AND SO THERE WAS
SOME REAL CLARITY IN WHAT PEOPLE’S
POSITIONS WERE. AND ALL THREE JUDGES
URGED THE PARTIES TO TRY AND WORK TOGETHER
TO SEE IF WE COULD COME UP WITH A WAY
OF SETTING FORTH. WE ENDED UP ENTERING INTO A FORMAL WRITTEN
COORDINATION AGREEMENT. BUT EVEN IF WE HADN’T
PUT IT IN WRITING, A FORMAL PLAN GOING FORWARD
TO PROVIDE SOME CERTAINTY IN TERMS OF WHAT ASSETS
WERE GOING TO BE IN THE FORFEITURE CASE, WHAT ASSETS WERE GOING TO BE
IN THE BANKRUPTCY, WHAT CLAIMS THE GOVERNMENT
WAS GOING TO PURSUE, WHAT CLAIMS
THE BANKRUPTCY TRUSTEE WAS GOING TO PURSUE. – IF I COULD JUST
ADD SOMETHING BECAUSE– AND THIS IS FAIRLY COMMON
IN PONZI-SCHEME CASES– SOME OF THE VICTIMS
OF DREIER’S FRAUD WERE ALSO LIKELY
TO BE DEFENDANTS IN ADVERSARY PROCEEDINGS, FRAUDULENT CONVEYANCE
ADVERSARY PROCEEDINGS BROUGHT BY THE TRUSTEE, AND THAT’S EXACTLY
WHAT HAPPENED. AND I THINK THESE WERE
VERY SOPHISTICATED HEDGE FUNDS WITH VERY GOOD COUNSEL, AND I THINK THEY WERE
QUITE AWARE RIGHT FROM THE START THAT THEY MIGHT HAVE CONFLICTING
INTERESTS THEMSELVES. THEY WANTED RESTITUTION
FROM THE GOVERNMENT, BUT THEY ALSO RECOGNIZED
THEY MIGHT WELL BE DEFENDANTS, AND THAT WAS BECAUSE DREIER SOLD
BOGUS PROMISSORY NOTES OF A CLIENT
OF HIS LAW FIRM, SOLD ABOUT $700 MILLION
OF THESE, AND IN A TYPICAL PONZI SCHEME,
THE EARLY INVESTORS WERE REPAID INTEREST
AND IN SOME CASES PRINCIPAL WITH PROCEEDS RECEIVED
FROM LATER INVESTORS, AND IN FACT,
THE CHAPTER 11 TRUSTEE BROUGHT FRAUDULENT TRANSFER
ADVERSARY PROCEEDINGS TO RECOVER AT A MINIMUM THE AMOUNTS IN EXCESS
OF PRINCIPAL THAT THESE HEDGE FUNDS
WERE REPAID. SO THEY WERE BOTH SEEKING
RECOVERY FROM THE GOVERNMENT, AND I THINK THEY KNEW
THEY WERE GOING TO BE DEFENDANTS IN FRAUDULENT TRANSFER CASES. – JUDGE KISHEL
OF OUR BANKRUPTCY COURT AND MYSELF ALSO HELD
A COMBINED HEARING. WE APPROVED
THE COORDINATION AGREEMENT BETWEEN THE GOVERNMENT AND THE OTHER PARTIES
AND THE TRUSTEES IN A COMBINED SESSION. I THINK IT WAS AN IMPORTANT,
SYMBOLIC MESSAGE, BUT ALSO
A VERY REAL MESSAGE THAT THE RIGHT HAND WAS KNOWING
WHAT THE LEFT HAND WAS DOING AND THAT THIS WAS A COORDINATED
EFFORT WITHIN THE COURTS. – NOW, WHO WAS INVITED
TO THAT HEARING? – ANYBODY THAT WANTED TO COME.
JUDGE KISHEL AND I… I MADE ROOM FOR HIM
ON MY BENCH IN THE DISTRICT COURT,
AND WE SAT THERE TOGETHER AND HEARD IT. HE ASKED HIS SET
OF QUESTIONS, AND I ASKED MINE,
AND WE SEPARATELY APPROVED IT. BUT EVERYONE THAT WISHED
TO ATTEND COULD ATTEND. – WHAT WAS THE…WHAT WAS
THE OUTPUT FROM THOSE HEARINGS? WERE ORDERS ENTERED? – ORDERS WERE ENTERED, PARTICULARLY
THE COORDINATION AGREEMENT AS TO WHO WAS
GOING TO PROCEED WITH THE FORFEITURE
OF WHICH ASSETS, WHICH WAS PART
OF THE BANKRUPTCY ESTATE, WHICH WOULD BE PART
OF THE RECEIVERSHIP ESTATE, WHO WAS GOING TO BRING
VARIOUS THIRD-PARTY ACTIONS. – WERE THERE ALSO JOINT HEARINGS
IN THE MADOFF CASE? – NO, THERE WEREN’T,
BECAUSE WE HAD… OUR AGREEMENT
IS REALLY INFORMAL. AND I THINK… THERE IS ONE THING
WHERE I THINK MAYBE THE INFORMAL AGREEMENT
COULD WORK A LITTLE BETTER, IS THAT AS YOU GO ALONG AND GET INTO
AND LOOKING AT THE ASSETS AND HOW YOU DEAL
WITH THE ASSETS AND MAYBE DECIDE THAT SOMETHING
WHICH WAS IN THIS POT WOULD WORK BETTER
IN THE OTHER POT. WITH THE INFORMAL AGREEMENT,
I THINK IT’S EASIER TO MAKE THAT SHIFT. IF YOU HAVE IT WRITTEN
IN A FORMAL AGREEMENT, YOU MAY HAVE TO GO BACK TO COURT
AND ASK THE JUDGE, “IS IT OK
IF WE MAKE THIS CHANGE?” – WE PUT A SAFETY VALVE
IN OURS– “UNLESS OTHERWISE AGREED”–
TO GET AWAY FROM THAT, BUT YEAH. – BUT I THINK THAT… AND I THINK IN OUR CASE,
AS I MENTIONED EARLIER, WE HAD AN AIRPLANE.
WE HAD AN AUTOMOBILE. THERE WERE ISSUES
ABOUT SOME YACHTS AND A FEW OTHER ITEMS. AND IT SORT OF WAS THAT,
AS WE CAME UPON THE ISSUE, WE JUST SAT DOWN AND SAID,
“WHERE ARE YOU? WHERE ARE WE?” AND WORKED THAT OUT. – LET ME GO BACK
AND REVIEW THE BIDDING FOR JUST A SECOND. SO SOME VICTIMS
IN THE CRIMINAL CASE WILL BE CREDITORS
IN A BANKRUPTCY CASE. SOME OR ALL THE VICTIMS
IN THE CRIMINAL CASE WILL BE CREDITORS
IN A BANKRUPTCY CASE. BUT NOT ALL CREDITORS
IN A BANKRUPTCY CASE WILL BE VICTIMS. – THAT’S CORRECT.
– ABSOLUTELY. – SO THIS DECISION
AS TO WHAT ASSETS WOULD BE SUBJECT
TO FORFEITURE HAS AN IMPACT
ON WHO WILL RECEIVE THE PROCEEDS
OF THOSE ASSETS. – YES. – NOW, WITH THAT
AS SORT OF A PREFACE, WHEN DO YOU…WHEN DO
THESE COORDINATION AGREEMENTS TAKE PLACE? HOW EARLY IN A CASE
DO THEY TAKE PLACE? – I THINK THE EARLIER,
THE BETTER. – I THINK THAT
THE EARLIER THE DISCUSSION, THE BETTER OFF WE ARE. I MEAN, A LOT OF TIMES,
YOU MAY NOT KNOW. I MEAN, OFTENTIMES–
I THINK, IN THESE CASES, NUMBER ONE IN TERMS OF
SORT OF WHO TAKES THE LEAD, IS OFTEN BASED
ON TIMING. IF THERE IS A CASE
WHERE THE CRIMINAL CASE ARISES AFTER A BANKRUPTCY IS CLOSE
TO BEING COMPLETED, IT’S NOT IN ANYBODY’S INTEREST
FOR THE GOVERNMENT TO STEP IN, SAY, “ALL OF THESE ASSETS
THAT HAVE BEEN…THAT ARE… “THAT ARE ABOUT TO BE
DISTRIBUTED “AS PART OF THE BANKRUPTCY, “WE’RE GONNA GRAB THEM ALL UP
FOR OUR FORFEITURE CASE, AND WE’RE GONNA REDISTRIBUTE
THEM IN A DIFFERENT METHOD.” THAT, I THINK,
IS SOMETHING THAT AT LEAST MY OFFICE
WOULD NOT DO AND NOT SOMETHING THE DEPARTMENT
OF JUSTICE WOULD RECOMMEND. SIMILARLY,
IF THERE’S A CASE WHERE THE CRIMINAL CASE
HAS PRECEDED AND WE’RE ABOUT TO ALSO
DISTRIBUTE MONEY– SOMEBODY HAS BEEN
CONVICTED, ET CETERA– THEN, YOU KNOW, IT MAY BE
THAT THE FORFEITURE SHOULD, YOU KNOW,
TAKE PRECEDENCE, AND THERE WON’T BE MANY ASSETS
IN THE BANKRUPTCY. BUT MOST CASES, IT’S
A COMBINATION BETWEEN THE TWO. AND I THINK THAT
THE EARLIER YOU CAN TALK AND START
TO DIVIDE IT UP– THE GOVERNMENT HAS A BETTER
CLAIM TO THE BANKRUPTCY, OR AN EASIER CLAIM
ON DIRECTLY TRACEABLE PROCEEDS, MONEY THAT CAME
DIRECTLY FROM THE FRAUD, AND IN THOSE CIRCUMSTANCES,
IT MAY BE BETTER FOR THE GOVERNMENT
TO PURSUE THEM. THE GOVERNMENT DOESN’T HAVE
THE SAME ABILITY TO BRING CLAWBACKS ACTION
AS A BANKRUPTCY, AND THOSE ARE THINGS THAT SHOULD
BE LEFT WITHIN THE BANKRUPTCY. BUT SOMETIMES THERE ARE
THINGS THAT ARE HYBRIDS. A CLAWBACK
THAT CAN BE BROUGHT– A CLAWBACK ACTION THAT CAN BE
BROUGHT IN THE BANKRUPTCY COULD BE A THIRD-PARTY TRANSFER
TO A NON-INNOCENT OWNER IN A FORFEITURE CASE, AND THE GOVERNMENT HAS
A DIFFERENT BURDEN OF PROOF. BUT I WORKED ON A CASE
WHERE WE DID HAVE A CLAIM WHERE $3.5 MILLION
WENT TO THE THIRD PARTY. THERE WAS A GOOD CLAIM
IN THE BANKRUPTCY AGAINST THAT THIRD PARTY
FOR $10 MILLION. IT WAS THAT
$10 MILLION HAD GONE, THEN WE LOCATED
$3.5 MILLION. AND SO WHAT WE
DECIDED TO DO WAS TO TEAM UP TOGETHER
AND BRING BOTH OF OUR ACTIONS, AND THE DISTRICT COURT JUDGE WITHDREW THE REFERENCE TO
THE BANKRUPTCY FOR THAT ISSUE, AND THE DISTRICT
COURT JUDGE DECIDED THE BANKRUPTCY CLAWBACK CLAIM,
OR FRAUDULENT CONVEYANCE CLAIM, AND THE FORFEITURE CLAIM
AGAINST THE THIRD PARTY, AND IT WAS DECIDED
AS A JOINT PROCEEDING. SO I THINK THAT THERE’S
A LOT OF FLEXIBILITY, BUT THESE ARE THINGS
THAT ONLY COME OUT IF COMMUNICATION
BETWEEN THE TRUSTEE AND THE GOVERNMENT
AND TALKING… YOU KNOW, TALKING ABOUT
WHAT THE CLAIM IS. WE WOULDN’T HAVE KNOWN
AT THE BEGINNING– AS IRVING SAID,
WE WOULDN’T HAVE KNOWN AT THE BEGINNING
ABOUT THIS. THIS IS SOMETHING,
BECAUSE WE WERE COMMUNICATING ON A WEEKLY BASIS,
THAT THIS THING CAME UP AND WE COULD FIGURE OUT
HOW TO DO IT TOGETHER. – ONE OF THE THINGS
THAT’S VERY IMPORTANT, THOUGH– FORFEITURE
DOESN’T TAKE PLACE UNTIL THERE’S A FINAL
CRIMINAL CONVICTION. SO JUDGE MONTGOMERY
TALKED ABOUT THIS. IT WAS TRUE IN DREIER
THAT SHARON TALKED ABOUT. THERE WAS INITIALLY
A TEMPORARY RESTRAINING ORDER THAT SEIZED THE ASSETS,
BUT NOTHING CAN BE DONE ABOUT IT UNTIL THERE’S A CONVICTION. IN DREIER, HE PLED GUILTY
TO ALL COUNTS OF A SUPERSEDING INDICTMENT THAT INCLUDED
THE FORFEITURE ALLEGATIONS. IN ADELPHIA, THE RIGASES
DID NOT PLEAD GUILTY. THEY WENT TO TRIAL
AND WERE CONVICTED, BUT IT WAS
SEVERAL YEARS AFTER– 4 YEARS AFTER
THE CASES WERE STARTED. SO THE U.S. ATTORNEY
REALLY ISN’T ABLE, OTHER THAN
THE ASSET FREEZE, ISN’T ABLE TO DISPOSE
OF ASSETS, WHEREAS THE BANKRUPTCY COURT, IF THE ASSETS ARE PART
OF A BANKRUPTCY ESTATE, THEY MAY BE ABLE
TO BE DEALT WITH MUCH MORE RAPIDLY,
AND THAT’S QUITE IMPORTANT. – ONE OTHER THING
THAT WE’VE HAD IN MADOFF IS EVEN AS WE’VE GONE ALONG,
WE’VE IDENTIFIED NEW ASSETS, BOTH OF US, AND WE TALK ABOUT THEM. FOR EXAMPLE,
WE DISCOVERED LLC’s, AND WE DISCOVERED
ALL SORTS OF OTHER… NOW, THE LLC’s
WERE PERSONAL. THE MEMBERSHIP INTERESTS
WERE PERSONAL ASSETS OF MADOFF AND SOME
OF THE OTHER MALEFACTORS. AND SO THOSE WERE
PERSONAL ASSETS THAT THE DEPARTMENT…
WE HAD AGREED WERE IN THE POT
FOR THE DEPARTMENT. BUT ALONG THE WAY,
THERE WERE ISSUES ABOUT WHO’S
THE MANAGING MEMBER. IT GETS…IT CAN GET
REALLY DIFFICULT. BUT I THINK THE COMMUNICATION
IS JUST REALLY… EVERY STEP OF THE WAY, THE MOST IMPORTANT THING
THAT YOU CAN HAVE. – AND THIS IS COMMUNICATION
BETWEEN WHOM? – BETWEEN THE PEOPLE
AT THE U.S. ATTORNEY’S OFFICE AND THE TRUSTEE
OR THE RECEIVER. – NOW, I’M INTERESTED
IN A PROCEDURE THAT YOU DESCRIBED
IN MADOFF AS OPPOSED TO WHAT HAPPENED… WHAT JUDGE MONTGOMERY
DESCRIBED AND WHICH JUDGE GLENN
DESCRIBED IN DREIER, WHERE THERE WAS
A JOINT HEARING, AND THIS AGREEMENT
WAS THE PRODUCT OF THIS JOINT HEARING. YOURS WAS
AN INFORMAL PROCEDURE. WERE THE CREDITORS/VICTIMS
INVOLVED IN…IN NEGOTIATING THAT AGREEMENT AT ALL? – NO. THERE ISN’T ANY
WHAT YOU WOULD CALL AGREEMENT. THERE’S NOTHING FORMAL.
THERE’S NOTHING WRITTEN. THIS WAS… THE MOMENT
I WAS APPOINTED, THE FIRST STOP I MADE
WAS AT THE U.S. TRUSTEE– I MEAN THE U.S.
ATTORNEY’S OFFICE, AND I MET WITH A GROUP
OF THE PEOPLE WHO WERE INVOLVED
IN THE CRIMINAL CASE. AND ALMOST FROM THE GET-GO,
WE WERE HAVING THESE MEETINGS ON A PRETTY REGULAR BASIS– CONFERENCE CALLS,
FACE-TO-FACE MEETINGS. AND IT JUST WENT
FROM THERE. IT WAS JUST NATURAL
THAT WE WERE CONTINUING TO TALK. – THEREIN LIES A TIP
FOR DISTRICT COURT JUDGES WHO ARE FACED WITH
ONE OF THESE SITUATIONS. SELECT A RECEIVER
THAT YOU SEE AS A GOOD COMMUNICATOR
AND COORDINATOR AND NOT SOMEBODY
THAT YOU PERCEIVE IS GOING TO BE
A LONE EAGLE. YOU WANT SOMEBODY THAT REALLY IS
GOING TO BE COLLABORATIVE IN THEIR STYLE. – I HAD A… I HAD A PRIOR
LIQUIDATION WHERE THEY… IT WAS A RESTITUTION. AND AGAIN, WITH THE U.S.
ATTORNEY’S OFFICE, WE HAD A LOT
OF COMMUNICATION IN TERMS OF HOW MUCH
WE DISTRIBUTED, HOW MUCH THEY DISTRIBUTED, BECAUSE NOBODY SHOULD GET
MORE THAN 100%. THAT WAS AT THE END
OF THE CASE, OF COURSE. BUT IT…JUST COMMUNICATION
ALL ALONG THE WAY HELPS RESOLVE
LOTS AND LOTS OF PROBLEMS. – IN DREIER,
THE FIRST JOINT HEARING, THE THREE JUDGES,
WAS IN JANUARY 2009. IT WASN’T UNTIL
DECEMBER 2009 THAT THE WRITTEN COORDINATION
AGREEMENT WAS SIGNED OFF. SO THERE WAS A LOT OF BACK
AND FORTH DURING THAT PERIOD, BUT IT DIDN’T
HAPPEN INSTANTLY. BUT I THINK WHAT THE JUDGES DID
WERE TO GET PEOPLE TALKING. – WAS…I KNOW THAT YOU SAID
THAT THERE WAS AN ATTEMPT TO REACH AGREEMENT FROM ALL
OF THESE VARIOUS PARTIES. WAS THERE UNANIMITY
IN THE COORDINATION AGREEMENT? DID EVERYBODY AGREE
ON WHAT THE TERMS OF THE COORDINATION
AGREEMENTS WERE? – YES. I MEAN,
THE ISSUE WAS… I MEAN, THE ISSUE
IN MOST OF THESE CASES COMES DOWN TO SOME THINGS,
YOU KNOW, ARE CLEAR. SOMETIMES THE ISSUE IS IN TERMS
OF THOSE THIRD-PARTY ACTIONS, WHO CAN BRING
THOSE THIRD-PARTY ACTIONS. AND YOU KNOW, THERE ARE
OTHER INTERESTED PARTIES. BUT IT WAS… YOU KNOW, WE WERE
ULTIMATELY ABLE TO. WE HAD TO WORK THROUGH
A LOT OF DIFFERENT THINGS. AND PART OF THE DELAY
WAS ALSO JUST DUE TO THE NATURE OF THE CASE. THE BANKRUPTCY TRUSTEE
WAS APPOINTED AFTER THE CRIMINAL CASE
HAD GONE FORWARD. SO THE BANKRUPTCY TRUSTEE
ALSO NEEDED SOME TIME TO GET UP TO SPEED
AND TO UNDERSTAND, BECAUSE IT WASN’T FAIR
FOR US TO EXPECT HER TO COME UP WITH AN AGREEMENT,
WRITTEN OR EVEN INFORMAL, TO DEFINE WHAT’S GOING ON
WITHOUT HER UNDERSTANDING EXACTLY WHAT WAS
IN HER ESTATE. SO, YOU KNOW,
THERE WAS SOME TIME WHERE SHE NEEDED TO EVALUATE
WHAT HER CLAIMS ARE AND TO DEAL WITH HER ISSUES
IN TERMS OF THE BANKRUPTCY. SO IT TOOK A WHILE, AND WE ULTIMATELY WERE ALL VERY,
VERY HAPPY WITH THE AGREEMENT AND FELT LIKE, YOU KNOW,
IT WAS A GOOD RESULT AND WE COULD GO FORWARD. BUT EVEN BEFORE
WE HAD THE WRITTEN AGREEMENT, WE ABSOLUTELY HAD
AN INFORMAL AGREEMENT ON OTHER, YOU KNOW, KEY ASPECTS
IN TERMS OF THAT. AND THERE WERE A LOT
OF DIFFERENT ISSUES IN TERMS OF OTHER THINGS
COME INTO PLAY, LIKE WHAT ABOUT THE RECORDS
FROM THE OFFICE? WHAT ABOUT THINGS THAT
THE U.S. ATTORNEY’S OFFICE HAS? SO WE WERE TALKING
ALL THE TIME. IT WASN’T LIKE ONCE WE HAD
A WRITTEN AGREEMENT, YOU KNOW,
THEN WE COULD TALK. ALL THROUGH THE TIME
WE WERE DEALING WITH AND TRYING TO WORK COOPERATIVELY
ON THOSE THINGS. – JUDGE GLENN DESCRIBED
A SITUATION WHERE, ESPECIALLY
WITH SOPHISTICATED PARTIES OR PARTIES WITH
SOPHISTICATED ATTORNEYS, THEY PERCEIVE AN ADVANTAGE
OR DISADVANTAGE FROM PROCEEDING EITHER IN
THE CRIMINAL FORFEITURE PROCESS OR IN THE BANKRUPTCY
PROCESS. IN…IN MADOFF,
DID YOU GET– BECAUSE THIS WAS
AN INFORMAL ARRANGEMENT THAT CAME OUT OF–
THAT DIDN’T COME OUT OF A PROCESS WHERE PEOPLE
HAD A FORMAL PRESENCE, DID YOU GET ANY
RESISTANCE FROM PEOPLE ABOUT, YOU KNOW, THE ALLOCATION
OF…OF RESPONSIBILITIES? – NO. – OK. – WE DID NOT. – WHAT HAPPENS IN SOME OF
THESE CASES ARE THE ISSUE OF… THE GOVERNMENT DOESN’T HAVE
A PER SE IN A FORFEITURE. IT’S A PER SE RIGHT
TO CLAW BACK MONEY. WHAT IT CAN DO
IS IF THERE WAS– OR BRING A FRAUDULENT
CONVEYANCE ACTION. RATHER, IF CRIME PROCEEDS WERE
TRANSFERRED TO A THIRD PARTY AND THE THIRD PARTY
STILL HAS THOSE CRIME PROCEEDS, THEN THAT’S GOING TO BE
FORFEITABLE PROPERTY. AND THE THIRD PARTY
WILL HAVE DEFENSES TO THAT, ESSENTIALLY THAT THEY WERE
A BONAFIDE PURCHASER FOR VALUE WITHOUT REASON TO KNOW
THE PROPERTY WAS SUBJECT TO FORFEITURE. IN A LOT OF THESE
PONZI-SCHEME TYPE CASES, PROPERTY MAY HAVE BEEN
TRANSFERRED TO A THIRD PARTY, AND IT’S GONE NOW. SO THE GOVERNMENT WOULD HAVE
NO MECHANISM TO GO AFTER IT. SO IN THAT CIRCUMSTANCE,
SOMEBODY THAT HAD GOTTEN… YOU KNOW, THAT HAD BEEN
A NET WINNER IN A PONZI SCHEME AND HAD THEIR MONEY PLUS
THEIR INTEREST OR WHATEVER AND DIDN’T KNOW ABOUT
WHAT WAS GOING ON, YOU KNOW, THAT WE COULD ARGUE
WAS A BONAFIDE PURCHASER– THEY COULD ARGUE WAS
A BONAFIDE PURCHASER FOR VALUE WITHOUT REASON TO KNOW,
THE GOVERNMENT WOULD HAVE NO ABILITY TO RECOVER
THE MONEY BECAUSE WE COULD ONLY TRACE
THE ACTUAL CRIME PROCEEDS. WE’D HAVE TO FIND IT
IN THEIR BANK ACCOUNT. OBVIOUSLY, IT’S MUCH DIFFERENT
IN THE BANKRUPTCY. SO FOR SOME VICTIMS,
THEY WOULD VERY MUCH LIKE EVERYTHING TO BE RESOLVED IN THE CONTEXT
OF THE CRIMINAL CASE BECAUSE THEY WOULDN’T
NECESSARILY, YOU KNOW… THERE WOULDN’T BE THE MEANS
TO GO AFTER THEM. AND THAT HAPPENS. WE SEE THAT
SORT OF, OVER AND– YOU KNOW, OVER AND OVER AGAIN
IN OTHER CASES. AND THE GOVERNMENT
IS SENSITIVE TO– CONGRESS DIDN’T GIVE US
THE AUTHORITY TO DO THAT. WE CAN’T DO THAT. BUT THEY DID GIVE
BANKRUPTCY COURTS, THE BANKRUPTCY TRUSTEES
THE AUTHORITY TO DO IT, AND WE TRY
AND CARVE THAT OUT AND DON’T DO ANYTHING TO DIMINISH THEIR ABILITY
TO DO THAT. – SO BY STATUTE,
YOU’VE BEEN GIVEN THE AUTHORITY
TO COMPROMISE CLAIMS. – ABSOLUTELY. – AND I KNOW IN DREIER,
YOU EARLY ON WERE FACED WITH A SITUATION
WHERE THE GOVERNMENT SOUGHT TO FORFEIT ASSETS BY ONE
OF THE BOGUS-NOTE PURCHASERS, AND YOU NEGOTIATED
A SETTLEMENT WHICH REDUCED THE AMOUNT THAT THEY WERE GOING TO
HAVE TO BE PAID, AND YOU GOT OBJECTIONS
FROM SOME OF THE OTHER VICTIMS, WHO FELT THEY DIDN’T WANT
IT COMPROMISED. THEY DIDN’T WANT MONEY
GOING TO THE ESTATE, WHERE THERE MAY BE A DIFFERENT
SET OF DISTRIBUTION RULES. SO IT ISN’T ALL
SWEETNESS AND HARMONY ONCE A COORDINATION
AGREEMENT IS REACHED. – IN OUR…
IN THE MADOFF CASE, WE…WE MADE A NUMBER
OF SIGNIFICANT SETTLEMENTS, AND WE’VE HAD LAWYERS COME IN
AND OBJECT TO OUR SETTLEMENTS, UM…A COUPLE
OF THE SETTLEMENTS THAT WERE COMPANION
FORFEITURES WITH THEM. THEY NEVER OBJECTED
IN ANY WAY TO THE FORFEITURE. NOT SURE THEY COULD. BUT THEY DID COME IN
AND IN ONE CASE SAID WE DIDN’T GET
ENOUGH MONEY AND IN ANOTHER CASE SAID
WE WERE GETTING TOO MUCH MONEY. SO YOU… AND THEN THE OTHER PIECE, GOING BACK TO SOMETHING
THAT SHARON ALLUDED TO, IS IN OUR CASE,
WE HAD A NUMBER OF CREDITORS WHO DIDN’T FILE CLAIMS. WHY DIDN’T THEY
FILE CLAIMS? THEY MADE
A BUSINESS DECISION THAT THEY DIDN’T WANT
TO SUBJECT THEMSELVES TO THE SUMMARY JURISDICTION
OF THE BANKRUPTCY COURT BY FILING A CLAIM
WHEN I HAD A SIGNIFICANT PREFERENCE
ACTION AGAINST THEM. AND EARLY IN THE CASE,
NOBODY ASSUMED THAT I WOULD BE AS SUCCESSFUL
AS I HAVE BEEN. SO THEY DIDN’T FILE
A CLAIM IN OUR CASE. THEY WILL BE ABLE TO FILE
A CLAIM IN THE FORFEITURE CASE, WHICH WILL MAKE
FOR INTERESTING… AS A SIDE SHOW,
BECAUSE WE WOULD LIKE THEM NOT TO GET PAID
OUT OF THE FORFEITURE CASE WHILE WE’RE LITIGATING
THE PREFERENCE. WE DON’T WANT THEIR COFFERS
TO BE FILLED SO THEY HAVE MORE MONEY
TO LITIGATE WITH US. SO YOU DO GET INTO SOME
OF THOSE KINDS OF THINGS, BUT I THINK THEY’RE
FEW AND FAR BETWEEN, AND A LOT OF THEM, AGAIN, CAN GET RESOLVED
THROUGH COMMUNICATION. MAYBE THERE’S A WAY OF SLOWING
DOWN THE PROCESS A LITTLE BIT IN THE FORFEITURE, BECAUSE YOU
GO THROUGH A PLAN AND THINGS. BUT, AGAIN, THESE ARE THINGS
THAT WE HAVE DISCUSSED WITH THE U.S. ATTORNEY’S OFFICE. WE MAKE THEM AWARE
OF THESE ISSUES, AND IN MANY CASES, THEY MAKE US
AWARE OF THEIR ISSUES AS BEST THEY CAN,
GIVEN THE CRIMINAL CASES. SO IT’S…IT’S… IN SOME RESPECTS,
IT’S A ONE-WAY STREET, BUT IN OTHER ASPECTS,
IT’S A TWO-WAY STREET, AND THAT’S THE WAY
IT SHOULD BE. – LET ME ASK
JUST A GENERAL QUESTION. WE’VE TALKED ABOUT
THE COORDINATION AGREEMENTS PROVIDING FOR,
IN GENERAL TERMS, WHICH ASSETS WOULD BE
SUBJECT TO FORFEITURE AND WHICH ASSETS
WOULD BE SUBJECT TO BANKRUPTCY ADMINISTRATION. UH… WE’RE GOING TO PROVIDE
OR MAKE AVAILABLE COPIES TO THE JUDGES
REVIEWING THIS OF SAMPLE COORDINATION
AGREEMENTS. BUT IN GENERAL TERMS, WHAT ELSE WOULD BE
IN A COORDINATION AGREEMENT? – I THINK THAT
WHAT YOU WANT TO DO– THE KEY THING IS, IN TERMS OF
DIVIDING UP THE ASSETS, AND THERE’S A COUPLE OF
DIFFERENT CATEGORIES OF ASSETS. THERE’S…FROM THE GOVERNMENT’S
PERSPECTIVE, IT’S ASSETS THAT ARE DIRECTLY
TRACEABLE TO THE CRIME, AND EVEN THOSE FALL
INTO TWO CATEGORIES– SO THE ONES
THAT WE KNOW OF NOW AND THE ONES THAT WE’RE
GONNA LEARN ABOUT LATER. I THINK THE ONES
THAT WE KNOW ABOUT NOW ARE EASY TO RESOLVE,
BUT AS IRVING WAS MENTIONING, THINGS HAVE COME UP
IN MADOFF THAT THEY’VE IDENTIFIED LATER THAT WE WOULDN’T KNOW
WHEN WE DREW UP THE AGREEMENT. SO, YOU KNOW, WE SORT OF NEED
TO FIGURE OUT BETWEEN THAT. BUT THAT’S SOMETHING
THAT HAS TO BE ADDRESSED BECAUSE IF THERE’S A DECISION
THAT ALL TRACEABLE PROCEEDS ARE GOING TO COME
INTO THE FORFEITURE AND THE BANKRUPTCY TRUSTEE
IS GOING TO FIND THESE THINGS, THEN SHOULD THAT BE
IN THE BANKRUPTCY? THE GOVERNMENT CAN FORFEIT
OTHER ASSETS, AND THE GOVERNMENT,
IN A FORFEITURE CASE, IS GOING TO GET A MONEY JUDGMENT
FOR THE AMOUNT OF THE CRIME. IN THE DREIER CASE,
IT WAS $770 MILLION, THE AMOUNT OF THE PROCEEDS
THAT THE DEFENDANT OBTAINED. WE CAN SATISFY
THAT FORFEITURE MONEY JUDGMENT OUT OF ANY OTHER ASSETS
OF THE DEFENDANT. SO THERE’S GOING TO BE OTHER
THIRD-PARTY PROPERTY. WHAT ABOUT THOSE? THAT’S SOMETHING THAT SHOULD
BE ADDRESSED IN THERE. THEN IT’S GOING TO BE ACTIONS
AGAINST THIRD PARTIES, EITHER SEIZURE OF, YOU KNOW,
THIRD-PARTY ASSETS OR THE CLAWBACK ACTIONS. THAT SHOULD PROBABLY
BE ADDRESSED. AND THEN ALSO, THE… YOU KNOW, THE BOOKS AND RECORDS,
TRYING TO COME UP WITH SOME WAY TO WORK TOGETHER ON THAT,
BECAUSE SOMETIMES THE GOVERNMENT COMES IN,
EXECUTES A SEARCH WARRANT, AND TAKES
ALL THE RECORDS. SO, YOU KNOW, OFTENTIMES
THAT COMES UP, THAT WE NEED TO TRY
AND COORDINATE THAT, AND ANOTHER ISSUE THAT CAME UP
IN ONE OF OUR CASES WAS WHO WAS A VICTIM
IN OUR CASE WAS BASED UPON SORT OF
A STATIC MOMENT IN TIME WHEN THE COURT ENTERED
THE RESTITUTION ORDER. WHO HAD LOST, SUFFERED
A PECUNIARY LOSS AS A RESULT OF THE CRIME AT THE TIME THAT THE COURT
ENTERED THE RESTITUTION ORDER? SO WE KNEW WHO
ALL THE VICTIMS WERE, BUT SOME OF THEM
WERE NET WINNERS. THEY HADN’T LOST ANYTHING, BUT AS A RESULT OF WHAT
HAPPENS IN THE BANKRUPTCY, THEY MAY ACTUALLY
BECOME LOSERS. WHAT HAPPENS WITH
THAT RESTITUTION ORDER? IF THE BULK OF THE ASSETS ARE
REALLY GOING TO BE DISTRIBUTED IN THE FORFEITURE, THOSE PEOPLE THAT HAVE TO PAY
BACK THE MONEY IN THE BANKRUPTCY COULD END UP
IN A WORSE POSITION, BUT THEY WOULDN’T HAVE A RIGHT
TO FILE A CLAIM OR, YOU KNOW, FILE
A VICTIM IMPACT STATEMENT IN THE CRIMINAL CASE
AND BE ENTITLED TO RESTITUTION. AND I DID HAVE ONE CASE WHERE THE JUDGE WAS
VERY CONSCIOUS OF THAT, AND WHAT SHE PROVIDED WAS
SHE KEPT THE RESTITUTION ORDER, ALLOWED PEOPLE WHO RESOLVED
ACTIONS IN THE BANKRUPTCY AND ULTIMATELY
GAVE BACK MONEY– AND I THINK IT WAS
AN INCENTIVE FOR PEOPLE TO SETTLE WITH
THE BANKRUPTCY TRUSTEE, TOO– TO SETTLE
IN THE BANKRUPTCY, TO BE ALLOWED TO FILE
AN AMENDED RESTITUTION CLAIM, AND SHE REQUIRED THE GOVERNMENT
TO HOLD BACK AND RESERVE A PORTION OF THAT MONEY
SO THAT IT WOULD BE AVAILABLE SO THAT THEY COULD GET
A PRO RATA DISTRIBUTION. BUT ONE OF THE OTHER THINGS
I THINK IS IMPORTANT TO HAVE IF YOU’RE GOING TO HAVE A WRITTEN COORDINATION
AGREEMENT OR JUST PRACTICALLY IS COORDINATION ON WHEN
FUNDS ARE DISTRIBUTED, WHO’S GETTING WHAT. SO WE DON’T END UP WITH
AN UNBELIEVABLE UNFAIRNESS WHERE SOMEONE
IS RECOVERING… YOU KNOW, LIKE IS GETTING
100% RECOVERY BECAUSE THEY RECOVERED IT
IN THE FORFEITURE, BUT, UM…YOU KNOW,
BUT, YOU KNOW, AND THEN OTHERS WHO ARE
RECOVERING IN THE BANKRUPTCY ARE GETTING A TINY, YOU KNOW,
FRACTION OF THE MONEY, TO TRY AND MAKE
SOME KIND OF EFFORT TO SORT OF EVEN IT UP
SO IN THE END THE TWO PROCEDURES TOGETHER
CAN PROVIDE FOR SOME KIND OF EQUITABLE
RESOLUTION. – SHARON USED THE TERM
“NET WINNERS” AND “NET LOSERS,” AND THAT’S IMPORTANT
IN THE BANKRUPTCY. IT’S CERTAINLY IMPORTANT WITH RESPECT TO FRAUDULENT
CONVEYANCE ACTIONS. A NET WINNER IS SOMEONE
WHO RECEIVED BACK MORE THAN THEY
HAD INVESTED. IT MAY HAVE BEEN
DENOMINATED AS INTEREST OR RETURN OF PRINCIPAL, BUT THEY RECEIVE BACK
MORE THAN THEY PAID IN. IF THEY PAID $100 MILLION
FOR BOGUS NOTES, THEY RECEIVE BACK
OVER TIME $120 MILLION. IT MAY HAVE BEEN
DENOMINATED AS INTEREST OR RETURN OF PRINCIPAL
OR SOME OF BOTH, BUT THEY RECEIVED
MORE BACK. A NET LOSER IS SOMEONE WHO’S RECEIVED BACK LESS
THAN WHAT THEY INVESTED. AND IT GETS TREATED
SOMEWHAT DIFFERENTLY. – I THINK THE KEY THING
TO REMEMBER IS THAT A NET WINNER
GENERALLY IN A PONZI SCHEME HAS GOTTEN
OTHER PEOPLE’S MONEY, AND THAT IS THE MONEY
OF THE NET LOSER. – AND GOT IN EARLY.
– GOT IN EARLY. BUT I THINK, JUST GOING BACK
TO YOUR QUESTION ABOUT THE COORDINATION
AGREEMENT, I THINK JUDGE MONTGOMERY
EARLIER MENTIONED THAT IN THE AGREEMENT
IN PETTERS THEY HAD A CATCH-ALL,
A SAFETY-VALVE PROVISION, AND I THINK THAT’S
PROBABLY A GOOD WAY TO HAVE SOMETHING
IN THERE THAT, EVEN IF YOU DO HAVE
THE FORMAL WRITTEN AGREEMENT– ALONG THE WAY
YOU FIND THINGS OR YOU COME UP WITH SOMETHING
THAT NEEDS TO BE DEALT WITH, YOU CAN DEAL WITH IT
ON A SIMPLER BASIS THAN HAVING TO MAKE
A NEW MOTION OR SOMETHING. – AND THESE CASES
DO STAY DYNAMIC. I MEAN, IT’S…
THEY NEVER FREEZE IN TIME. THERE’S ALWAYS
NEW THINGS DISCOVERED AS YOU PROCEED ALONG. – EVERY DAY
IS GROUNDHOG DAY. – ONE OF THE THINGS
THAT’S EXPRESSLY COVERED IN THE PETTERS
COORDINATION AGREEMENT THAT ISN’T IN WRITING
IN THE DREIER AGREEMENT RELATES TO FEES
AND ON WHAT ASSETS WOULD A BANKRUPTCY TRUSTEE
BE ENTITLED TO RECOVER. AND I KNOW YOU’VE COVERED THAT
QUITE SPECIFICALLY IN THE PETTERS AGREEMENT. – I DID, AND THE PARTIES
AGREED TO THAT. I FROZE FEES
AT $500 AN HOUR, WHICH IN MINNEAPOLIS,
THE MARKET BEING AS IT IS, STILL ALLOWED FOR
QUALITY LEGAL TALENT. I ALSO…IN THE PROVISION,
IT WAS AGREED THAT THERE WOULD BE
NO RAISING OF FEES DURING THE COURSE
OF THE RECEIVERSHIP AS IT WENT FORWARD. WE’RE NOW IN YEAR 2013.
THIS STARTED IN ’08. SO WE’RE 5 YEARS
INTO THIS. AND THAT TIME
WOULD NOT BE BILLED FOR THE PREPARING
OF THE LAWYERS’ OWN BILLS WITH REGARD
TO THE THING. AND THAT, THROUGH
CAREFULLY LOOKING AT BILLS, WE’VE BEEN ABLE TO SAVE
I THINK $1.4 MILLION IN BILLED FEES FOR THE ULTIMATE
BENEFIT OF THE TRUE VICTIMS. – YOU HAD THE SAME PERSON AS BOTH THE BANKRUPTCY TRUSTEE
AND THE RECEIVER. – TRUE. SO THERE WERE
SOME REAL ECONOMIES THERE. – LET’S TALK ABOUT FEES
FOR A SECOND, BECAUSE YOU FREQUENTLY HEAR
THE…THE ARGUMENT PUT FORTH THAT BANKRUPTCY
IS TOO EXPENSIVE, THAT THE…WHAT THE TRUSTEE AND
THE TRUSTEE’S PROFESSIONALS GET WILL COME OUT OF THE POCKET
OF THE CREDITORS. SO LET’S JUST TALK
ABOUT THAT, BECAUSE I SUSPECT A LOT
OF THE DISTRICT JUDGES WON’T BE PARTICULARLY AWARE
OF HOW TRUSTEES ARE COMPENSATED IN BANKRUPTCY. SO, MR. PICARD, MAYBE YOU
CAN TELL US ABOUT IT. – IN THE TYPICAL
BANKRUPTCY CASE, A TRUSTEE WOULD BE COMPENSATED
IN ACCORDANCE WITH THE SCHEDULE SET IN SECTION
326(a) OF THE BANKRUPTCY CODE. YOU GET 25%
OF THE FIRST $5,000, AND IT’S A SLIDING SCALE, AND THEN YOU GET A REASONABLE
FEE AT MAXIMUM OF 3% OVER A MILLION DOLLARS. SO, UH… AND THERE ARE ARGUMENTS
WHETHER THAT’S A CAP OR WHETHER THE JUDGE
HAS SOME DISCRETION IN GIVING YOU THE 3% OR WHATEVER
THE PERCENTAGE WOULD BE. IN A RECEIVERSHIP,
YOU DON’T HAVE THAT, AND IN A SIPA
LIQUIDATION, YOU DON’T–YOU DON’T HAVE
THAT COMMISSION SCHEDULE. AND THERE YOU DEAL
WITH HOURLY RATES. JUDGE MONTGOMERY,
YOU ALLUDED TO WHAT YOU DID WITH THE RECEIVER
IN THE PETTERS CASE. IN NEW YORK
AND A LOT OF THE COURTS THAT I’VE BEEN INVOLVED IN,
RECEIVERS AND TRUSTEES IN A SIPA CASE
GIVE WHAT I REFER TO AS A PUBLIC-INTEREST DISCOUNT SO THAT EVEN THOUGH THE RATES
IN THE METROPOLITAN AREA MAY BE HIGH, IT’S A WAY
TO GET A REDUCTION. ALSO, WE’VE…
IN THE MADOFF CASE, THE SIPA EXAMINERS REVIEW
OUR MONTHLY BILLS REGULARLY. WE TAKE HAIRCUTS BEFORE
WE EVEN SUBMIT THE BILL. AND TYPICALLY AFTER
SOME NEGOTIATION, WE HAIRCUT IT MORE
BEFORE WE HAVE A FINAL NUMBER. AND THAT’S TYPICALLY
THE WAY IT GOES. – MS. LEVIN, WHEN YOU’RE
NEGOTIATING WITH A TRUSTEE, IS THE COST OF THE BANKRUPTCY
A FACTOR IN YOUR NEGOTIATIONS? – I DON’T THINK
IT’S A SPECIFIC FACTOR. I MEAN, BUT WE TRY
AND LOOK AT IT PRACTICALLY BECAUSE OUR GOAL
IS TO PROVIDE AS MUCH COMPENSATION
AS POSSIBLE TO VICTIMS. AND THERE ARE GOING TO BE THINGS
THAT, IF IT’S FORFEITED, THE MARSHALS SERVICE
SELLS OUR ASSETS, AND THERE’S NO FEES
ASSOCIATED WITH IT. AND FOR EXAMPLE, MY TIME OR THE ASSISTANT
U.S. ATTORNEYS IN MY UNIT, OBVIOUSLY THAT’S PAID FOR
BY THE GOVERNMENT, BY THE TAXPAYER, AND THAT’S
NOT GOING TO COME OUT OF WHAT THE VICTIM
IS GOING TO RECOVER. SO WE TRY AND BE–IN TERMS
OF LOOKING AT IT PRACTICALLY, IF THERE ARE ASSETS THAT WE CAN
EASILY AND IN A TIMELY MANNER FORFEIT AND LIQUIDATE
AND PROVIDE TO THE VICTIMS, WE’RE GOING TO TRY
AND DO THAT THROUGH… THROUGH THE FORFEITURE PROCESS. IN TERMS OF THERE ARE
CERTAINLY THINGS THAT THE BANKRUPTCY
TRUSTEE CAN DO, AND OF COURSE, IF THE GOVERNMENT
WERE GOING TO CONTRACT OUT TO SOMEBODY ELSE
TO DO IT, THERE WOULD OF COURSE
BE FEES INVOLVED. WE’RE MORE COMFORTABLE–
OR WE’RE COMFORTABLE OFTEN IN TERMS OF ALLOWING
A BANKRUPTCY TRUSTEE TO DO THINGS BECAUSE
THEIR FEES ARE EITHER DONE PURSUANT TO A SCHEDULE
OR THERE’S A JUDGE, THERE’S A BANKRUPTCY JUDGE
THAT’S OVERSEEING THE PROCESS AND APPROVING IT,
SO IT’S NOT AS THOUGH WE’RE JUST AGREEING TO PAY–
YOU KNOW, WE’RE AGREEING THAT ANYBODY CAN BE
PAID ANY PRICE. BUT THERE HAVE BEEN
CIRCUMSTANCES WHERE, EVEN THOUGH THERE WOULD BE FEES
COMING OUT OF SOMETHING TO ALLOW A BANKRUPTCY TRUSTEE
TO SELL THE PROPERTY IS GOING TO MAXIMIZE THE VALUE
AND CAN BE DONE IMMEDIATELY, WE’RE ABSOLUTELY
GOING TO TURN THAT OVER. SO WE LOOK AT IT, BUT IT’S NOT
A HARD AND FAST RULE. – ANOTHER AREA OF FEES–
WE’VE TALKED ABOUT LEGAL FEES. WHAT THE DISTRICT JUDGES
SHOULD BE AWARE OF IS THE FORENSIC
ACCOUNTING FEES. AND WE’VE HAD TO PAY,
IN THE PETTERS RECEIVERSHIP, MILLIONS OF DOLLARS
TO PRICE WATERHOUSE, BUT I THINK WE’VE GOTTEN
TREMENDOUS WORK PRODUCT THAT’S BEEN ABLE
TO BE USED AND SHARED– AND THAT’S ANOTHER THING
TO BE COVERED, I THINK, IN THE COORDINATION AGREEMENT,
IS THE SHARED USE OF THE FORENSIC ACCOUNTING
SERVICES AND BACKGROUND, AND THAT’S A SIGNIFICANT…
AREA OF COORDINATION AS WELL. – WE’VE DONE THAT. WE DID THAT
THROUGHOUT THE CLAIMS PROCESS IN SHARING INFORMATION
WITH THE FBI IN CONNECTION WITH THE WORK
THAT THEY HAD TO DO. AND YOU KNOW, IN MANY
OF THESE CASES, THE TRUSTEE OR THE RECEIVER
REALLY COMES IN AND STARTS WITH A BLANK SLATE AND…AND HAS TO DO
THE DIGGING AND HAS TO PUT
THE CASE TOGETHER. MADOFF MAY BE
A LITTLE DIFFERENT, BUT IT’S…BECAUSE OF
ITS COMPLEXITY AND BREADTH, BUT IF YOU HAVE TO COME IN
AND DEVELOP THE CASE FROM THE…
FROM THE START SO THAT YOU’RE
IN A POSITION TO BRING A PREFERENCE ACTION, A FRAUDULENT TRANSFER
ACTION, OR WHATEVER, UM…IT…IT TAKES TIME,
AND IT TAKES A LOT OF EFFORT, AND IT TAKES A LOT OF GOOD WORK
FROM FORENSIC ACCOUNTANTS TO HELP YOU GET THERE. AND I THINK
ONE OF THE THINGS, IN ANSWER TO YOUR QUESTION,
THAT I WOULD SAY IS OFTEN YOU SHOULD,
WHEN YOU LOOK AT THE COST, YOU ALSO SHOULD BE LOOKING AT
WHAT THE RESULTS ARE. SO IF SOMEONE HAS…
YOU MAY SAY, “OOH. $500 MILLION. THAT’S A LOT OF MONEY.” BUT IF THEY’VE
RECOVERED $5 BILLION, I MEAN, THAT’S
A PRETTY GOOD INVESTMENT. AND SO THERE’S…THERE’S…
AND ON FEES IN ANY EVENT, THERE’S ALWAYS
GOING TO BE A TENSION. EVEN IN A TYPICAL
BANKRUPTCY CASE, THERE’S A TENSION
ON FEES, BECAUSE GENERALLY IT’S
COMING OUT OF THE FUNDS THAT WOULD BE RETURNED
TO CREDITORS. – LET ME ASK THE JUDGES
A QUESTION. WE’VE ALREADY DESCRIBED
A LEVEL OF COOPERATION BETWEEN THE GOVERNMENT
AND TRUSTEES AND RECEIVERS THAT IS…NEW. I DON’T THINK
I’VE EVER SEEN THAT. I DON’T THINK ANYBODY’S
EVER SEEN THAT AT THIS LEVEL
IN CASES BEFORE. AFTER YOU’VE STARTED
THE BALL ROLLING WITH THESE INITIAL
JOINT HEARINGS AND THE EFFORTS TOWARD
THE COORDINATION AGREEMENTS, TO WHAT EXTENT DO JUDGES
COORDINATE BEYOND THAT? – WELL, I THINK TO WHATEVER
LEVEL THEY’RE COMFORTABLE. LOTS OF DISTRICT JUDGES
WHO HAVE HANDLED MDL, MULTI-DISTRICT LITIGATION,
ARE GOING TO BE FAMILIAR WITH TRYING TO BE CREATIVE
AND TO BE INTERACTIVE WITH OTHER JUDGES
IN RESOLVING DISPUTES SUCH AS THE MDL DISPUTES. THERE ARE JURISDICTIONAL
BOUNDARIES THAT WE NEED TO BE
SENSITIVE OF AND UNDERSTAND. I MEAN, FOR YEARS, I HAD BEEN
LABORING UNDER THE ILLUSION THAT ALL I NEEDED
AS A DISTRICT JUDGE TO UNDERSTAND ABOUT BANKRUPTCY
WAS THE AUTOMATIC STAY PROVISION AND IF I KNEW THAT
AND UNDERSTOOD IT, I WAS GOING TO BE OK
THROUGHOUT MY CAREER, AND THEN PETTERS HAPPENED, AND
I HAD TO BROADEN MY HORIZONS. BUT, UM…SO, YOU KNOW,
I HAVE ALWAYS APPROACHED JUDGE KISHEL
AND JUDGE KRESSEL AS WE’VE WORKED ON VARIOUS
ASPECTS OF PETTERS– “TELL ME WHEN I’M STEPPING
OVER THE BOUNDARIES. “WHAT’S YOUR JURISDICTION? “WHAT ARE YOU
COMFORTABLE COORDINATING, AND WHAT ARE YOU COMFORTABLE
NOT COORDINATING?” CLEARLY THERE ARE THINGS THAT
MAKE TREMENDOUS LOGICAL SENSE TO…TO COORDINATE–
IF NOTHING ELSE, SCHEDULING. WE WANT THE SAME LAWYERS
IN COURT ON DIFFERENT TIMES. LET’S TRY TO FIGURE OUT WHAT
SCHEDULES OF DISCOVERY WORK SO THAT WE HAVE
THE LAWYERS, YOU KNOW, WORKING EFFICIENTLY AS WELL
AND NOT DUPLICATING EFFORT AND ULTIMATELY FEES FOR US. SO I THINK IT JUST REQUIRES
SOME CLEAR COMMUNICATION. WE STARTED
ON A GOOD TONE. FROM TIME TO TIME,
WE’D PICK UP THE PHONE, BUT MONTHS GO BY
WITHOUT IT. A LOT OF DIRECT
COMMUNICATION. BUT I THINK WE SET
THE TONE FOR THE LAWYERS AND EVERYONE ELSE INVOLVED
THAT WE WERE COORDINATING AND THAT WE KNEW
WHAT EACH OTHER WAS DOING SO THAT THEY SHOULD
DO SO AS WELL. – IS COMMUNICATION
A TWO-WAY STREET? DO BANKRUPTCY JUDGES
CALL YOU? – ABSOLUTELY.
IT’S A TWO-WAY STREET. – JUDGE GLENN. – I WOULDN’T HESITATE
TO PICK UP THE PHONE, AS I’VE DONE
AND CALLED JUDGE RAKOFF WHEN THE ISSUE WAS
THE INTERPRETATION OF THE FORFEITURE ORDER. I THINK,
FOR THE MOST PART, IF THE CASE GETS OFF
TO A GOOD START, IF THE JUDGES HAVE
COORDINATED AT THE OUTSET, MOST OF WHAT HAPPENS
AFTER THAT REALLY CAN PRETTY MUCH
PROCEED BY ITSELF. THE LAWYERS NEED TO KNOW THAT
THEY NEED TO KEEP THE COURT ADVISED OF ANYTHING
THAT’S GOING ON IN ONE OF THE PARALLEL
PROCEEDINGS THAT MAY AFFECT WHAT’S GOING ON
IN YOUR COURT. ONCE–IF THE LAWYERS
UNDERSTAND THAT THE JUDGES ARE PREPARED
TO TALK TO EACH OTHER, THEY’RE MUCH MORE
INCLINED TO MAKE SURE THEY’RE TELLING THE JUDGES
WHAT’S HAPPENING SO THAT JUDGES CAN COORDINATE
IF THAT NEEDS TO HAPPEN. – I WAS ABOUT TO ASK
JUDGE MONTGOMERY ABOUT THE ABILITY OF THE…
THE TRUSTEE IN BANKRUPTCY TO COME INTO
THE CRIMINAL PROCEEDING AND RAISE ISSUES,
BUT YOU’VE GOT THE SAME PERSON. YOU’D HAVE TO ASK THEM WHAT HAT THEY WERE WEARING
WHEN THEY CAME IN. – THERE YOU GO.
THERE YOU GO. – JUDGE GLENN, DO YOU HAVE
ANY VIEWS ON THAT? – NO. I THINK THE CRIMINAL
CONVICTION IN THE DREIER CASE HAPPENED REALLY
AT THE OUTSET. AND I’VE HAD THREE OTHER
CHAPTER 11 CASES WHERE THE PRINCIPAL
OF THE DEBTOR WAS INDICTED AFTER
THE BANKRUPTCY STARTED. I THINK THEY KNEW
THEY WERE BEING INVESTIGATED. THEY SOMEHOW HOPED
THAT STARTING A CHAPTER 11 WOULD APPEAR
THEY’RE COOPERATING. THEY REALLY DIDN’T INTEND
TO STEAL ALL THAT MONEY FROM…FROM CREDITORS. IT DIDN’T WORK OUT
THAT WAY. BUT IN THOSE CASES REALLY,
I’VE HAD REPRESENTATIVES FROM THE U.S. ATTORNEY’S
OFFICE APPEAR. THEY’VE PRETTY MUCH LET
THAT PROCEEDING, THE BANKRUPTCY MOVE ALONG. THERE HADN’T BEEN
A CONVICTION YET. THEY JUST WANTED
TO BE SURE, IF THERE WERE ANY EXCESS
PROCEEDS THAT CAME OUT, THEY WEREN’T GOING BACK
TO AN INDICTED DEFENDANT, AND THOSE ARRANGEMENTS
WERE WORKED OUT. SO THINGS TEND
TO MOVE ALONG PRETTY MUCH
IN THE NORMAL FASHION IF A GOOD FOUNDATION
IS SET AT THE OUTSET. – DID YOU–
HAVE YOU MADE ANY– DID YOU MAKE ANY APPEARANCES
IN THE CRIMINAL PROSECUTION? – WE HAD TO SUBMIT A LETTER
TO THE JUDGE AT SENTENCING TO CORRECT SOMETHING THAT HAD
BEEN SAID BY THE DEFENDANT. BUT OTHERWISE NO. IN OTHER CASES
WHERE I’VE HAD A CRIMINAL DEFENDANT
WHO HAS SAT DOWN WITH US AND TALKED TO US AND SORT OF
BARED HIS SOUL OR HER SOUL, I HAVE WRITTEN A LETTER
TO THE SENTENCING JUDGE TO INDICATE THAT THE PERSON
HAD COOPERATED AND BEEN HELPFUL, BECAUSE IF THE PERSON
DOES TALK TO YOU AS THE TRUSTEE, IT HELPS YOU FIND
ASSETS QUICKER. AND…AND IF THE PERSON
HAS DONE THAT, I DON’T MIND TELLING
THE JUDGE THAT. BUT OTHERWISE IS… THERE WOULDN’T BE
ANY OTHER KIND OF REASON. YOU KNOW, THE VICTIMS
HAVE THE OPPORTUNITY TO MAKE STATEMENTS AT THE…
AT THE SENTENCING. UM…BUT I’M…
I’M NOT IN… I DON’T HAVE
THAT KIND OF STAMINA. – MS. LEVIN,
WE’VE MADE REFERENCE TO THIS…THIS FORFEITURE
NOT HAPPENING UNTIL THE END. SO WE’VE GOT EITHER
A GUILTY PLEA OR A…OR A CONVICTION. AND THERE IS,
AT THAT POINT, A PRELIMINARY ORDER
OF FORFEITURE. WHAT HAPPENS AFTER THAT? – WELL, AFTER THE PRELIMINARY
ORDER OF FORFEITURE, THE GOVERNMENT
HAS FORFEITED THE DEFENDANT’S INTEREST
IN THE PROPERTY, AND WE’RE REQUIRED TO SEND
NOTICE TO THIRD PARTIES WHO MAY HAVE AN INTEREST
IN THE PROPERTY, AND THEN THEY HAVE
AN OPPORTUNITY TO FILE A CLAIM, AND THEY’RE ENTITLED
TO HAVE A HEARING BEFORE THE DISTRICT
COURT JUDGE WHERE THEY HAVE
THE BURDEN OF PROVING, BY A PREPONDERANCE
OF THE EVIDENCE, THAT THEY ARE–EITHER HAVE
A SUPERIOR RIGHT, TITLE, AND INTEREST
IN THE PROPERTY OR A BONAFIDE PURCHASER
FOR VALUE WITHOUT REASON TO KNOW THE PROPERTY WAS SUBJECT
TO FORFEITURE TO DEFEAT IT. SO THAT’S WHEN
THE THIRD-PARTY CLAIMS ARE RESOLVED
AS TO THE PROPERTY, AND THEN THE COURT
WILL ULTIMATELY ENTER THE FINAL ORDER
OF FORFEITURE. IF WE HAVE
A GUILTY PLEA AND THE DEFENDANT CONSENTS, THEN WE CAN SELL
THE PROPERTY, AND WE CAN LIQUIDATE
EVERYTHING. BUT AT SENTENCING
IS WHEN THE COURT ENTERS THE RESTITUTION ORDER,
AND SO WE CAN’T USE THAT PROCEDURE THAT
I SPOKE ABOUT EARLIER, THAT RESTORATION PROCEDURE WHERE THE GOVERNMENT
CAN TRANSFER FORFEITED ASSETS TO BE PAID
TO A RESTITUTION ORDER. WE DON’T HAVE THE RESTITUTION
ORDER UNTIL SENTENCING. SO NOTHING…NOTHING CAN HAPPEN
IN THAT CONTEXT UNTIL THEN. – I THINK WE HAVE DESCRIBED
WHAT IS, IN MY EXPERIENCE, A VERY UNIQUE PROCESS, WHERE, UH…
OUTSIDE OF THE COURTROOM, THERE IS
THIS LEVEL OF… THIS TREMENDOUS LEVEL
OF COOPERATION. I THINK WE’VE HEARD
THAT THE JUDGES NEED TO BE INVOLVED
AT THE OUTSET, AND THEY NEED
TO MAKE SURE THAT THIS THING
IS OFF AND RUNNING. IS THERE…IS THERE
ANYTHING ELSE THAT THE JUDGES NEED TO KNOW
ABOUT THE PROCESS? – I THINK ANOTHER GOOD IDEA
IS TO ASK YOUR RECEIVER OR WHOEVER YOU APPOINT, TRUSTEE
IN A BANKRUPTCY SETTING MORE, FOR QUARTERLY REPORTS. I THINK–I FOUND IT
VERY REASSURING AS A JUDGE TO KIND OF KNOW THAT
THE CASE WAS PROGRESSING. AND THEY COULD BE FAIRLY SHORT,
OF JUST A FEW PAGES. BUT I WANTED TO BE
UPDATED PERIODICALLY ON EXACTLY WHAT
WAS GOING ON. – UNDER THE BANKRUPTCY CODE,
A TRUSTEE, ESPECIALLY IN A…IN A CASE
THAT TAKES A LONG TIME, SHOULD REGULARLY
BE FILING REPORTS. I FILE REPORTS
EVERY FIVE OR SIX MONTHS, WHERE I GIVE THE STATUS
OF THE LAST SIX MONTHS, BUT ALSO INDICATE
HOW IT TIES IN TO THINGS THAT HAPPENED
IN EARLIER PERIODS. SO…AND THEY’RE…
THEY’RE ON THE DOCKET. AND ANYBODY
CAN ACCESS THEM. PLUS I HAVE A WEBSITE WHERE MOST OF OUR PLEADINGS
ARE POSTED, AND PEOPLE DON’T HAVE TO PAY
THE ECF FEES, WHICH IS GOOD
OBVIOUSLY FOR VICTIMS. – LET ME ASK YOU
A QUESTION ABOUT THAT. A TRUSTEE
HAS AN OBLIGATION TO PROVIDE INFORMATION
TO CREDITORS ON REQUEST. NOW, IF THERE IS
A CRIMINAL INVESTIGATION, A CRIMINAL PROSECUTION GOING ON
AT THE SAME TIME, IS THERE EVER A PROBLEM
WITH THE TRUSTEE HAVING INFORMATION
THAT THE GOVERNMENT DOESN’T WANT THE CREDITORS
TO FIND OUT ABOUT? – WE ARE VERY CAREFUL.
I MEAN, PROBABLY THE… WE ARE VERY CAREFUL. ALL…ALL WE REPORT
IS WHAT’S “PUBLIC.” IN OTHER WORDS,
WE MIGHT SAY THAT DURING THE PERIOD
WE SETTLED WITH SOMEBODY– A MATTER OF PUBLIC RECORD
IN MOST CASES– AND…OR WE REFER
TO A PENDING CASE, AND WE GIVE
A DOCKET NUMBER. WE MIGHT NOTE THAT THERE’S
A CRIMINAL CASE PENDING AND GIVE THE DOCKET
NUMBER FOR THAT. BUT WE CERTAINLY
WOULDN’T PROVIDE ANY INFORMATION
ABOUT THE CRIMINAL CASE. AND WHERE THINGS
THAT HAVE COME TO US IN CONNECTION
WITH OUR COMMUNICATION WITH THE U.S.
ATTORNEY’S OFFICE WE WOULDN’T SHARE
WITH THE PUBLIC. – FOR EXAMPLE, YOU HAVE
A FORENSIC ACCOUNTANT INVOLVED IN A CASE, AND THEY ARE REPORTING
INFORMATION TO YOU. THAT INFORMATION MIGHT BE
USEFUL TO THE GOVERNMENT. IT MAY BE THE SAME TYPE
OF INFORMATION THAT THE GOVERNMENT… – WE SHARE IT.
WE’VE SHARED THAT. – SHARED IT WITH WHOM?
– WITH THE GOVERNMENT. – WHAT ABOUT WITH
THE OTHER CREDITOR? – UM…IN…IN…WELL, IF WE’RE IN LITIGATION
WITH THE OTHER CREDITORS, THERE ARE DISCOVERY RULES,
AND WE’VE TAKEN THE POSITION THAT YOU’VE GOT TO COMPLY
WITH THE DISCOVERY RULES. WE HAVE…WE HAVE…
OF COURSE, IN A CASE LIKE THIS, WE HAVE NUMEROUS
CONFIDENTIALLY… CONFIDENTIALITY ORDERS, AND WE HAVE
CASE MANAGEMENT ORDERS, AND WE HAVE EVERYTHING
THAT YOU WOULD HAVE IN A TYPICAL LITIGATION. AND WE HAVE OBJECTED
TO CERTAIN EFFORTS AS BEING PREMATURE
BECAUSE THEY DON’T FIT WITHIN THE CASE MANAGEMENT ORDER
OR DISCOVERY SCHEDULE THAT’S ALREADY BEEN FIXED. – MS. LEVIN,
SEPARATE AND APART FROM WHAT YOU’RE COMMUNICATING
TO THE TRUSTEE IN THESE DISCUSSIONS
THAT YOU’RE HAVING, DOES THE GOVERNMENT
HAVE CONCERNS ABOUT THE TRUSTEE
OBTAINING INFORMATION THROUGH THE NORMAL
INVESTIGATIVE– ITS NORMAL INVESTIGATIVE
PROCESSES AND MAKING THAT
AVAILABLE GENERALLY? – WELL, THAT’S WHY THE
COORDINATION IS SO IMPORTANT. IF WE CAN TALK CANDIDLY
ABOUT SORT OF WHAT… YOU KNOW, WHAT WE THINK
ARE OFF-LIMITS OR WHAT… THIS COULD BE A NEW… YOU KNOW, AN OFFSHOOT
OF THE INVESTIGATION AND MAKE THAT CLEAR,
THEN MY EXPERIENCE WITH THAT IS TRUSTEES KNOW
THAT’S GOING TO BE A LATTER PART OF THEIR CASE
OR THINGS LIKE THAT. – IN OUR CASE,
ON THE SECOND DAY, THE…THE FBI CAME IN
WITH A WARRANT AND TOOK OVER THE PREMISES
AS A CRIME SCENE. I SIGNED. IT’S PROBABLY ONE
OF THE FEW TIMES THAT MY LAWYER TOLD ME,
“SIGN IT AND DON’T FIGHT IT.” BUT WE SIGNED IT, AND THE YELLOW TAPE WENT UP
IN VARIOUS PARTS OF THE OFFICE. AND WE…WE REACHED
AN UNDERSTANDING VERY QUICKLY WITH THE FBI FELLAS
AND WOMEN THAT WERE THERE THAT WE UNDERSTOOD
THEY WERE IN CHARGE OF THE… BUT WE WORKED OUT
SO THAT WE WOULD HAVE ACCESS TO THE BOOKS
AND RECORDS. WE WERE SENSITIVE ENOUGH,
WHEN WE WANTED TO TALK TO PEOPLE WHO WE THOUGHT THEY WOULD BE VERY INTERESTED
IN TALKING TO, WE WOULD TELL THEM, “WE WANT
TO TALK TO SO-AND-SO. WOULD YOU HAVE
A PROBLEM?” AND THEY ASKED US TO HOLD OFF
TALKING TO THEM UNTIL AFTER THEY HAD, OR IN SOME CASES
HAVE EVEN SAID TO US, “WE DON’T WANT YOU
TALKING TO THEM AT ALL.” AND WE’VE HONORED THAT. BUT AGAIN, IT’S GETTING BACK
TO THE COMMUNICATIONS ASPECT. YOU SIT DOWN WITH THEM.
THEY CAN BE REASONABLE. WE CAN HAVE
DISAGREEMENTS. BUT I THINK IF YOU
TALK IT THROUGH AND YOU GET TO UNDERSTAND
THEIR POSITION, IT WORKS. WE FOUND OURSELVES
WITH A WAREHOUSE WITH 7,000 BOXES
OF RECORDS. IN MY EXPERIENCE, PONZI-SCHEMERS
KEEP ALL THE PAPER. BUT THEN IT’S A FUNCTION
OF PUTTING IT TOGETHER. THAT’S WHERE
THE FORENSICS COME IN. BUT ONE OF THE THINGS
THAT WE DID, BECAUSE WE HAD
SO MUCH PAPER, IS WE PUT THE, UM… WE DIGITIZED EVERYTHING, AND WE GAVE THE GOVERNMENT
THE WHOLE SET OF THE DIGITIZED MATERIAL. YOU KNOW, IT…
WE JUST WORK COOPERATIVELY, AND THAT’S
REALLY THE KEY, THAT CERTAIN…
CERTAIN THINGS, AS I SAID,
YOU’RE NOT GOING TO AGREE. BUT THE KEY THING HERE IS EVERYBODY’S LOOKING
FOR THE SAME RESULT– THE BEST BANG
FOR THE BUCK, RECOVER AS MUCH AS YOU CAN
FOR THE VICTIMS– AND YOU KNOW,
YOU WANT TO MAKE SURE THAT THERE ARE
AS VERY FEW GLITCHES, HOPEFULLY NONE,
AS POSSIBLE. – YEAH, BUT SOME
OF THE ISSUES YOU’VE RAISED DON’T NORMALLY ARISE WHERE ASSET FORFEITURE
IS AN ISSUE. SO ANY TIME WE HAVE
A BANKRUPTCY CASE– I HAVE CASES
PENDING BEFORE ME– WHERE THERE’S A CRIMINAL
INVESTIGATION UNDERWAY, YOU GET THE ISSUE
ABOUT THE U.S. ATTORNEY NOT WANTING
WITNESSES EXAMINED UNTIL THEY’VE HAD
THEIR OPPORTUNITY. SO IN ONE OF THE CASES
THAT I HAVE BEFORE ME WHERE THERE HAVE BEEN EXTENSIVE
CRIMINAL INVESTIGATIONS, SEVERAL OF THE CREDITORS
FILED MOTIONS FOR RULE 2004, EXAMINATIONS. IT’S THE OPPORTUNITY
UNDER THE BANKRUPTCY CODE TO TAKE TESTIMONY RELATING
TO THE ASSETS OR PROPERTY OF A DEBTOR. IT’S CONSIDERED TO BE
A VERY FAR-REACHING EXAMINATION. AND THIS WAS WHILE THE CRIMINAL
INVESTIGATIONS WERE GOING ON, AND I WROTE
A SHORT OPINION. I DENIED THE 2004
EXAMINATION. I SAID THERE MAY BE A TIME IN
THE CASE WHERE IT’S APPROPRIATE. NOW IS NOT THE TIME. A SIPA TRUSTEE
SUCH AS IRVING– AND I HAVE IN ANOTHER CASE
A SIPA TRUSTEE IN FRONT OF ME– THE SIPA STATUTE ITSELF SPECIFICALLY DIRECTS
THE SIPA TRUSTEE TO CONDUCT AN INVESTIGATION AND
DETERMINE ANY POTENTIAL CLAIMS. SO IN THE SIPA CASE
THAT I HAVE, THE TRUSTEE HAS FILED SEVERAL VERY LENGTHY
INVESTIGATION REPORTS. IT WAS AFTER THE JUSTICE
DEPARTMENT WAS PRETTY FAR ALONG IN WHATEVER
IT WAS GOING TO DO, IF IT WAS GOING TO
DO ANYTHING. SO…BUT IT IS
A SENSITIVE ISSUE. UM…THE…THE TRUSTEES– AND I HAVE BOTH THE PARALLEL
CHAPTER 11 CASE AND A SIPA CASE– THE TRUSTEES HAVE BEEN
VERY SENSITIVE TO WHAT THE JUSTICE
DEPARTMENT IS DOING. IT’S NOT ONLY
IN ASSET FORFEITURE THAT WE SEE THIS ISSUE OF WHAT HAPPENS IN THE PARALLEL
CRIMINAL INVESTIGATION. WHAT SHOULD A TRUSTEE
OR CREDITORS, FOR THAT MATTER, BE PERMITTED TO DO WHILE THE CRIMINAL
INVESTIGATION IS UNDERWAY? – THAT ISSUE DOESN’T ONLY
COME UP IN THE CRIMINAL CONTEXT. THERE COULD BE
AN SEC ENFORCEMENT ACTION THAT’S PARALLEL. THERE…OR ANY OTHER
FEDERAL AGENCY. SO IT… TRUSTEES PRETTY MUCH
ARE SENSITIVE TO THAT ISSUE. THEY’VE DEALT WITH IT,
WHETHER IT’S CIVIL OR CRIMINAL. YOU KNOW, THE AGENCY
WOULDN’T WANT YOU TO SPRING SOMETHING
IN PUBLIC THAT… THAT THEY’RE NOT READY
QUITE YET TO BRING FORWARD
IN THEIR CASE. AND SO YOU…AGAIN,
IT’S AN ISSUE OF COMMUNICATION. – THE U.S. ATTORNEY’S OFFICE
IN MOST DISTRICTS ASSIGNS SOMEBODY TO– IN SOME SMALLER DISTRICTS,
EVERY BANKRUPTCY CASE, THERE’S SOMEONE TYPICALLY
FROM THE CIVIL DIVISION OF THE OFFICE THAT’S ASSIGNED
TO MONITOR THAT CASE, AND IN MY OFFICE, THE SEVENTH
DISTRICT OF NEW YORK, IT’S THE LARGER,
MORE COMPLICATED BANKRUPTCIES, BUT THERE’S AUTOMATICALLY
AN ASSISTANT U.S. ATTORNEY WITH BANKRUPTCY
EXPERIENCE ASSIGNED TO ESSENTIALLY MONITOR THAT CASE
OR TO REPRESENT THE REGULATORY
OR FEDERAL AGENCIES THAT HAVE CLAIMS
IN THE BANKRUPTCY. SO WE…WE ARE PRETTY MUCH
FOLLOWING WHAT GOES ON IN THE BANKRUPTCY
TO MAKE SURE THAT THERE AREN’T
THESE TYPE OF ISSUES AND YOU KNOW,
ARE AVAILABLE TO WORK AND YOU KNOW,
TO DEAL WITH THEM. – IN THE MADOFF CASE,
WE’VE DEALT WITH BOTH THE CRIMINAL SIDE
AND THE CIVIL SIDE. I REACHED
A SIGNIFICANT SETTLEMENT WITH THE INTERNAL
REVENUE SERVICE, AND I DEALT WITH LAWYERS
ON THE CIVIL SIDE WHO REPRESENTED THE IRS. AND IT’S, UM… AND WE…WE HAD,
IN THE BEGINNING OF THE CASE, THE ASSISTANT U.S. ATTORNEY WHO WAS HANDLING
THE BANKRUPTCY CIVIL MATTERS, NOW A BANKRUPTCY JUDGE. BUT…BEING ABLE TO TALK
TO SOMEONE LIKE THAT IS VERY, VERY HELPFUL BECAUSE THAT PERSON
CAN BE THE TRUSTEE OR THE RECEIVER’S HELP
INTERNALLY BECAUSE THAT PERSON CAN GO
AND EXPLAIN TO THE CRIMINAL SIDE WHAT IT IS
WE’RE TRYING TO DO, WHY WE HAVE TO DO IT, WHAT THE RULES ARE,
WHAT THE LAW IS. YOU KNOW, GIVING NOTICE. WHAT KIND OF NOTICE
DO YOU GIVE? THAT WAS AN ISSUE,
YOU KNOW. WHAT…WHAT…WHAT KIND
OF SERVICE LIST DO YOU FILE? HOW MUCH INFORMATION
DO YOU GIVE? THESE WERE ALL ISSUES THAT IN
THE FIRST 6 WEEKS OF THE CASE, WE WERE HAVING
CONSTANT DISCUSSIONS, AND THE…THE ASSISTANT
THAT HANDLED THE CIVIL SIDE IN THE BANKRUPTCY WORK
WAS…WAS HELPFUL IN…IN HELPING
BOTH OF US. – THAT’S OFTEN A KEY,
IS IN SOME WAYS, YOU KNOW, FORFEITURE OR CRIMINAL CASES
AND BANKRUPTCY WERE SPEAKING
DIFFERENT LANGUAGES, AND FOR A LONG TIME,
WE, YOU KNOW– I THINK THERE WAS SOME EYEING
OF EACH OTHER SUSPICIOUSLY. AND FOR US,
AT LEAST IN MY OFFICE, THE BRIDGE WAS THE ASSISTANT
FROM THE CIVIL DIVISION THAT WOULD GO
INTO BANKRUPTCY COURT, AND OFTENTIMES
THEY WERE ABLE TO GO IN AND ADVISE THE BANKRUPTCY JUDGE
WHAT WAS GOING ON, YOU KNOW, WITH RESPECT TO AT LEAST THE
ASSET FORFEITURE INVESTIGATION AND HOW IT WAS
GOING TO BE LIMITED AND ALSO TO,
QUITE FRANKLY, TELL ME, “YOU ARE STEPPING ON THE TOES
OF THE BANKRUPTCY COURT. BACK OFF.
YOU DON’T NEED THIS.” SO IT’S AN EXCELLENT RESOURCE. AND BECAUSE
IN MOST DISTRICTS THAT ASSISTANT U.S. ATTORNEY
IS ASSIGNED TO THAT CASE, THAT CAN ALSO BE A LIAISON
FOR BANKRUPTCY JUDGES TO REACH OUT
TO THAT ASSISTANT AND ASK THAT ASSISTANT
TO PROVIDE BRIEFING ON AN ISSUE OR TO COMMUNICATE
WITH THE CRIMINAL DIVISION. – I STARTED OUT BY… TALKING ABOUT
WORLDS COLLIDING. IT LOOKS LIKE WHAT
WE’RE REALLY TALKING ABOUT IS WORLDS INTERSECTING NOW, AND AS WE CLOSE,
LET ME ASK EACH OF YOU– IS THERE…
BASED ON YOUR EXPERIENCE, IS THERE ANYTHING THAT YOU
WOULD LIKE TO TELL BOTH DISTRICT JUDGES
AND BANKRUPTCY JUDGES ABOUT THE PROCESS THAT YOU THINK
THEY MIGHT NOT KNOW? MS. LEVIN. – WELL, I THINK THAT… YOU’RE SAYING
“WORLDS INTERSECTING,” AND I THINK THAT’S
VERY, VERY TRUE. I ALSO THINK THAT EVEN THOUGH
THEY WEREN’T INTENDED TO BE WRITTEN THAT WAY– THE BANKRUPTCY SCHEME
AND THE FORFEITURE SCHEME– THEY ACTUALLY ARE NOT
ALWAYS SO AT ODDS, BUT THEY’RE ACTUALLY
COMPLEMENTARY IN SOME WAYS, THAT IF…IF A CRIMINAL COURT
AND A BANKRUPTCY COURT CAN, YOU KNOW, ENCOURAGE ALL
THE PARTIES TO WORK TOGETHER, I THINK THAT IN THE END AN IMPORTANT PART
OF ANY CRIMINAL CASE IS GOING TO BE
VICTIM COMPENSATION. I THINK THAT
THAT CAN BE BEST REALIZED THROUGH BOTH THE BANKRUPTCY
AND THE FORFEITURE ACTIONS. – MR. GLENN. – I THINK FOR ME,
DREIER WAS MY FIRST FORAY INTO CRIMINAL FORFEITURE,
AND AS A BANKRUPTCY JUDGE, IT REALLY TOOK ME
OUT OF MY COMFORT ZONE. IT WAS A DIFFERENT
LANGUAGE THAT’S SPOKEN, A DIFFERENT STATUTE
OUTSIDE THE BANKRUPTCY CODE, MY FIRST FORAY INTO THE FEDERAL
RULES OF CRIMINAL PROCEDURE. AND BECAUSE I WAS FACED
WITH A CHALLENGE TO FORFEITURE, WHETHER IT HAD
ALREADY OCCURRED AS TO ASSETS THE TRUSTEE
WAS TRYING TO RECOVER, I HAD TO DELVE IN,
AND THE ISSUE IS FINDING THE RESOURCES
THAT CAN GET A JUDGE UP TO SPEED ON AN AREA THAT’S…YOU KNOW,
THEY HAVEN’T EXPERIENCED BEFORE. AND SO THAT WAS
A BIT OF A CHALLENGE. THE FEDERAL JUDICIARY CENTER, IN THE BANKRUPTCY
BEST PRACTICES FORUM, HAS IN THE RESOURCES SECTION… HAS A SECTION ON CRIMINAL
ASSET FORFEITURE, AND IT HAS MATERIALS
POSTED THERE. IT DOES TAKE YOU OUT
OF YOUR COMFORT ZONE, AND THERE IS
A LEARNING CURVE TO BE ABLE TO UNDERSTAND
THE MATERIALS. I THINK THAT WAS
VERY IMPORTANT FOR ME TO GET UP TO SPEED. I WROTE A LENGTHY OPINION THAT
DEALT WITH CRIMINAL FORFEITURE AMONG OTHER ISSUES. – JUDGE MONTGOMERY. – I GUESS MY ADVICE
FOR DISTRICT JUDGES CONFRONTED WITH A SIMILAR
SITUATION IS DON’T PANIC. THERE ARE LOTS OF HELPFUL
RESOURCES AND PEOPLE OUT THERE, THOUGH IT’S STILL
KIND OF AN EMERGING, CUTTING-EDGE AREA
OF THE LAW. THERE ARE NEW THINGS BEING
DEVELOPED ALL OF THE TIME, AND PEOPLE, I THINK, ARE WILLING
TO SHARE WHAT THEY’VE LEARNED. I THINK IT TOOK ME
A WHILE TO REALIZE THAT EVERYBODY INVOLVED
IN THE WHOLE MESS FROM THE LAWYER END
WAS REALLY TRYING TO ACHIEVE THE SAME GOAL,
AND THAT WAS FOCUSING ON MAXIMIZING RECOVERY
TO THE VICTIMS. I THINK YOU HAVE TO KEEP THAT
IN MIND ALL OF THE TIME. – MR. PICARD. – I AGREE WITH
JUDGE MONTGOMERY THAT THIS IS REALLY
AN EMERGING AREA, BUT IN A SENSE,
IT’S NOT. IT’S BEEN AROUND
A LONG TIME. I THINK THE REASON
THAT WE’RE NOW FOCUSING ON IT AND SEEING MORE OF IT IS BECAUSE OF THE SIZE
OF THE CASES. AND I THINK THE OTHER THING
THAT I WOULD SAY IS THAT EACH CASE
IS DIFFERENT, AND YOU KNOW, WE TALKED ABOUT
COORDINATION AGREEMENTS, AND I THINK WE TALKED ABOUT
A LOT OF THE NUANCES, AND I THINK IT GOES TO SHOW
THAT THEY’RE NOT BOILERPLATE. AND I THINK THAT’S
REALLY SOMETHING THAT’S REALLY IMPORTANT
TO KEEP IN MIND. YOU’VE GOT TO… EACH SIDE HAS TO GET
TO KNOW THE FACTS OF THE CASE AND HAVE TO BE ABLE
TO CONVEY IT TO THE JUDGE– BANKRUPTCY JUDGE,
DISTRICT JUDGE– SO THAT WHEN
THEY’RE REVIEWING WHATEVER THE COORDINATION
AGREEMENT THAT’S PUT
BEFORE THEM IS, THEY WILL UNDERSTAND
WHY IT LOOKS DIFFERENT FROM WHAT THEY MIGHT HAVE SEEN
ON A WEBSITE OF THE FEDERAL JUDICIAL CENTER
OR SOME OTHER PLACE, BECAUSE, AS I SAID,
EACH CASE IS DIFFERENT, AND YOU HAVE TO TAKE
THE FACTS INTO ACCOUNT. – HOPEFULLY WE’VE BEEN ABLE TO
PROVIDE SOME USEFUL INFORMATION TO THOSE OF YOU WHO WILL
HAVE TO DEAL WITH THESE CASES
IN THE FUTURE. I’D LIKE TO THANK
EACH OF THE PANELISTS. JUDGE MONTGOMERY, JUDGE GLENN,
MS. LEVIN, MR. PICARD, THANK YOU ALL VERY MUCH.