# PICARD, Trustee for the Liquidation of Bernard L. v. SOCIETE GENERALE PRIVATE BANKING (SUISSE) S.A. (f

> United States Bankruptcy Court, S.D. New York · September 19, 2022

URL: https://www.frixlaw.com/law-library/cases/10460715

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** September 19, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

--------------------------------------------------------- x
In re:

:

: Chapter SIPA
Bernard L. Madoff Investment Securities
: Case No. 08-01789
LLC,
:

Debtor(s).
-------------------------------------------------x
IRVING H. PICARD, Trustee for the
Liquidation of Bernard L. Madoff Investment
Securities LLC, Adv. No. 12-01677

v.

SOCIETE GENERALE PRIVATE
BANKING (SUISSE) S.A.
(f/k/a SG Private Banking Suisse S.A.),
et al.
-------------------------------------------------x

Memorandum Decision Memorializing Oral Ruling
upon Record of the September 19, 2022 Hearing

BACKGROUND:
On April 29, 2022, the Defendants, OFI MGA Alpha Palmares (“OFI”), Oval Palmares
Europlus (“Palmares”) and UMR Select Alternatif (“UMR”) (collectively, the “OFI Funds” or
“Defendants”), filed a motion to dismiss. The first argument is that the OFI Funds have no legal
existence and lack the capacity to be sued. They also argue that the Court lacks personal
jurisdiction over the OFI Finds and that the safe harbor applied to the transfers. The Trustee
opposed the motion. The Court held oral argument on the issue of whether the OFI Funds have
capacity to be sued on September 19, 2022. The parties waived oral argument on all other
issues. See Stip., ECF No. 185. The Court issued an oral ruling upon record of that hearing.
This is a memorialization of that oral ruling. The Court assumes familiarity with the background
of the BLMIS Ponzi scheme and its SIPA proceeding. See Picard v. Citibank, N.A. (In re
BLMIS), 12 F.4th 171, 178–83 (2d Cir. 2021), cert. denied sub nom. Citibank, N.A. v. Picard,
142 S. Ct. 1209, 212 L. Ed. 2d 217 (2022).
SUMMARY OF THE LAW:
Whether the OFI Funds exist?

Rule 17 of the Federal Rules of Civil Procedure requires that an action “be prosecuted in
the name of the real party in interest.” Fed. R. Civ. P. 17(a). Defendants argue that they do not
legally exist under French law. According to the motion, the Defendants are “fonds commun de
placement” (“FCP”).
The motion to dismiss states:
Under French law, an FCP has no legal personality. Lecuyer Dec. ¶ 15
(citing Monetary and Financial Code, Art L. 214-8). An FCP is a co-ownership
of financial instruments and is a unique form of investment vehicle. Id. at ¶ 16.
An FCP is different from a corporation, partnership, association or other form of
business entity. Id. at ¶ 17. An FCP has no officers or employees of its own. Id.

at ¶ 21. An FCP is an undivided pool of assets managed exclusively by a
management company on behalf of investors who purchase redeemable non-
voting units in the FCP. Id. at ¶ 30. The investors are generally referred to as
“unit holders.” Id.
An FCP is established by a contract between the management company
and the custodian bank, both of which create the fund’s regulations. Id. at ¶ 39
(citing Monetary and Financial Code, Art L. 214-8-1). The purchase by an
investor of units in an FCP constitutes acceptance by the investor of the FCP’s
regulations. Id. at ¶ 31 (citing Monetary and Financial Code, Art L. 214-8-1).
The assets of the FCP must be kept in a
custodian bank account which is separate and apart from management company
accounts. Id. at ¶ 32 (citing Monetary and Financial Code, Art L. 214-9). The

management company has the exclusive right to manage the FCP. Id. at ¶ 40
(citing Monetary and Financial Code, Art L. 214-8). The management company
has no interest in the assets of the FCP. Id.
The FCP units acquired by an investor represent that investor’s pro rata
right in the undivided collection of assets held by the custodian bank. Id. at ¶ 34.
The unit holders are liable for the FCP’s debts only to the extent of the FCP’s
assets and in proportion to their own pro rata share. Id. at ¶ 35 (citing Monetary
and Financial Code, Art L. 214-8-5). In other words, the liability of the unit
holders is several, not joint, and each unit holder is only liable for the amount of
his individual share of the pooled assets. Id.

In support of this reading of French law, the “non-existent” OFI Funds have
submitted the declaration of Herve Lecuyer, a professor at University Panthéon-Assas
(Paris 2). Decl. LeCuyer ¶ 1, ECF No. 140.
The Court issued an OSC against the OFI Funds and Brian Butler, purported
attorney for the Funds. He argues that the OFI Asset Management Company, a
management company under French law, authorized it to act on behalf of the OFI Funds.
“FCPs have no legal personality and require a management company to take
virtually all actions on their behalf, including filing lawsuits.” In re Vivendi Universal,
S.A. Sec. Litig., 605 F. Supp. 2d 570, 580 (S.D.N.Y. 2009); see also CODE MONÉTAIRE ET
FINANCIER (MONETARY AND FINANCIAL CODE) art. L214-8-8 (“The mutual fund is
represented vis-à-vis third parties by the company in charge of its management. This
company may take legal action to defend or assert the rights or interests of
unitholders.”).1 “FCPs retain ownership of the funds[’] assets and operate similar to

trusts.” Id.
The Trustee argues that the OFI Funds can be sued though they must be
represented by a management company in court. He has no objection to the management
company participating on behalf of the OFI Funds in this action. The Trustee has
provided the declaration of Oliver Moriceau, a French attorney. Morceau Decl. ¶ 155,
ECF No. 155. Moriceau states that French law vests the management company with
authority to act on behalf of an FCP in court. Id. ¶ 6. He also provides examples of case
where FCP’s filed lawsuits in U.S. Courts in their own names—though the papers were
filed under the authority of OFI Asset Management, the same asset manager that
represents the OFI Defendants here. Id. ex. A.

The Court agrees with Moriceau’s interpretation of the French Monetary and
Financial Code, which state: “The mutual fund is represented vis-à-vis third parties by the
company in charge of its management.” CODE MONÉTAIRE ET FINANCIER (MONETARY &
FINANCIAL CODE) art. L214-8-8. The French law does not state that the OFI Funds
cannot sue or be sued but only that a management company “may take legal action to
defend or assert the rights or interests of unit holders.” Id.
In this case, the OFI Defendants are the “real part[ies] in interest” (Fed. R. Civ. P.
17(a)), they are represented by attorneys who were engaged by the management company

1 Available at
https://www.legifrance.gouv.fr/codes/section_lc/LEGITEXT000006072026/LEGISCTA000006154126?etatTexte=
VIGUEUR&etatTexte=VIGUEUR_DIFF&anchor=LEGISCTA000006154126#LEGISCTA000006154126
to defend the OFI Defendants in this action. This is exactly how the French law
contemplates legal actions against FCP’s to go.
Personal Jurisdiction
The OFI Funds argue that this Court lacks personal jurisdiction over them. The

Trustee has provided evidence that the Defendants received the transfers in a New York
bank account. The Trustee relies on the subscription agreements and the use of a New
York bank account for the assertion of jurisdiction over the OFI Funds.
To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2)
of the Federal Rules of Civil Procedure, the Trustee “must make a prima facie showing that
jurisdiction exists.” SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting
Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34–35 (2d Cir. 2010)). A trial court has
considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2).
Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). “‘It may
determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the

motion; or it may conduct an evidentiary hearing on the merits of the motion.’” Dorchester Fin.
Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Marine Midland Bank,
N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)); see also Picard v. BNP Paribas S.A. (In re
BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).
“Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the
motion by pleading in good faith, legally sufficient allegations of jurisdiction.” Dorchester Fin.,
722 F.3d at 84–85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d
Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565
(Bankr. S.D.N.Y. 2021) (same). In this case, the Trustee has alleged legally sufficient
allegations of jurisdiction simply by stating that Defendants “knowingly directing funds to be
invested with New York-based BLMIS.” (Compl. ¶ 31). This allegation alone is sufficient to
establish a prima facie showing of jurisdiction over Defendants in the pre-discovery stage of
litigation. At the pre-discovery stage, the allegations need not be factually supported. See

Dorchester Fin. Securities Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d. Cir. 2013) (an averment
of facts is necessary only after discovery).
In order to be subjected to personal jurisdiction in the United States, due process requires
that a defendant have sufficient minimum contacts with the forum in which defendant is sued
“‘such that the maintenance of the suit does not offend traditional notions of fair play and
substantial justice.’” Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501 (Bankr.
S.D.N.Y. 2012), 480 B.R. 501, 516 (Bankr. S.D.N.Y. 2012) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)). The pleadings and affidavits are to be construed “‘in
the light most favorable to the plaintiffs, resolving all doubts in their favor.’” Chloé v. Queen
Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010) (quoting Porina v. Marward

Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008)); Picard v. BNP Paribas S.A. (In re BLMIS), 594
B.R. 167, 187 (Bankr. S.D.N.Y. 2018).
The Supreme Court has set out three conditions for the exercise of specific
jurisdiction over a nonresident defendant. First, the defendant must have
purposefully availed itself of the privilege of conducting activities within the
forum State or have purposefully directed its conduct into the forum State.
Second, the plaintiff's claim must arise out of or relate to the defendant’s forum
conduct. Finally, the exercise of jurisdiction must be reasonable under the
circumstances.

U.S. Bank Nat’l Ass’n v. Bank of Am. N.A., 916 F.3d 143, 150 (2d Cir. 2019) (cleaned up).

Purposeful Availment
“[M]inimum contacts . . . exist where the defendant purposefully availed itself of the
privilege of doing business in the forum and could foresee being haled into court there.” Charles
Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 82 (2d Cir. 2018). “Although a defendant’s
contacts with the forum state may be intertwined with its transactions or interactions with the

plaintiff or other parties, a defendant’s relationship with a third party, standing alone, is an
insufficient basis for jurisdiction.” U.S. Bank Nat’l Ass’n v. Bank of Am. N.A., 916 F.3d 143, 150
(2d Cir. 2019) (cleaned up). “It is insufficient to rely on a defendant’s random, fortuitous, or
attenuated contacts or on the unilateral activity of a plaintiff with the forum to establish specific
jurisdiction.” Id.
A party “purposefully avail[s] itself of the benefits and protections of New York laws by
knowing, intending and contemplating that the substantial majority of funds invested in Fairfield
Sentry would be transferred to BLMIS in New York to be invested in the New York securities
market.” Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501, 517 (Bankr. S.D.N.Y.
2012).

In the Complaint, the Trustee alleges that the OFI Funds “knowingly directed funds to be
invested with New York-based BLMIS through [Fairfield Sentry].” (Compl. ¶ 5). The Trustee
has also alleged that Fairfield Sentry invested almost all of its assets in BLMIS. See 09-1239
Compl. ¶ 228 (“Under Fairfield Sentry’s offering memorandum, the fund’s investment manager
was required to invest no less than 95% of the fund’s assets through BLMIS.”) (adopted by
reference, at paragraph 35, of this Complaint). Additionally, the Trustee has alleged that the OFI
Funds “entered into one or more subscription agreements with the Fairfield Funds agreeing not
only that New York law would govern their dealings, but also that any related suit, action or
proceeding would be brought in New York. Thus, they agreed to irrevocably submit to the
jurisdiction of the New York courts and to forego any claim that the New York courts are an
inconvenient forum.” Compl. ¶ 33. “The subscription agreements, as well as Fairfield Fund
private placement memoranda, also confirmed that substantially all of the funds’ assets would
be invested with New York-based BLMIS, a United States-registered broker-dealer that used a

non-traditional options trading strategy described as a “split-strike conversion.” These
documents deemed BLMIS and its personnel, who were located in New York, “essential” to the
Fairfield Funds and their profitability. Fairfield Sentry instructed its subscribers to send
subscription monies to a bank account in New York.” ¶ 34.
In response to the motion to dismiss, the Trustee has provided evidence of the OFI Funds
use of New York bank accounts to receive the redemption payments at issue here.
(Longo Decl., ECF No. 156). OFI MGA Alpha Palmares (f/k/a Oval Alpha
Palmares)
“Defendants OFI and SGBT entered into one or more subscription agreements
with Fairfield Sentry and received subsequent transfers from the feeder fund in the name

of “SGBT Lux/Oval Alpha Palmares.” OFI is a fonds commun de placement organized
under the laws of France, and its address is c/o OFI Asset Management at 1 rue Vernier,
75017 Paris, France.” Compl. ¶ 22
Attached as Exhibit 23 to the Longo Declaration in redacted form are true and
correct copies of a Citco Sentry request for wire transfer payment dated March 16, 2007
(CFSSAL0013725) and a Citco Sentry redemption order confirmation dated January 29,
2007 (CFSSAL0013726) for Societe Generale Bank & Trust S.A. (former name of
Societe Generale Luxembourg S.A.) / OFI, in each case concerning use of a Societe
Generale New York branch bank account.
Oval Palmares Europlus (“Palmares”)
Defendants Palmares and SGBT entered into one or more subscription agreements
with Fairfield Sentry and received a subsequent transfer from the feeder fund in the name
of “SGBT Lux/Palmares Europlus.” Palmares is a fonds commun de placement organized

under the laws of France, and its address is c/o OFI Asset Management at 1 rue Vernier,
75017 Paris, France. Compl. ¶ 23
Attached as Exhibit 24, of the Longo Declaration, in redacted form are true and
correct copies of a Citco Sentry request for wire transfer payment dated December 15,
2005 (ANWAR-CFSE00325494) and a Citco Sentry redemption confirmation dated July
29, 2009 (CFSSAD0007198) for Societe Generale Bank & Trust S.A. (former name of
Societe Generale Luxembourg S.A.) Palmares, concerning use of a Societe Generale New
York branch bank account.
UMR Select Alternatif (“UMR”)
Defendants UMR and SGBT entered into one or more subscription agreements

with Fairfield Sentry and received a subsequent transfer from the feeder fund in the name
of “SGBT Lux/UMR.” UMR is a fund of funds organized under the laws of France, and
its address is c/o Union Mutualiste Retraite at 3 Square Max Hymans, 75015 Paris,
France.
Compl. ¶ 24
Attached as Exhibit 25, of the Longo Declaration, in redacted form are true and
correct copies of a Citco Sentry request for wire transfer payment dated March 16, 2007
(CFSSAL0010419) and a Citco Sentry redemption order confirmation dated January 29,
2007 (CFSSAL0010422) for Societe Generale Bank & Trust S.A. (former name of
Societe Generale Luxembourg S.A.) / UMR, in each case concerning use of a Societe
Generale New York branch bank account.
Where a defendant chooses to use a United States bank account to received funds,
exercising personal jurisdiction over the defendant for causes of action relating to those transfers

is constitutional. Off. Comm. of Unsecured Creditors of Arcapita v. Bahrain Islamic Bank, 549
B.R. 56, 71 (S.D.N.Y. 2016); Bahrain Islamic Bank v. Arcapita Bank (In re Arcapita Bank
B.S.C.(C)), 640 B.R. 604, 618 (S.D.N.Y. 2022) (a bank submits to personal jurisdiction in the
United States when it is “free to accept or reject the proposed terms” and still chooses to use a
United States bank account); see also Eldesouky v. Aziz, No. 11–CV–6986 (JLC), 2014 WL
7271219, at *6–7 (S.D.N.Y. Dec. 19, 2014) (finding jurisdiction under New York long-arm
statute based solely on defendant’s use of New York account to receive payment at issue:
“receiving Plaintiffs’ money at a New York bank account suffices to establish personal
jurisdiction over [Defendant].”); HSH Nordbank AG N.Y. Branch v. Street, No. 11 CIV. 9405
DLC, 2012 WL 2921875, at *4 (S.D.N.Y. July 18, 2012)(“District courts in this Circuit have

upheld personal jurisdiction based upon a defendant's use of a correspondent bank account in
New York where the use of that account was held to lay at the very root of the plaintiff's
action.”)(quoting Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 66 (2d Cir.
2012).); Dandong v. Pinnacle Performance Ltd., 966 F. Supp.2d 374, 382–83 (S.D.N.Y. 2013)
(same).
The Complaint contains allegations that are legally sufficient to constitute a prima facie
showing of jurisdiction. Dorchester Fin. Securities Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d.
Cir. 2013). “[A]lthough physical presence in the forum is not a prerequisite to jurisdiction,
physical entry into the State—either by the defendant in person or through an agent, goods, mail,
or some other means—is certainly a relevant contact.” Walden v. Fiore, 571 U.S. 277, 285
(2014). “[Defendant] intentionally tossed a seed from abroad to take root and grow as a new tree
in the Madoff money orchard in the United States and reap the benefits therefrom.” Picard v.
Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501, 506 (Bankr. S.D.N.Y. 2012). Defendant’s

alleged contacts with New York are not random, isolated, or fortuitous.
Arise out of or relate to the defendant’s forum conduct
As to the second prong, the suit must “arise out of or relate to the defendant’s contacts
with the forum.” Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., __ U.S. __, 141 S. Ct. 1017,
1026, 209 L. Ed. 2d 225 (2021) (emphasis in original). “[P]roof that a plaintiff’s claim came
about because of the defendant’s in-state conduct” is not required. Id. at 1027. Instead, the court
need only find “an affiliation between the forum and the underlying controversy.” Goodyear
Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011); Picard v. BNP Paribas S.A.
(In re BLMIS), 594 B.R. 167, 190 (Bankr. S.D.N.Y. 2018) (“Where the defendant’s contacts with
the jurisdiction that relate to the cause of action are more substantial, however, it is not

unreasonable to say that the defendant is subject to personal jurisdiction even though the acts
within the state are not the proximate cause of the plaintiff's injury.”) (internal quotations
omitted).
Here, the Trustee is asserting subsequent transfer claims against Defendants for monies it
received from the Fairfield Sentry. These allegations are directly related to its investment
activities with Fairfield Sentry. Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 191
(Bankr. S.D.N.Y. 2018) (finding that the redemption and other payments the defendants received
as direct investors in a BLMIS feeder fund arose from the New York contacts such as sending
subscription agreements to New York, wiring funds in U.S. dollars to New York, sending
redemption requests to New York, and receiving redemption payments from a Bank of New
York account in New York, and were the proximate cause of the injuries that the Trustee sought
to redress).
The suit is affiliated with the alleged in-state conduct. Goodyear Dunlop Tires

Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011).
Reasonableness
Having found sufficient minimum contacts, the Court must determine if exercising
personal jurisdiction over the Defendant is reasonable and “comport[s] with fair play and
substantial justice.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985) (internal
quotations omitted). Factors the Court may consider include the burden on the defendant, the
forum State’s interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient
and effective relief, the interstate judicial system’s interest in obtaining the most efficient
resolution of controversies, and the shared interest of the several States in furthering fundamental
substantive social policies.

The exercise of jurisdiction is reasonable. Defendant is not burdened by this litigation.
Defendant has actively participated in this Court’s litigation for over ten years. It is represented
by U.S. counsel, held bank accounts in New York, and “irrevocably” submitted to the
jurisdiction of New York courts’ when it signed its subscription agreements with the Fairfield
Funds.2 ( The forum and the Trustee both have a strong interest in litigating BLMIS adversary
proceedings in this Court. Picard v. Maxam Absolute Return Fund, L.P. (In re BLMIS), 460 B.R.

2 Even though this Court held that the Defendant’s consent to jurisdiction in New York courts contained in the
subscription agreements it signed prior to investing with Fairfield Sentry could not be used as the sole basis for this
Court’s exercise of personal jurisdiction over an action by foreign liquidators to recover redemption payments under
British Virgin Island law, the fact that Defendant agreed to submit to the jurisdiction of this Court is certainly a
relevant factor in determining whether the exercise of jurisdiction over Defendant is reasonable. In Fairfield Sentry
v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), Case No. 10-13164 (SMB), Adv. No. 10-03496 (SMB),
2018 WL 3756343, at *12 (Bankr. S.D.N.Y. Aug. 6, 2018) (“Defendants’ consent to the Subscription Agreement
does not constitute consent to personal jurisdiction in the U.S. Redeemer Actions.”).
106, 117 (Bankr. S.D.N.Y. 2011), aff’d, 474 B.R. 76 (S.D.N.Y. 2012); Picard v. Chais (In re
BLMIS), 440 B.R. 274, 278 (Bankr. S.D.N.Y. 2010); Picard v. Cohmad Sec. Corp. (In re
BLMIS), 418 B.R. 75, 82 (Bankr. S.D.N.Y. 2009); Picard v. Fairfield Greenwich Grp., (In re
Fairfield Sentry Ltd.), 627 B.R. 546, 568 (Bankr. S.D.N.Y. 2021); see also In re Picard, 917

F.3d 85, 103 (2d Cir. 2019) (“The United States has a compelling interest in allowing domestic
estates to recover fraudulently transferred property.”).
By alleging that Defendants intentionally invested in BLMIS, the Trustee has met his
burden of alleging jurisdiction as to each subsequent transfer that originated with BLMIS. And
by alleging that Defendants used a New York bank account, the Trustee has met his burden of
alleging jurisdiction over each transfer received through that New York bank account. The
Trustee has made a prima facie showing of personal jurisdiction with respect to all of the
Fairfield Funds subsequent transfers at issue in this Complaint.
As recognized by the Second Circuit, “[w]hen these [subsequent transfer]
investors chose to buy into feeder funds that placed all or substantially all of their assets

with Madoff Securities, they knew where their money was going.” In re Picard, 917
F.3d 85, 105 (2d Cir. 2019).
Safe Harbor
Defendants make the same tired arguments regarding the safe harbor: 1) there is
no knowledge exception to the safe harbor and 2) they did not have knowledge of the
scheme. Judge Rakoff create the knowledge exception and directed this Court to apply it
in this case. The safe harbor concerns only Fairfield’s knowledge of the fraud, which this
Court has found is properly alleged.
Section 546(e) is referred to as the safe harbor because it protects a transfer that is
a “settlement payment ... made by or to (or for the benefit of) a ... financial institution [or]
financial participant,” or that is “made by or to (or for the benefit of) a ... financial
institution [or] financial participant ... in connection with a securities contract.” 11

U.S.C. § 546(e). “By its terms, the safe harbor is a defense to the avoidance of the initial
transfer. Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 197 (Bankr. S.D.N.Y.
2018) (emphasis added). However, where the initial transferee fails to raise a § 546(e)
defense against the Trustee’s avoidance of certain transfers, as is the case here, the
subsequent transferee is entitled to raise a § 546(e) defense against recovery of those
funds. Picard v. Fairfield Inv. Fund (In re BLMIS), No. 08-01789 (CGM), Adv. No. 09-
01239 (CGM), 2021 WL 3477479, at *3 (Bankr. S.D.N.Y. Aug. 6, 2021).
In light of the safe harbor granted under 11 U.S.C. § 546(e), the Trustee may only avoid
and recover intentional fraudulent transfers under § 548(a)(1)(A) made within two years
of the filing date, unless the transferee had actual knowledge of BLMIS’s Ponzi scheme,

or more generally, “actual knowledge that there were no actual securities transactions
being conducted.” SIPC v. BLMIS (In re Consolidated Proceedings on 11 U.S.C. §
546(e)), No. 12 MC 115(JSR), 2013 WL 1609154, at *4 (S.D.N.Y. Apr. 15, 2013). “The
safe harbor was intended, among other things, to promote the reasonable expectations of
legitimate investors. If an investor knew that BLMIS was not actually trading securities,
he had no reasonable expectation that he was signing a contract with BLMIS for the
purpose of trading securities for his account. In that event, the Trustee can avoid and
recover preferences and actual and constructive fraudulent transfers to the full extent
permitted under state and federal law.” Picard v. Legacy Capital Ltd. (In re BLMIS), 548
B.R. 13, 28 (Bankr. S.D.N.Y. 2016) (internal citations omitted), vacated and remanded
on other grounds, Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171 (2d Cir. 2021)).
“In sum, if the Trustee sufficiently alleges that the [initial] transferee from whom he
seeks to recover a fraudulent transfer knew of [BLMIS ]’[s] fraud, that transferee cannot

claim the protections of Section 546(e)’s safe harbor.” Sec. Inv. Prot. Corp. v. Bernard
L. Madoff Inv. Sec. LLC, No. 08-01789 (CGM), 2021 WL 3477479, at *4 (Bankr.
S.D.N.Y. Aug. 6, 2021).
This Court has already determined that the Fairfield Complaint3 contains sufficient
allegations of Fairfield Sentry’s actual knowledge to defeat the safe harbor defense on a
Rule 12(b)(6) motion. See Picard v. Fairfield Inv. Fund (In re BLMIS), No. 08-01789
(CGM), Adv. No. 09-01239 (CGM), 2021 WL 3477479, at *4 (Bankr. S.D.N.Y. Aug. 6,
2021) (“[T]he Trustee has alleged that the agents and principals of the Fairfield Funds
had actual knowledge of Madoff's fraud”). In that adversary proceeding, the Court held
that “[t]he Trustee has pled [actual] knowledge in two ways: 1) that certain individuals

had actual knowledge of Madoff's fraud, which is imputed to the Fairfield Funds; and 2)
that actual knowledge is imputed to the Fairfield Funds through ‘FGG,’ an alleged ‘de
facto’ partnership.” Id. at *4; see also Fairfield Compl. ¶ 320 (“Fairfield Sentry had
actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶ 321 (“Greenwich Sentry
and Greenwich Sentry Partners had actual knowledge of the fraud at BLMIS”); Fairfield
Compl. ¶ 322 (“FIFL had actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶
323 (“Stable Fund had actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶ 324
(“FG Limited had actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶ 325
(“FG Bermuda had actual knowledge of the fraud at BLMIS”); ¶ 326 (“FG Advisors had

3 The Fairfield Complaint can be found on the docket of adversary number 09-01239-cgm, ECF No. 286.
actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶ 327 (“Fairfield
International Managers had actual knowledge of the fraud at BLMIS”); Fairfield Compl.
¶ 328 (“FG Capital had actual knowledge of the fraud at BLMIS”); Fairfield Compl. ¶
329 (“Share Management had actual knowledge of the fraud at BLMIS”); Fairfield

Compl. ¶ 9 (“It is inescapable that FGG partners knew BLMIS was not trading securities.
They knew BLMIS’s returns could not be the result of the split strike conversion strategy
(the “SSC Strategy”). They knew BLMIS’s equities and options trading volumes were
impossible. They knew that BLMIS reported impossible, out-of-range trades, which
almost always were in Madoff’s favor. They knew Madoff’s auditor was not certified and
lacked the ability to audit BLMIS. They knew BLMIS did not use an independent broker
or custodian. They knew Madoff refused to identify any of BLMIS’s options
counterparties. They knew their clients and potential clients raised numerous due
diligence questions they would not and could not satisfactorily answer. They knew
Madoff would refuse to provide them with honest answers to due diligence questions

because it would confirm the details of his fraud. They knew Madoff lied about whether
he traded options over the counter or through the exchange. They knew they lied to
clients about BLMIS’s practices in order to keep the money flowing and their fees
growing. And they knowingly misled the SEC at Madoff’s direction.”).
This Court determined that the Fairfield Complaint is replete with allegations
demonstrating that Fairfield Sentry had actual knowledge that BLMIS was not trading
securities. See Picard v. Fairfield Inv. Fund (In re BLMIS), No. 08-01789(CGM), Adv.
No. 09-01239 (CGM), 2021 WL 3477479, at *3–*7 (Bankr. S.D.N.Y. Aug. 6, 2021).
The district court determined that “those defendants who claim the protections of Section
546(e) through a Madoff Securities account agreement but who actually knew that
Madoff Securities was a Ponzi scheme are not entitled to the protections of the Section
546(e) safe harbor, and their motions to dismiss the Trustee’s claims on this ground must
be denied.” SIPC v. BLMIS (In re Consolidated Proceedings on 11 U.S.C. § 546(e)), No.

12 MC 115(JSR), 2013 WL 1609154, at *10 (S.D.N.Y. Apr. 15, 2013). And “to the
extent that a defendant claims protection under Section 546(e) under a separate securities
contract” this Court was directed to “adjudicate those claims in the first instance
consistent with [the district court’s] opinion.” See Order, 12-MC-115, ECF No. 119, Ex.
A at 24.
This Court is powerless to reconsider this issue, agrees with the district court’s
reasoning, and finds its holding consistent with dicta set forth by the Court of Appeals for
the Second Circuit. See Picard v. Ida Fishman Revocable Trust (In re Bernard L. Madoff
Inv. Sec. LLC), 773 F.3d 411, 420 (2d Cir. 2014) (“The clawback defendants, having
every reason to believe that BLMIS was actually engaged in the business of effecting

securities transactions, have every right to avail themselves of all the protections afforded
to the clients of stockbrokers, including the protection offered by § 546(e).”). The
Trustee’s allegations in the Fairfield Complaint are sufficient to survive a Rule 12(b)(6)
motion on this issue.
The Safe Harbor cannot be used to defeat a subsequent transfer
The safe harbor is not applicable to subsequent transfers. “By its terms, the safe
harbor is a defense to the avoidance of the initial transfer.” Picard v. BNP Paribas S.A.
(In re BLMIS), 594 B.R. 167, 197 (Bankr. S.D.N.Y. 2018) (emphasis in original); see
also 11 U.S.C. § 546(e) (failing to include § 550 in its protections). Since there must be
Not for Publication
an initial transfer in order for the Trustee to collect against a subsequent transferee, a
subsequent transferee may raise the safe harbor as a defense—but only in so far as the
avoidance of the initial transfer is concerned. The safe harbor cannot be used as a
defense by the subsequent transferee because the Trustee is not “avoiding” a subsequent
transfer, “he recovers the value of the avoided initial transfer from the subsequent
transferee under 11 U.S.C. § 550(a), and the safe harbor does not refer to the recovery
claims under section 550.” Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 197
(Bankr. S.D.N.Y. 2018).
Conclusion
For the foregoing reasons, OFI Funds’ motion to dismiss is denied. The Trustee shall
submit a proposed order within fourteen days of the issuance of this decision, directly to
chambers (via E-Orders), upon not less than two days’ notice to all parties, as required by Local
Bankruptcy Rule 9074-1(a).

/s/ Cecelia G. Morris
Poughkeepsie, New York Hon. Cecelia G. Morris —
ees U.S. Bankruptcy Judge
Page 18 of 18

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10460715. Public record. Not legal advice.