# Irving H. Picard, Trustee for the Substantively Co v. Platinum All Weather Fund Limited

> United States Bankruptcy Court, S.D. New York · May 17, 2023

URL: https://www.frixlaw.com/law-library/cases/10460920

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** May 17, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10460920

## How later opinions describe it (automated extraction)

- explaining that an averment of facts is necessary only after discovery

## Opinion text

UNITED STATES BANKRUPTCY COURT NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION
CORPORATION, No. 08-01789 (CGM)

Plaintiff-Applicant, SIPA LIQUIDATION

v. (Substantively Consolidated)

BERNARD L. MADOFF INVESTMENT
SECURITIES LLC,

Defendant.

In re:

BERNARD L. MADOFF,

Debtor.

IRVING H. PICARD, Trustee for the Substantively

Consolidated SIPA Liquidation of Bernard L. Madoff

Investment Securities LLC and the Chapter 7 Estate of

Bernard L. Madoff,
Adv. Pro. No. 12-01697 (CGM)

Plaintiff,

v.

Platinum All Weather Fund Limited, and
ABN AMRO Retained Nominees (IOM) Limited,
f/k/a/ ABN AMRO Fund Services (Isle of Man)
Nominees, and f/k/a Fortis (Isle of Man) Nominees
Limited,

Defendants.

MEMORANDUM DECISION DENYING MOTION TO DISMISS OF DEFENDANT
PLATINUM ALL WEATHER FUND LIMITED

A P P E A R A N C E S :
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of
Bernard L. Madoff
Baker & Hostetler LLP
45 Rockefeller Plaza
New York, NY 10111
By: Elizabeth McCurrach
David J. Sheehan
Regina Griffin
Stacey A. Bell
Anat Maytal
Shade Quailey

Attorneys for Defendant, Platinum All Weather Fund Limited
Arnold & Porter Kaye Scholer, LLP
601 Massachusetts Avenue, NW
Washington, D.C. 20001
By: Scott B. Schreiber
Rosa J. Evergreen
- and -
Arnold & Porter Kaye Scholer, LLP
250 West 55th Street
New York, NY 10019
By: Kent A. Yalowitz
Daniel R. Bernstein
Lucas B. Barrett

CECELIA G. MORRIS
UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is Defendant’s, Platinum All Weather Fund Limited
(“Platinum” or “Defendant”), motion to dismiss1 the complaint of Irving Picard, the trustee
(“Trustee”) for the liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”)
seeking to recover subsequent transfers allegedly consisting of BLMIS customer property.
Platinum seeks dismissal for lack of personal jurisdiction, failure to allege that that the transfers
were of customer property, and failure to adequately plead the avoidability of the initial transfers.
Defendant raises the “good faith” defense and argues that the claims are barred by the safe
harbor provision of § 546(e). For the reasons set forth herein, the motion to dismiss is denied in
its entirety.

1 Codefendant, Fortis Isle of Man, filed its own motion to dismiss in this proceeding. (Mot., ECF No. 143). That
motion, seeking dismissal based on personal jurisdiction and the “good faith” and “mere conduit” defenses, will be
addressed in a separate memorandum decision.
Jurisdiction
This is an adversary proceeding commenced in this Court, in which the main underlying
SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the “SIPA Proceeding”), is pending. The
SIPA Proceeding was originally brought in the United States District Court for the Southern
District of New York (the “District Court”) as Securities Exchange Commission v. Bernard L.

Madoff Investment Securities LLC et al., No. 08-CV-10791, and has been referred to this Court.
This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1),
and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). This Court
has subject matter jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§
1334(b) and 157(a), the District Court’s Standing Order of Reference, dated July 10, 1984, and
the Amended Standing Order of Reference, dated January 31, 2012. In addition, the District
Court removed the SIPA liquidation to this Court pursuant to SIPA § 78eee(b)(4), (see Order,
Civ. 08– 01789 (Bankr. S.D.N.Y. Dec. 15, 2008) (“Main Case”), at ¶ IX (ECF No. 1)), and this

Court has jurisdiction under the latter provision. Personal jurisdiction has been contested by the
Defendant and will be discussed infra.
Background
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).
This adversary proceeding was filed on June 6, 2012. (Compl., ECF2 No. 1). The
Trustee filed an amended complaint on November 3, 2022. (Am. Compl., ECF No. 141). Via

2 Unless otherwise indicated, all references to “ECF” are references to this Court’s electronic docket in adversary
proceeding 12-01697-cgm.
the amended complaint (“Amended Complaint”), the Trustee seeks to recover $103,541,099 in
subsequent transfers made to Platinum. (Id. ¶ 3). The Amended Complaint further seeks recover
of $1,278,502 made to codefendant, ABN AMRO Retained Nominees (IOM) Limited, f/k/a/
ABN AMRO Fund Services (Isle of Man) Nominees, and f/k/a Fortis (Isle of Man) Nominees
Limited, (“Fortis Isle of Man”). (Id. ¶ 4).

Platinum was a Cayman Islands-based hedge fund that invested exclusively in the funds
that fed into BLMIS. (Id. ¶¶ 55–56). Defendant was managed by Platinum Capital Management
Ltd, a global investment firm that was headquartered in London and used subsidiaries in New
York and Stamford, Connecticut. (Id. ¶ 57).
Platinum’s administrator for investments in Fairfield Sentry Limited (“Fairfield Sentry”)
was co-defendant Fortis Isle of Man. (Id. ¶ 59). Platinum’s marketing materials at its 2003
launch identified Defendant as its administrator, custodian, and transfer agent. (Id. ¶ 62). Fortis
Isle of Man was a limited company incorporated and organized under the laws of the Isle of
Man. (Id. ¶ 58).

The subsequent transfers allegedly received by Defendant were derived from investments
with BLMIS made by Fairfield Sentry. (Id. ¶¶ 99–106). Fairfield Sentry is considered a “feeder
fund” of BLMIS because the intention of the fund was to invest in BLMIS. (Id. ¶¶ 2, 5).
Following BLMIS’s collapse, the Trustee filed an adversary proceeding against Fairfield
Sentry and related defendants to avoid and recover fraudulent transfers of customer property in
the amount of approximately $3 billion. (Id. ¶ 92). In 2011, the Trustee settled with Fairfield
Sentry. (Id. ¶ 63). As part of their settlement, Fairfield Sentry and Fairfield Sigma consented to
judgments in the amounts of $3.054 billion and $752.3 million, respectively. (Consent Js., 09-
01239-cgm, ECF Nos. 109–10). Only $70 million has been paid to the BLMIS customer
property estate. (Settlement Agreement, 09-01239-cgm, ECF No. 169). The Trustee then
commenced a number of adversary proceedings against subsequent transferees, like Defendant,
to recover the approximately $3 billion in missing customer property.
In its motion to dismiss, Platinum argues that the Trustee has failed to plead personal
jurisdiction, failed allege the avoidability of the initial transfers, and failed to allege that it

received BLMIS customer property. The Defendant raises the “good faith” defense and argues
that the safe harbor under § 546(e) bars recovery of the alleged transfers. The Trustee opposes
the motion to dismiss.
The parties stipulated to waiving oral arguments on the issues raised by Platinum in its
motion to dismiss and requested that the Court issue its ruling based on the briefings. (Stip. and
Order, ECF No. 163).
Discussion
Personal Jurisdiction
Platinum objects to the Trustee’s assertion of personal jurisdiction. (Mem. L. 6, ECF No.

150). In the Amended Complaint, the Trustee argues that Defendant purposefully availed itself
to the laws of the United States and New York. (Am. Compl. ¶¶ 68–91).
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 the absence of discovery, “a plaintiff’s prima facie showing
of jurisdiction ‘may be established solely by allegations.’” Paroni v. GE UK Holdings Ltd.,
2021 U.S. Dist. LEXIS 148930 (N.D.N.Y. 2021) (quoting Ball, 902 F.2d at 197).
In this case, the Trustee has alleged legally sufficient allegations of jurisdiction simply by
stating that Defendant “knowingly accepted the rights, benefits, and privileges of conducting
business in the United States and the state of New York.” (Am. Compl. ¶ 68). This allegation

alone is sufficient to establish a prima facie showing of jurisdiction over Defendant in the pre-
discovery stage of litigation. At the pre-discovery stage, the allegations need not be factually
supported. See Dorchester Fin. Sec. Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d Cir. 2013)
(explaining that an averment of facts is necessary only after discovery). That being stated, this
was not the only allegation made by the Trustee.
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).
Minimum Contacts
In the Amended Complaint, the Trustee alleges that Platinum “invested in the Fairfield

Funds with the specific purpose of investing with BLMIS in New York, and relinquished control
over investment decisions and their implementation to Madoff in New York.” (Am. Compl. ¶
70, ECF No. 141). The Trustee has also alleged that Fairfield Sentry invested almost all of its
assets in BLMIS. See 09-01239 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 96, of this Complaint).
The Trustee has alleged that a subscription agreements signed by Platinum’s
administrator Fortis Isle of Man “listed Peter Sprecher, the U.S.-based founder of Platinum
Management, as the ‘advisor with respect to this subscription’ and Scott Nevin, an [Fairfield

Greenwich Group] Managing Director based in New York, as the professional ‘with whom this
subscription is associated.’ (Am. Compl. ¶ 84). The subscription agreement, by incorporating
Fairfield Sentry’s private placement memorandum, made Defendant aware that it was transacting
business in New York. (Id. ¶¶ 74–82). Defendant knew that Fairfield Sentry’s strategy involved
the purchase of U.S.-based securities. (Id. ¶ 79). Defendant knew that Fairfield Sentry and
Fairfield Sigma, through its purchases of Fairfield Sentry shares, invested at least 95% of its
assets with BLMIS. (McCurrach Decl. Ex. 2, Fairfield Sentry Private Placement Memorandum,
ECF No. 154). The Trustee has submitted evidence that Platinum’s entire relationship with
Fairfield Sentry was based on access to Madoff and BLMIS. (Id. ex. 1) (call log describing
Fairfield Sentry as “a feeder fund into Madoff”). Platinum described itself as a “feeder fund into
Madoff” with potential clients. (Am. Compl. ¶ 72).
Defendant knew that any returns on these investments would be earned in New York by
BLMIS. (Id. ¶ 81). Defendant knew that subscription payments were to be wired in US dollars
to a bank account in New York. (Id. ¶ 81). “Aware of these facts and risks, Defendants

knowingly attempted to direct monies into the United States securities markets and undertook
investment activities in the United States.” (Id. ¶ 82).
The Trustee also alleges that, through the subscription agreements with Fairfield Sentry,
Defendant was aware of the possibility of jurisdiction in New York as the agreement specified
that Defendant:
(i) ‘irrevocably submit[ted] to the jurisdiction of the New York courts with
respect to any [p]roceeding,’ (ii) ‘agree[d] that any suit, action, or proceeding . . .
with respect to this Agreement and the Fund may be brought in New York,’ (iii)
‘consent[ed] to the service of process out of any New York court,’ and (iv) agreed
that ‘[t]his Agreement shall be governed and enforced in accordance with the laws
of New York . . . .’

(Id. ¶ 76). Though the subscription agreements do not, alone, give this Court jurisdiction over
Platinum, the agreements show that Defendant knew that it could face litigation in New York
courts.
The Trustee has alleged that Defendant used New York bank accounts to receive
redemption payments from and remit subscription payments to Fairfield Sentry. (Id. ¶¶ 88–89).
Platinum used a bank account at Northern Trust International Banking Corporation to receive
subsequent transfers from Fairfield Sentry. (Id.).
Where a defendant chooses to use a United States bank account to receive 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) (stating that 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 over Platinum. Dorchester Fin. Sec. 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. Mont. 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 Defendant for monies it
received from the Fairfield Sentry. (Am. Compl. ¶¶ 99–101, ECF No. 141). These allegations

are directly related to their investment activities with BLMIS via the Fairfield Funds. BNP
Paribas S.A., 594 B.R. at 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 Defendant is reasonable and “comport[s] with fair play and substantial
justice.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985) (internal quotations
omitted). Factors the Court may consider include the burden on the defendants, 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. Id. at 477.
The exercise of jurisdiction is reasonable. Defendant is not burdened by this litigation.
Platinum has actively participated in this Court’s litigation for several years. It is represented by
U.S. counsel and intentionally invested in Fairfield Sentry. Further, Defendant held bank
accounts in New York and was aware of the possibility of jurisdiction of New York courts
through subscription agreements with the Fairfield Sentry.3 (Am. Compl. ¶¶ 76, 88–89). 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. 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.),

3 Even though this Court held that a 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 was aware of 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.”), aff’d, Fairfield Sentry Ltd. v. Citibank,
N.A. London, No. 19-CV-3911 (VSB), 2022 WL 3644436, at *9 (S.D.N.Y. Aug. 24, 2022).
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 Defendant 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 Defendant used a New York bank account, the Trustee has met his burden of
alleging jurisdiction over each transfer that received through that New York bank account.
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). 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.
12(b)(6) standard
“To survive a motion to dismiss, the complaint must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (cleaned up). The claim is facially plausible when a plaintiff pleads facts
that allow the Court to draw a “reasonable inference that the defendant is liable for the
misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,’
but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (“Asking for plausible grounds to infer an
agreement does not impose a probability requirement at the pleading stage; it simply calls for
enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal
agreement.”). In deciding a motion to dismiss, the Court should assume the factual allegations
are true and determine whether, when read together, they plausibly give rise to an entitlement of
relief. Iqbal, 556 U.S. at 679. “And, of course, a well-pl[ed] complaint may proceed even if it
strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very
remote and unlikely.” Twombly, 550 U.S. at 556.
In deciding the motion, “courts must consider the complaint in its entirety, as well as

other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in
particular, documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). A complaint is “deemed to include any written instrument attached to it as an exhibit[,] .
. . documents incorporated in it by reference[,]” and other documents “integral” to the complaint.
Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir. 2002) (citations omitted). A
document is “integral” to a complaint when the plaintiff has “actual notice” of the extraneous
information and relied on it in framing the complaint. DeLuca v. AccessIT Grp., Inc., 695 F.
Supp. 2d 54, 60 (S.D.N.Y. 2010) (citing Chambers, 282 F.3d at 153).

The Trustee is seeking to recover $103,541,099 in subsequent transfers made to Platinum
by Fairfield Sentry. (Am. Compl. ¶ 3, ECF No. 141).
Recovery of Subsequent Transfers
Pursuant to § 550(a) of the Bankruptcy Code, a trustee is entitled to recover avoided
transfers of customer property from initial transferees as well as from “any immediate or mediate
transferee of such initial transferee.” 11 U.S.C. § 550(a). “To plead a subsequent transfer claim,
the Trustee must plead that the initial transfer is avoidable, and the defendant is a subsequent
transferee of that initial transferee, that is, that the funds at issue originated with the debtor.”
Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 195 (Bankr. S.D.N.Y. 2018); see also
SIPC v. BLMIS (In re Consol. Proc. On 11 U.S.C. § 546(e)), No. 12 MC 115, 2013 WL
1609154, at *7 (S.D.N.Y. Apr. 15, 2013). “Federal Civil Rule 9(b) governs the portion of a
claim to avoid an initial intentional fraudulent transfer and Rule 8(a) governs the portion of a
claim to recover the subsequent transfer.” BNP Paribas, 594 B.R. at 195 (citing Sharp Int’l
Corp. v. State St. Bank & Trust Co., (In re Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir. 2005).

The Trustee only needs to provide “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The plaintiff’s burden at the pleading
stage does not require exact accounting of the funds at issue. BNP Paribas, 594 B.R. at 195.
Rather “[t]he plaintiff must allege the necessary vital statistics – the who, when, and how much –
of the purported transfers to establish an entity as a subsequent transferee of the funds.” Id.
“However, the plaintiff’s burden at the pleading stage does not require dollar-for-dollar
accounting of the exact funds at issue.” Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R.
167, 195 (Bankr. S.D.N.Y. 2018).
While the Trustee must allege that the initial transfer from BLMIS to Fairfield Sentry is

avoidable, he is not required to avoid the transfer received by the initial transferee before
asserting an action against subsequent transferees. IBT Int’l Inc. v. Northern (In re Int’l Admin
Servs., Inc.), 408 F.3d 689, 706-07 (11th Cir. 2005). The Trustee is free to pursue any of the
immediate or mediate transferees, and nothing in the statute requires a different result. Id.
The Trustee pleaded the avoidability of the initial transfer (from BLMIS to Fairfield
Sentry) by adopting by reference the entirety of the complaint filed against Fairfield Sentry in
adversary proceeding 09-1239 (“Fairfield Complaint”). (Am. Compl. ¶ 96). Whether the
Fairfield Complaint properly pleads the avoidability of the initial transfer, is governed by Rule
9(b). Rule 9(b) states: “In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).
Where the actual fraudulent transfer claim is asserted by a bankruptcy trustee,
applicable Second Circuit precedent instructs courts to adopt a more liberal view
since a trustee is an outsider to the transaction who must plead fraud from second-
hand knowledge. Moreover, in a case such as this one, where the Trustee’s lack of
personal knowledge is compounded with complicated issues and transactions that
extend over lengthy periods of time, the trustee’s handicap increases, and even
greater latitude should be afforded.

Picard v. Cohmad Secs. Corp., (In re BLMIS), 454 B.R. 317, 329 (Bankr. S.D.N.Y. 2011)
(cleaned up).
Adoption by Reference
Adoption by reference is governed by Rule 10 of the Federal Rules of Civil Procedure.
Fed. R. Civ. P. 10(c). Rule 10(c) states: “A statement in a pleading may be adopted by reference
elsewhere in the same pleading or in any other pleading or motion.” The district court has
already found that adoption by reference of the entire Fairfield Amended Complaint is proper.
See SIPC v. BLMIS (In re Consolidated Proceedings on 11 U.S.C. § 550(a)), 501 B.R. 26, 36
(S.D.N.Y. 2013) (“The Trustee’s complaint against Standard Chartered Financial Services
incorporates by reference the complaints against Kingate and Fairfield, including the allegations
concerning the avoidability of the initial transfers, and further alleges the avoidability of these
transfers outright. Thus, the avoidability of the transfers from Madoff Securities to Kingate and
Fairfield is sufficiently pleaded for purposes of section 550(a).”) (cleaned up).
The Court will follow the district court’s instruction. As was explained in In re Geiger,
pleadings filed in the “same action” may be properly adopted by reference in other pleadings in
that action. 446 B.R. 670, 679 (Bankr. E.D. Pa. 2010). The Fairfield Amended Complaint was
filed in the “same action” as this adversary proceeding for purposes of Rule 10(c). Id. Cases
within this SIPA proceeding are filed in the same “proceeding”—the SIPA proceeding. In re
Terrestar Corp., No. 16 CIV. 1421 (ER), 2017 WL 1040448, at *4 (S.D.N.Y. Mar. 16, 2017)
(“Adversary proceedings filed in the same bankruptcy case do not constitute different cases.”);
see also Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 610 B.R. 197, 237 (Bankr.
S.D.N.Y. 2019) (“The prior decisions within this SIPA proceeding constitute law of the case . . .

. “); Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 603 B.R. 682, 700 (Bankr.
S.D.N.Y. 2019), (citing In re Motors Liquidation Co., 590 B.R. 39, 62 (S.D.N.Y. 2018) (law of
the case doctrine applies across adversary proceedings within the same main case), aff’d, 943
F.3d 125 (2d Cir. 2019)); Perez v. Terrastar Corp. (In re Terrestar Corp.), No. 16 Civ. 1421
(ER), 2017 WL 1040448, at *4 (S.D.N.Y. Mar. 16, 2017) (“Adversary proceedings filed in the
same bankruptcy case do not constitute different cases.”), appeal dismissed, No. 17-1117 (2d
Cir. June 29, 2017); Bourdeau Bros., Inc. v. Montagne (In re Montagne), No. 08-1024 (CAB),
2010 WL 271347, at *6 (Bankr. D. Vt. Jan. 22, 2010) (“[D]ifferent adversary proceedings in the
same main case do not constitute different ‘cases.’”).

Some courts have worried that wholesale incorporation of a pleading can lead to
“confusing and inconvenient” results. Hinton v. Trans Union, LLC, 654 F. Supp. 2d 440, 446–47
(E.D. Va. 2009) (footnote omitted), aff’d, 382 F. App’x 256 (4th Cir. 2010). That is not a
concern in these proceedings. The Defendant, like many other subsequent transfer defendants in
this SIPA proceeding, is aware of what has been filed in the other adversary proceeding in this
SIPA liquidation. It routinely follows what is happening on a proceeding-wide basis. (See Mem.
L. in Support of Mot. to Dismiss Based on Extraterritoriality, ECF No. 104).
Allowing the Trustee to incorporate the Fairfield Amended Complaint by reference, does
not prejudice the Defendant. On the other hand, dismissing this Complaint and permitting the
Trustee to amend his Complaint to include all of the allegations that are already contained in the
Fairfield Amended Complaint, would prejudice all parties by delaying the already overly
prolonged proceedings. 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) (“Rule 15
places no time bar on making motions to amend pleadings and permits the amending of

pleadings “when justice so requires.”).
Through the adoption of the Fairfield Amended Complaint, the Trustee has adequately
pleaded, with particularity, the avoidability of the initial transfers due to the Fairfield Funds’
knowledge of BLMIS’ fraud. (Fairfield Compl. ¶¶ 314–18, 09-01239, ECF No. 286); see also
SIPC v. BLMIS (In re Consolidated Proceedings on 11 U.S.C. § 550(a)), 501 B.R. 26, 36
(S.D.N.Y. 2013) (“[T]he Court directs that the following adversary proceedings be returned to
the Bankruptcy Court for further proceedings consistent with this Opinion and Order . . . .”).
BLMIS Customer Property
The Trustee has pleaded that, based on its investigations to date, “subsequent transfers to

Defendants total $104,605,052 . . . . Specifically, (i) Defendants Platinum and/or Fortis [Isle of
Man] received $103,541,099 of subsequent transfers of customer property.” (Am. Compl. ¶ 99).
The exhibits attached to the Complaint provide Defendant with the “who, when, and how much”
of each transfer. Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 195 (Bankr.
S.D.N.Y. 2018); (Am. Compl. Ex. C) (indicating the dates and amounts of the transfers from
Fairfield Sentry to the Defendants); cf. Picard v. Shapiro (In re BLMIS), 542 B.R. 100, 119
(Bankr. S.D.N.Y. 2015) (dismissing for failure to plausibly imply that the initial transferee made
any subsequent transfers.). The Complaint alleges that since Fairfield Sentry “invested all or
substantially all of [its] assets with BLMIS’s investment advisory business.” (Am. Compl. ¶ 5);
(id. ¶ 64) (“Fairfield Sentry invested at least 95% of its assets with BLMIS.”).
Defendant argues that the Trustee’s allegations, when read in context of all related
adversary proceedings, impossibly allege that Fairfield Sentry paid out more than it received.
(Mem. L. 21–22, ECF No. 150).

To consider allegations made in dozens of other complaints filed by the Trustee in this
SIPA proceeding is impractical and not required at this stage of the litigation. The other
complaints have not been adopted by reference by the Trustee in this adversary proceeding and,
as such, are not within the Court’s power to consider on a Rule 12(b)(6) motion. Williams v.
Time Warner Inc., 440 F. App’x 7, 9 (2d Cir. 2011) (“A district court, in deciding whether to
dismiss a complaint under Rule 12(b)(6), is generally limited to the facts as presented within the
four corners of the complaint, to documents attached to the complaint, or to documents
incorporated within the complaint by reference.”) (citing Taylor v. Vt. Dep’t of Educ., 313 F.3d
768, 776 (2d Cir. 2002)).

In order to determine how Fairfield Sentry spent the billions of dollars it received from
BLMIS, this Court would need review financial documents in order to trace the monies to all
principals, insiders, creditors, and customers of Fairfield Sentry and other Fairfield Funds.
Undoubtedly, the Court will trace and calculate how the Fairfield Funds spent its BLMIS (and
any non-BLMIS) funds at a later stage of litigation. At this stage, the Trustee need only assert
allegations that make it seem plausible that Defendant received BLMIS monies.
The Fairfield Complaint, which is incorporated by reference into this, alleges that
Fairfield Sentry was required to invest 95% of its assets in BLMIS. (Fairfield Compl. ¶ 89, Adv.
Pro. No. 09-01239, ECF No. 286) (“From the beginning, to comport with Madoff’s requirement
for BLMIS feeder funds, Fairfield Sentry ceded control of not only its investment decisions, but
also the custody of its assets, to BLMIS.”); (see also id. ¶ 96) (“Fairfield Sigma was wholly
invested in Fairfield Sentry.”). The Complaint plausibly alleges that the Fairfield Funds did not
have any assets that were not customer property.
In this case, the Trustee is not seeking to collect $5 billion from Defendant. He is

seeking $103,541,099 which easily could come from the $3 billion Fairfield Sentry received
from BLMIS. If the Court were to accept Defendant’s argument, it would need to do one of two
things: 1) dismiss ALL of the Trustee’s subsequent transfer claims in all of the adversary
proceedings since the Court has no idea which transfers came from BLMIS customer property;
or 2) hold a pre-discovery trial on all of the subsequent transfers actions to determine which
transfers were made from the $3 billion of BLMIS customer property and which were not. The
Court is simply not willing to have such a trial at this stage of litigation.
Taking all allegations as true and reading them in a light most favorable to the Trustee,
the Complaint plausibly pleads that Platinum received customer property because Fairfield

Sentry did not have other property to give. The calculation of Fairfield Sentry’s customer
property and what funds it used to make redemption payments are issues of fact better resolved
at a later stage of litigation.
Taking all allegations as true and reading them in a light most favorable to the Trustee,
the Complaint plausibly pleads that Defendant received customer property.
Section 546(e) does not bar the avoidance of the Initial Transfers to Fairfield Sentry
Section 546(e) 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—those transfers from BLMIS to the feeder funds. Picard v. BNP Paribas S.A. (In
re BLMIS), 594 B.R. 167, 197 (Bankr. S.D.N.Y. 2018). Subsequent transferees are also entitled
to raise a § 546(e) defense against Trustee’s recovery of the initial transfer 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). To the extent that the safe harbor bars the
Trustee from collecting the initial transfer, he would also be barred from collecting any
subsequent transfers.
Defendant argues that Picard v. Ida Fishman Recoverable Trust (In re BLMIS), 773 F.3d
411 (2d Cir. 2014), allows it to claim protection of the safe harbor due to securities contracts
signed by Fairfield Sentry. Fishman offers no support for that argument.
In Fishman, the Court of Appeals for the Second Circuit determined that, in many of the
Trustee’s avoidance actions, § 546(e) applied because BLMIS’ transfers to its customers
qualified as payments made “in connection with” securities contracts between BLMIS and its

customers. See id. at 422. However, the safe harbor does not apply, by its plain terms, to
transfers where the transferee is complicit in BLMIS’ fraud. Picard v. Multi-Strategy Fund Ltd.
(In re BLMIS), No. 22-CV-06502 (JSR), 2022 WL 16647767, at *7 (S.D.N.Y. Nov. 3, 2022).
This is because “any transferee who knew the transfers it received from Madoff Securities
contained only stolen proceeds also knew those transfers were neither settlement payments [n]or
transfers in connection with a security agreement” and therefore, § 546(e) cannot apply.4 Id.

4 While this is sometimes referred to as the “knowledge exception” to the safe harbor, “Cohmad did not carve out
any atextual but equitable exception to an otherwise applicable Section 546(e) defense; rather, it simply concluded
that, in circumstances in which a transferee was complicit in Madoff Securities’ fraud, Section 546(e) did not apply
as a matter of its express terms.” Picard v. Multi-Strategy Fund Ltd. (In re BLMIS), No. 22-CV-06502 (JSR), 2022
WL 16647767, at *7 (S.D.N.Y. Nov. 3, 2022).
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)). The district court has recently affirmed this reasoning,
explaining that
the Second Circuit emphasized that innocent customers had “every right to avail
themselves of all the protections afforded to the clients of stockbrokers” because
they had “every reason to believe that BLMIS was actually engaged in the
business of effecting securities transactions . . . .” Fishman, 773 F.3d at 420. . . .
In contrast, because Fairfield allegedly knew that BLMIS was not actually
engaged in legitimate securities transactions, Appellant is not entitled to a Safe
Harbor provision that is designed to protect legitimate securities transactions. Cf.
In re MacMenamin’s Grill Ltd., 450 B.R. 414, 425 (Bankr. S.D.N.Y. 2011)
(noting that “Congress never could have meant to permit section 546(e) to protect
transactions that themselves were assaults on the securities markets, as that would
be a perversion of the statute’s purpose”) (citation omitted).

Picard v. Koch Indus., Inc., (In re BLMIS), 23-CV-00294 (VEC), 2023 WL 3317926, at *5
(S.D.N.Y. May 9, 2023). The safe harbor does not “shield[] transferees who knowingly collude
with a fraudster.” Id. at *6.
By holding that the affirmative defense provided by § 546(e) is not applicable in
situations such as the one alleged here, “sham” securities contracts do not prevent the Trustee
from clawing back complicit parties’ ill-gotten gains. The district court has already 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.” Cohmad, No. 12 MC 115(JSR), 2013 WL
1609154, at *10 (S.D.N.Y. Apr. 15, 2013); see also Picard v. Multi-Strategy Fund Ltd. (In re
BLMIS), No. 22-CV-06502 (JSR), 2022 WL 16647767, at *7 (S.D.N.Y. Nov. 3, 2022) (“[I]n
circumstances in which a transferee was complicit in Madoff Securities’ fraud, Section 546(e)
d[oes] not apply as a matter of its express terms.”).
On the issue of the safe harbor, the Court adopts the district court’s reasoning in: Picard

v. Multi-Strategy Fund Ltd. (In re BLMIS), No. 22-CV-06502 (JSR), 2022 WL 16647767
(S.D.N.Y. Nov. 3, 2022). The Trustee has alleged that Fairfield Sentry knew the payments it
received from BLMIS were neither settlement payments nor payments in connection with a
securities contract. “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)).
This Court is powerless to reconsider this issue, agrees with the district court’s reasoning,
and finds the district court’s 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).”).
This Court has already determined that the Fairfield Complaint 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”); (Fairfield Compl. ¶ 326) (“FG Advisors had 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.”).
“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 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). Where § 546(e) does not “embrace the initial
transfer, the subjective knowledge of a subsequent transferee cannot retroactively render it
applicable.” Picard v. Multi-Strategy Fund Ltd. (In re BLMIS), No. 22-CV-06502 (JSR), 2022
WL 16647767, at *7 (S.D.N.Y. Nov. 3, 2022). The Trustee’s allegations in the Fairfield
Complaint are sufficient to survive a Rule 12(b)(6) motion on this issue.
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 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.” Id.
Good Faith Defense
Platinum argues that it took the subsequent transfers “in good faith, and without
knowledge of the voidability of the transfer.” (Mem. L. 17, ECF No. 150).
i. For Value
The “value” that a subsequent transferee must provide is “merely consideration sufficient
to support a simple contract, analogous to the ‘value’ required under state law to achieve the

status of a bona fide purchaser for value.” Picard v. Legacy Capital Ltd. (In re BLMIS), 548
B.R. 13, 37 (Bankr. S.D.N.Y. 2016) (citation omitted); accord Enron Corp. v. Ave. Special
Situations Fund II, L.P. (In re Enron Corp.), 333 B.R. 205, 236 (Bankr. S.D.N.Y. 2005). In
addition, the “value” element under § 550(b)(1) looks to what the transferee gave up rather than
what the transferor received. The Amended Complaint contains no mention of either Platinum
or codefendant Fortis Isle of Man exchanging shares for consideration. (See Am. Compl. ¶¶ 70–
91, ECF No. 126). Therefore, the “value” defense is not asserted on the face of the Amended
Complaint.
ii. Good Faith
Where, in light of surrounding circumstances, a transferee should have known of the
debtor’s precarious financial condition, the transferee will be deemed to have taken in bad faith,
unless an investigation into the debtor’s financial condition actually discloses no reason to
suspect financial trouble. 2 Bankruptcy Desk Guide § 19:105. The District Court recently

explained that good faith is a fact-intensive inquiry that almost always requires a trial: “[t]he
Second Circuit made clear . . . that the inquiry notice standard requires a ‘fact-intensive inquiry
to be determined on a case-by-case basis, which naturally takes into account the disparate
circumstances of differently-situated transferees.’” In re BLMIS, No 20-cv-02586(CM), 2022
WL 1304589, at *3 (S.D.N.Y. May 2, 2022) (citing Picard v. Citibank, N.A. (In re BLMIS), 12
F.4th 171 (2d Cir. 2021), cert. denied No. 21-1059 (Feb. 28, 2022)). And that “such a fact-based
determination can only be made based on the entirety of the factual record after discovery . . . .”
Id. (internal quotation omitted).
The burden of proving good faith falls squarely on Defendant, and this Court cannot

make a determination on Defendant’s affirmative defense until after a fact-intensive inquiry.
Discovery is required on this issue.
iii. Knowledge of Avoidability
Good faith is linked with whether one had knowledge of the voidability of the transfer.
Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 189 (2d Cir. 2021) (“[A] transferee does
not act in good faith when he has sufficient actual knowledge to place him on inquiry notice of
the debtor’s possible insolvency.”), cert. denied sub nom. Citibank, N.A. v. Picard, 212 L. Ed. 2d
217, 142 S. Ct. 1209 (2022). Having determined that “good faith” cannot be found on the face of
a complaint, the Court must deny the Defendant’s motion on this element. Additionally, §
550(b)(1) provides a defense to recovery making lack of knowledge Defendant’s burden to plead
and prove. It is a fact-intensive inquiry that requires a three-step inquiry into 1) what Platinum
subjectively knew; 2) “whether these facts put [it] on inquiry notice of the fraudulent purpose
behind a transaction—that is, whether the facts the transferee[s] knew would have led a
reasonable person in [its] position to conduct further inquiry into a debtor-transferor’s possible
fraud; and 3) whether “diligent inquiry by [Platinum] would have discovered the fraudulent
purpose of the transfer.” Jd. at 192.
It is not appropriate for the Court to resolve these factual issues at this stage of the
litigation.
Conclusion
For the foregoing reasons, Defendant’s 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 SL) Hon. Cecelia G. Morris
ees U.S. Bankruptcy Judge
Page 28 of 28

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10460920. Public record. Not legal advice.