Non-Madoff Defendants

On occasion, an individual creditor acting on its own behalf will file competing claims against such non-debtors. It is not surprising that such competing claims arise frequently in bankruptcy cases involving Ponzi schemes. In those cases, a creditor may have been harmed, not only by the debtor, but by non-debtor parties through whom the creditor invested in the debtor's Ponzi scheme. These independent claims, however, have the potential to interfere with the trustee's recovery efforts. To avoid undue interference and to prevent the lone creditor from recovering for itself assets that should be available to estate creditors as a whole, the trustee frequently must seek injunctive relief to stop the competing creditor actions.

Over the seven years since the commencement of proceedings in bankruptcy court relating to Bernie Madoff's fraudulent enterprise, the liquidating trustee in those proceedings has waged numerous battles to enjoin competing creditor claims against non-debtors. While not all of those efforts have been successful, a recent bankruptcy court decision demonstrates that courts are careful to preserve a trustee's ability to pursue claims of the estate without interference, and will enjoin creditors from usurping the trustee's right to pursue claims for the benefit of the estate.