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Bernard Madoff was arrested in 2008, but the trail of infamy surrounding his Ponzi scheme is far from over when it comes to litigation, and the liquidation of assets related to the fraud. In the latest development, the Second Circuit affirmed the lower courts' rulings, and we received news that the Bankruptcy Judge presiding over the case passed away over the weekend.

Background

Understandably, there is a litany of litigation arising from Madoff's Ponzi scheme gone awry. The case before the Second Circuit had to do with a fundamental question regarding the way the litigation has been handled.

On Monday, the Second Circuit reversed a district court’s decision, affirming a bankruptcy’s court decision, granting WorldCom Debtors’ objections to an IRS proof of claim, and a motion for taxes that WorldCom previously paid.

The decision centered on how “local telephone service” was interpreted, because the federal tax code requires the addition of a three-percent tax to the purchase of a local telephone service. At issue was WorldCom’s purchase of “central-office-based remote access” (COBRA), a service that gave customers the ability to connect to the Internet and WorldCom’s network through a regular phone line.

The bankruptcy court and district court concluded that COBRA was not a local telephone service, and therefore not subject to the three-percent tax. The Second Circuit disagreed.

Wrong Words Will Cost You Under FDCPA

Words matter when your communications are scrutinized under the Fair Debt Collection Practices Act (FDCPA). For example, there’s a different between “ineligible for bankruptcy discharge” and “presumptively nondischargeable.”

Federal courts quantify that difference through damages. Which brings us to a recent decision from the Second Circuit Court of Appeals.

Court Revives Grant Thornton Securities Fraud Lawsuit

The Second Circuit Court of Appeals revived a securities fraud lawsuit on Thursday accusing Grant Thornton LLP (GT) of defrauding Winstar Communications shareholders and bondholders, reports Reuters. Winstar, a GT auditing client, went bankrupt in 2001.

Winstar was a broadband communications company that provided wireless Internet connectivity to various businesses. GT served as Winstar's independent auditor from 1994 until Winstar filed for bankruptcy in April 2001. GT had regarded Winstar as "one of its largest and most important clients," according to court filings.

Peter Angelos Can Proceed in Pfizer Asbestos Lawsuit

The Second Circuit Court of Appeals announced on Tuesday that Pfizer can be named in some class action lawsuits related to its now-defunct subsidiary, Quigley.

The ruling opens the door for Peter Angelos to pursue Pfizer under Pennsylvania law for manufacturer liability. Angelos, a prominent asbestos attorney, argues that Pfizer should be held accountable for Quigley products that contained asbestos because the Pfizer logo appeared on Quigley products, reports Bloomberg.

Alleged Ponzi-Schemer's Ex Wins Asset Freeze Dismissal

Divorcing a Ponzi-schemer offers greater financial stability than marrying a Ponzi-schemer.

Last week, the Second Circuit Court of Appeals ordered two federal agencies to un-freeze the ill-gotten gains that an alleged-Ponzi schemer’s ex-wife received through their divorce settlement. Unlike the still-married Ruth Madoff, who forfeited $80 million following husband Bernie Madoff’s arrest, this ex-wife may have a shot at keeping the funds.

Janet Schaberg was married to Stephen Walsh for more than two decades. By the time of their separation in 2004, Walsh had amassed a substantial fortune and the two negotiated a settlement that gave Schaberg a not-insubstantial fortune of her own.

Size Matters: Madoff Victims Lose Appeal Due to 15-Page Limit?

Law firms representing 200 customers cheated by Bernard L. Madoff Investment Securities Inc. (BLMIS) filed papers in the Second Circuit Court of Appeals last week requesting a full court rehearing in In Re: Bernard L. Madoff Inv. Sec., LLC.

In August, a three-judge panel affirmed a bankruptcy judge's decision to disregard the Madoff victims' falsified account statements in calculating recovery from the customer property fund.

Irving Picard, the trustee for liquidation of BLMIS, argued that the customer statements do not reflect "securities positions" that could be "liquidated" because the account statements were wholly the invention of Madoff and do not reflect actual securities positions.

Kirschner v. KPMG LLP, No. 09-2020

Litigation Trustee Lacked Standing to Sue Persons Who Allegedly Defrauded Bankrupt Company

In Kirschner v. KPMG LLP, No. 09-2020, a case involving the standing of the trustee of a bankrupt corporation's litigation trust to sue third parties who allegedly assisted corporate insiders in defrauding the corporation's creditors, the court affirmed the dismissal of the suit where the trustee lacked standing because the insiders' misconduct was imputed to the corporation.


US v. Hudson, No. 09-3600

Debtor's Appeal From Reversal of Attorney's Fee Award

In US v. Hudson, No. 09-3600, debtor's appeal from the district court's reversal of an award of attorney's fees in favor of the debtor after he successfully challenged a claim lodged against him in bankruptcy court by the IRS, the court affirmed where lawyers appearing pro se who prevail in administrative or court proceedings against the U.S. are ineligible for attorneys' fees under IRC section 7430.

Simmons v. Roundup Funding, LLC, No. 09-4984

Fair Debt Collection Practices Act Involving Inflated Proof of Bankruptcy Claim

In Simmons v. Roundup Funding, LLC, No. 09-4984, a Fair Debt Collection Practices Act action claiming that a creditor filed an inflated proof of claim in plaintiffs' bankruptcy, the court affirmed the dismissal of the complaint where a proof of claim filed in bankruptcy court cannot form the basis for a claim under the Fair Debt Collection Practices Act.