Case 1:12-cv RJS Document 10 Filed 10/12/12 Page 1 of 42

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 1 of 42 Baker & Hostetler LLP 45 Rockefeller Plaza New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Estate of Bernard L. Madoff UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, v. Plaintiff, BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Case No. 1:12-cv-06109-RJS (Bankruptcy Appeal) (Oral Argument Requested) In re: Defendant. BERNARD L. MADOFF, Debtor. BRIEF OF APPELLEE IRVING H. PICARD, AS TRUSTEE FOR THE SUBSTANTIVELY CONSOLIDATED SIPA LIQUIDATION OF BERNARD L. MADOFF INVESTMENT SECURITIES LLC AND THE ESTATE OF BERNARD L. MADOFF

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 2 of 42 TABLE OF CONTENTS Page STATEMENT OF ISSUES PRESENTED... 1 STATEMENT OF THE CASE... 2 BASIS OF APPELLATE JURISDICTION... 4 STANDARD OF REVIEW... 5 STATEMENT OF FACTS... 5 I. BACKGROUND... 6 II. A. Appellants Participation in the Claims Administration Process... 6 B. The Net Equity Decision... 7 THE TRUSTEE S PROCEEDINGS AGAINST THE PICOWER DEFENDANTS... 7 A. The Trustee s Picower Complaint... 7 B. The Picower Settlement and Picower Injunction... 8 1. The Picower Settlement... 8 2. The Picower Injunction... 9 3. The Bankruptcy Court s Approval of the Picower Settlement and Picower Injunction and the District Court s Affirmance... 9 III. THE CLASS ACTION COMPLAINTS... 11 IV. A. The Class Definitions... 11 B. The Allegations in the Class Action Complaints Mimic the Trustee s Allegations and Seek Fraudulently Transferred Funds... 12 THE BANKRUPTCY COURT S DENIAL OF APPELLANTS MOTIONS... 15 SUMMARY OF ARGUMENT... 16 ARGUMENT... 18 THE BANKRUPTCY COURT CORRECTLY HELD THAT THE CLASS ACTIONS SHOULD NOT BE ALLOWED TO PROCEED... 18 I. THE CLASS ACTION CLAIMS ARE DUPLICATIVE AND DERIVATIVE OF THE TRUSTEE S PICOWER ACTION... 18 A. The Bankruptcy Court Correctly Found the Class Action Claims To Be Duplicative and Derivative of the Trustee s Claims... 18 1. The Bankruptcy Court Appropriately Evaluated the Substance of Appellants Claims... 20 -i-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 3 of 42 TABLE OF CONTENTS (continued) Page II. III. 2. The Trustee s Hypothetical Standing to Bring Appellants Claims Is Irrelevant... 25 B. Appellants Are Attempting to Re-Litigate the Net Equity Decision... 26 C. The Goldman Class Actions Imperil Future Settlements... 27 THE GOLDMAN CLASS ACTIONS VIOLATE THE AUTOMATIC STAY AND THE RELATED STAY ORDERS... 28 THE BANKRUPTCY COURT HAS JURISDICTION TO ENFORCE THE PICOWER INJUNCTION, AUTOMATIC STAY, AND STAY ORDERS... 31 CONCLUSION... 35 -ii-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 4 of 42 TABLE OF AUTHORITIES CASES Page(s) AP Indus., Inc. v. SN Phelps & Co. (In re AP Indus., Inc.), 117 B.R. 789 (Bankr. S.D.N.Y. 1990)...24 Bondi v. Grant Thornton Int l (In re Parmalat Sec. Litig.), 377 F. Supp. 2d 390 (S.D.N.Y. 2005)...30 Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648 (6th Cir. 2002)...34 Commonwealth Oil Refining Co. v. U.S. Envtl. Prot. Agency (In re Commonwealth Oil Refining Co.), 805 F.2d 1175 (5th Cir. 1986)...25 Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005)...18, 33, 34 FDIC v. Hirsch (In re Colonial Realty Co.), 980 F.2d 125 (2d Cir. 1992)...29 Fisher v. Apostolou, 155 F.3d 876 (7th Cir. 1998)...21 Fox v. Picard, 848 F. Supp. 2d 469 (S.D.N.Y. 2012)... passim Gardi v. Gowan (In re Dreier LLP), No. 10 Civ. 4758 (DAB), 2010 WL 3835179 (S.D.N.Y. Sept. 10, 2010)...20, 30 Gourmet Ctr., Inc. v. Fox (In re Sage Enters., Inc.), No. 04-B-05548, 2006 WL 1722582 (Bankr. N.D. Ill. Apr. 28, 2006)...31 H & C Dev. Grp., Inc. v. Miner (In re Miner), 229 B.R. 561 (B.A.P. 2d Cir. 1999)...5 Highland Capital Mgmt. LP v. Chesapeake Energy Corp. (In re Seven Seas Petrol., Inc.), 522 F.3d 575 (5th Cir. 2008)...19 Hirsch v. Arthur Andersen & Co., 72 F.3d 1085 (2d Cir. 1995)...30 In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011)...2 In re Bernard L. Madoff Inv. Sec. LLC, No. 11 Civ. 2135 (AKH), 2011 WL 7981599 (S.D.N.Y. Dec. 5, 2011)...23 -iii-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 5 of 42 TABLE OF AUTHORITIES (continued) Page(s) In re Cabrini Med. Ctr., No. 09-14398 (ALG), 2012 WL 2254386 (Bankr. S.D.N.Y. June 15, 2012)...29, 30 In re Dreier LLP, 429 B.R. 112 (Bankr. S.D.N.Y. 2010)... passim In re Motors Liquidation Co., 447 B.R. 198 (Bankr. S.D.N.Y. 2008)...34 In re Sturman, No. 10 Civ. 6725 (RJS), 2011 WL 4472412 (S.D.N.Y. Sept. 27, 2011)...32 In re Swallen s, Inc., 205 B.R. 879 (Bankr. S.D. Ohio 1997)...21 Kagan v. Saint Vincents Catholic Med. Ctrs. of N.Y. (In re Saint Vincents Catholic Med. Ctrs. of N.Y.), 449 B.R. 209 (S.D.N.Y. 2011)...5, 26 Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111 (2d Cir. 2007)...5 Keene Corp. v. Coleman (In re Keene Corp.), 164 B.R. 844 (Bankr. S.D.N.Y. 1994)...21, 33 Kenton Cnty. Bondholders Comm. v. Delta Air Lines, Inc. (In re Delta Air Lines, Inc.), 374 B.R. 516 (S.D.N.Y. 2007)...32 Knauer v. Jonathan Robert Fin. Grp., Inc., No. 01-1168, 2002 WL 31431484 (S.D. Ind. Sept. 30, 2002)...20 Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380 (2d Cir. 1997)...5 McHale v. Alvarez (In re 1031 Tax Grp. LLC), 397 B.R. 670 (Bankr. S.D.N.Y. 2008)...20, 21 Mindlin v. Drexel Burnham Lambert Grp., Inc. (In re Drexel Burnham Lambert Grp., Inc.), 160 B.R. 508 (S.D.N.Y. 1993)...31, 32 Ortega v. Duncan, 333 F.3d 102 (2d Cir. 2003)...5 Pereira v. Farace, 413 F.3d 330 (2d Cir. 2005)...30 -iv-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 6 of 42 TABLE OF AUTHORITIES (continued) Page(s) Pfizer Inc. v. Law Offices of Peter G. Angelos (In re Quigley Co.), 676 F.3d 45 (2d Cir. 2012)...32, 33 Picard v. Cohmad Sec. Corp., 443 B.R. 291 (Bankr. S.D.N.Y. 2011)...32 Picard v. Fox, 429 B.R. 423 (Bankr. S.D.N.Y. 2010)...19, 28, 29 Picard v. HSBC Bank PLC, 454 B.R. 25 (S.D.N.Y. 2011)...26 Picard v. JPMorgan Chase & Co., 460 B.R. 84 (S.D.N.Y. 2011)...26 Picard v. Stahl, 443 B.R. 295 (Bankr. S.D.N.Y. 2011)... passim Rittmaster v. Painewebber Grp., Inc. (In re Painewebber Ltd. P ships Litig.), 147 F.3d 132 (2d Cir. 1998)...27 Rosenberg v. XO Commc ns, Inc. (In re XO Commc ns, Inc.), 330 B.R. 394 (Bankr. S.D.N.Y. 2005)...34 Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122 (Bankr. S.D.N.Y. 2010)... passim Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No. 01789, B.R., 2012 WL 2377787 (Bankr. S.D.N.Y. June 20, 2012)... passim SEC v. Drexel Burnham Lambert Grp., Inc. (In re Drexel Burnham Lambert Grp., Inc.), 960 F.2d 285 (2d Cir. 1992)...34 SEC v. Int l Loan Network, Inc., 968 F.2d 1304 (D.C. Cir. 1992)...22 SEC v. Koscot Interplanetary, Inc., 497 F.2d 473 (5th Cir. 1974)...22 SEC v. Lauer, 52 F.3d 667 (7th Cir. 1995)...22 SEC v. Unique Fin. Concepts, Inc., 196 F.3d 1195 (11th Cir. 1999)...22 -v-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 7 of 42 TABLE OF AUTHORITIES (continued) Page(s) St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989)... passim Stenger v. R.H. Love Galleries, Inc., 741 F.2d 144 (7th Cir. 1984)...22 Travelers Cas. & Sur. Co. v. Chubb Indem. Ins. Co. (In re Johns-Manville Corp.), 517 F.3d 52 (2d Cir. 2008)...32, 33 United States v. $7,206,157,717 on Deposit at JP Morgan Chase Bank, N.A., 274 F.R.D. 125 (S.D.N.Y. 2011)...10 Webster v. Omnitrition Int l, Inc., 79 F.3d 776 (9th Cir. 1996)...22 STATUTES 11 U.S.C. 105...5 11 U.S.C. 105(a)...9, 25 11 U.S.C. 362...25 11 U.S.C. 362(a)...21, 25, 28 15 U.S.C. 78fff-2...27 28 U.S.C. 157(a)...32 28 U.S.C. 158(a)(1)...4 28 U.S.C. 1334(b)...31, 32 -vi-

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 8 of 42 Irving H. Picard, as trustee (the Trustee ) for the substantively consolidated liquidation of the business of Bernard L. Madoff Investment Securities LLC ( BLMIS ) and the estate of Bernard L. Madoff ( Madoff ), under the Securities Investor Protection Act ( SIPA ), 15 U.S.C. 78aaa et. seq., by his undersigned counsel, respectfully submits this brief in opposition to the brief filed by A & G Goldman Partnership ( A&G Goldman ) and Pamela Goldman ( Pamela Goldman, and with A&G Goldman, Appellants ). This is an appeal of the order entered on June 20, 2012 by the United States Bankruptcy Court for the Southern District of New York, Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC, Adv. Pro. No. 01789, B.R., 2012 WL 2377787 (Bankr. S.D.N.Y. June 20, 2012) (the Order ), which denied Appellants motions seeking to lift the automatic stay and to obtain a determination that the putative securities class actions they seek to file in federal court in Florida (the Goldman Class Actions ) against the estate of Jeffry M. Picower and related defendants (the Picower Defendants ) do not violate the order issued by this Court on January 13, 2011, affirmed on appeal by the United States District Court for the Southern District of New York (the District Court ) on March 26, 2012, issuing a permanent injunction (the Picower Injunction ) as part of the Trustee s settlement with the Picower Defendants. STATEMENT OF ISSUES PRESENTED At issue on this appeal is whether the bankruptcy court: (i) clearly erred in finding that the Goldman Class Actions were duplicative and derivative of the Trustee s action against the Picower Defendants ( Trustee s Picower Action ); (ii) manifestly abused its discretion in concluding that the Goldman Class Actions are precluded by the Picower Injunction as well as by the automatic stay and related District Court stay orders; and (iii) had the jurisdiction to make these determinations.

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 9 of 42 STATEMENT OF THE CASE Appellants are BLMIS customers who are not satisfied with the distributions to which they are entitled under the bankruptcy court s net equity decision, affirmed by the Second Circuit, which holds that BLMIS customers are entitled only to their net investments based on the dollars they put in and took out of BLMIS, not to their false profits. Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122 (Bankr. S.D.N.Y. 2010), aff d, In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229 (2d Cir. 2011) (the Net Equity Decision ). Unhappy with the Net Equity Decision, Appellants seek to certify classes of BLMIS net winners and net losers. The bankruptcy court held that Appellants Goldman Class Actions, cloaked in the garb of the securities laws, were nothing but a rehash of the Trustee s claims against the Picower Defendants claims which the Trustee settled for an unprecedented $5 billion, with an additional recovery of funds forfeited by the Picower Defendants to the U.S. Attorney s Office for the Southern District of New York in the amount of $2.2 billion (together, the Picower Settlement ). The Picower Settlement accounts for every cent of the Picower Defendants net withdrawals from BLMIS. Given the extraordinary nature of the Picower Settlement, as part and parcel of that Settlement, the Trustee agreed to use his best efforts to ensure that plaintiffs, such as Appellants, would not be able to obtain double recoveries from the Picower Defendants. To that end, the bankruptcy court entered the Picower Injunction, a permanent injunction which is narrowly tailored to prevent lawsuits against the Picower Defendants that are duplicative of the Trustee s claims against the Picower Defendants or derive from those claims. The Picower Injunction was affirmed as part of the Picower Settlement by Judge John G. Koeltl of this Court. Fox v. Picard, 2

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 10 of 42 848 F. Supp. 2d 469 (S.D.N.Y. 2012), on appeal, Fox v. Picard, No. 12-1645 (2d Cir. filed Apr. 24, 2012). As much as Appellants contend that it is unprecedented for a court to preclude claims by non-debtor third parties against other non-debtor third parties, they ignore that this very Court has done so. In affirming the Picower Injunction, Judge Koeltl was faced with the same situation as here: claims that mirror those of the Trustee that were repackaged with differently named causes of action in an effort to circumvent the Picower Injunction, as well as the automatic stay provisions of the Bankruptcy Code and related orders. Indeed, the putative class actions that Judge Koeltl examined with Adele Fox and Susanne Stone Marshall as named plaintiffs (the Fox and Marshall Class Actions ) were brought by the very same counsel as here, in federal court in Florida, counsel s forum of choice here, too. Counsel s second attempt to circumvent the bankruptcy court s jurisdiction over the administration of the estate must fail for the same reasons as their first attempt: the claims asserted... are duplicative of those asserted in the Trustee s... Action, and they are therefore property of the estate, and cannot be asserted... notwithstanding the Appellants renaming of the causes of action asserted. Fox, 848 F. Supp. 2d at 482. Appellants argue that they are asserting independent securities claims, but they have merely, as the bankruptcy court determined, repeated, repackaged, and relabeled the wrongs alleged by the Trustee in an attempt to create independent claims where none exist. (Order at *2.) Appellants seek to represent classes comprising all BLMIS investors who were allegedly damaged by the loss of their investments into BLMIS, and whose claims against the Picower Defendants are based upon the withdrawals of funds from BLMIS made by the Picower Defendants. Notwithstanding Appellants characterization of their claims as securities claims 3

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 11 of 42 and the Picower Defendants as control persons, there is no privity or special relationship alleged between Appellants and the Picower Defendants or conduct by the Picower Defendants other than the receipt of fraudulent transfers as alleged in the Trustee s Picower Action. Nor, despite the recharacterization of damages as loss of value of securities, is there any harm alleged to have been suffered by Appellants other than the loss of their investment caused by the collapse of BLMIS. Thus, the only claims asserted are generalized claims that, no matter their nomenclature, belong exclusively to the estate and are shared by all BLMIS customers. Appellants claim that the bankruptcy court failed to truly consider the substance of their claims and, at the same time, looked too closely at their claims in its factual determination that Appellants claims were merely an effort to circumvent the Picower Injunction. As the record shows, the bankruptcy court painstakingly compared the allegations and the relief sought in the Goldman Class Actions with those in the Trustee s Picower Action, as well as with those in the Fox and Marshall Class Actions. (Order at *5.) Considering the substance of the allegations and relief sought, the bankruptcy court properly concluded that notwithstanding Appellants artful pleading, they had done nothing more than dub BLMIS s bank account a securit[y] and unconvincingly attempt[ed] to plead a particularized injury by reclassifying actions... under a different body of law and manufacturing a duty thereunder.... (Order at *4.) Appellants efforts to circumvent the Picower Injunction and undermine the Picower Settlement must be rejected. Accordingly, the Trustee respectfully requests that the Order be affirmed. BASIS OF APPELLATE JURISDICTION This Court has jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy courts. See 28 U.S.C. 158(a)(1). The Order is a final order subject to appeal under 28 U.S.C. 158(a)(1). 4

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 12 of 42 STANDARD OF REVIEW The legal conclusions of the bankruptcy court are reviewed de novo, but the findings of fact are reversed only when they are clearly erroneous. Kagan v. Saint Vincents Catholic Med. Ctrs. of N.Y. (In re Saint Vincents Catholic Med. Ctrs. of N.Y.), 449 B.R. 209, 213 (S.D.N.Y. 2011); see also Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 390 (2d Cir. 1997). The bankruptcy court made the factual determination that Appellants claims are duplicative and derivative of the Trustee s Action. Any party seeking to overturn a bankruptcy court s factual conclusions bears a heavy burden. H & C Dev. Grp., Inc. v. Miner (In re Miner), 229 B.R. 561, 565 (B.A.P. 2d Cir. 1999). [T]he reviewing court must be left with a definite and firm conviction that a mistake has been made before overturning such factual findings. Saint Vincents, 449 B.R. at 213 (quoting Ortega v. Duncan, 333 F.3d 102, 107 (2d Cir. 2003)). The bankruptcy court s application of an injunction under 11 U.S.C. 105 is reviewed for abuse of discretion. Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111, 118 19 (2d Cir. 2007). 1 STATEMENT OF FACTS At issue on this Appeal are two putative class actions against the Picower Defendants which Appellants A&G Goldman and Pamela Goldman sought leave to file in federal court in Florida. Counsel for Appellants also represented Adele Fox and Susanne Stone Marshall, who previously filed the Fox and Marshall Class Actions against the Picower Defendants in federal court in Florida. This Court found the Fox and Marshall Class Actions to be violative of the Picower Injunction because they are duplicative and derivative of the Trustee s Picower Action. 1 The bankruptcy court s issuance of the Picower Injunction is not subject to this appeal and, in fact, already has been upheld on appeal by this court. See Fox, 848 F. Supp. 2d 469. Cases cited by Appellants regarding the standard of review for whether the Bankruptcy Court had jurisdiction to enter [the Picower] Injunction thus are not relevant. (See App. Br. at 8.) 5

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 13 of 42 Fox, 848 F. Supp. 2d at 482. Fox and Marshall have appealed to the Second Circuit. Fox v. Picard, No. 12-1645 (2d Cir. filed Apr. 24, 2012). I. BACKGROUND The details of Madoff s Ponzi scheme and the background of the bankruptcy proceedings have been set forth numerous times and need not be repeated here. See, e.g., Net Equity Decision, 424 B.R. at 125 32. A. Appellants Participation in the Claims Administration Process The bankruptcy court entered a Claims Procedures Order to implement a customer claims process under SIPA. Appellants were among those that submitted customer claims to the Trustee. A&G Goldman Partnership submitted claim 015036 for BLMIS account number 1G0304, which was denied by the Trustee because the partnership had withdrawn more funds than it had deposited. (See Affidavit of Matthew Cohen in Support of Trustee s Opposition ( Cohen Aff. ) 3 (A0232); Objection, Adv. Pro. No. 08-1789 (Bankr. S.D.N.Y.), ECF No. 492.) 2 Pamela Goldman, a net loser, submitted customer claims for BLMIS account numbers 1G0233 and 1G0094, which the Trustee allowed. (Cohen Aff. 4; A0232.) Her claims were satisfied through SIPC advances and an interim distribution from the fund of customer property. (Cohen Aff. 5; A0232.) 2 Items placed on the record in Appellants Designation of the Record on Appeal, ECF No. 2 (Aug. 10, 2012), are presented with consecutive pagination in the Appendix ( Appendix ) appended to Appellants Brief ( App. Br. ), ECF No. 8 (Sept. 14, 2012). References to the Appendix will be denoted as A.. References to the additional items placed on the record in the Trustee s Counter-Designation of the Record on Appeal, ECF No. 3 (Aug. 10, 2010) ( Counter-Designation ), will be denoted by the item number identified in the Counter- Designation, in the form Item No.. 6

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 14 of 42 B. The Net Equity Decision Consistent with SIPA, the Trustee determined that each customer s net equity should be calculated by the net investment method, crediting the amount of cash deposited by the customer into their BLMIS account, less any amounts withdrawn from their BLMIS customer account. Net Equity Decision, 424 B.R. at 125. Certain customers, however, asserted that they should be entitled to recover the amount on their last customer account statement, even though those statements were fictitious and reflected fake profits and nonexistent trades. Id. The bankruptcy court approved the Trustee s use of the net investment method and issued an order affirming the Trustee s calculation of net equity. Net Equity Decision, 424 B.R. at 122. The Second Circuit affirmed the Net Equity Decision, holding, among other things, that other methods would aggravate the injuries caused by Madoff s fraud, and that use of the fictitious profits shown on customer statements would have the absurd effect of treating fictitious and arbitrarily assigned paper profits as real and would give legal effect to Madoff s machinations. Id. at 235. On June 25, 2012, the United States Supreme Court denied certiorari. Velvel v. Picard, No. 11-986, S. Ct., 2012 WL 425188 (U.S. Jun 25, 2012); Ryan v. Picard, No. 11-969, S. Ct., 2012 WL 396489 (U.S. June 25, 2012). II. THE TRUSTEE S PROCEEDINGS AGAINST THE PICOWER DEFENDANTS A. The Trustee s Picower Complaint The Trustee filed a complaint against the Picower Defendants on May 12, 2009 ( Trustee s Picower Complaint ) (Item No. 4). The Trustee s Picower Complaint identified more than $6.7 billion in withdrawals that the Trustee alleged the Picower Defendants had received from BLMIS. (See Tr. Picower Compl. 57, 63(b), 67.) The Complaint alleged that the Picower Defendants knew or should have known that BLMIS was engaged in fraudulent 7

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 15 of 42 activity and sought recovery of the entire amount known at the time of filing to have been transferred from BLMIS to the Picower Defendants. (Id. 3, 4, 28, 57, 65 67.) After filing the Complaint, the Trustee identified additional transfers from BLMIS to the Picower Defendants. With these additional fraudulent transfers, the total amount of net withdrawals sought by the Trustee was more than $7.2 billion. (See Mem. of Law in Opp n to Def. s Partial Mot. to Dismiss at 2, Adv. Pro. No. 09-01197 (BRL) (Bankr. S.D.N.Y. Sept. 30, 2009), ECF No. 11) (Item No. 5).) B. The Picower Settlement and Picower Injunction 1. The Picower Settlement While the Trustee s Picower Action was pending against the Picower Defendants, the Government was in settlement discussions with their counsel. (See Mem. of Law in Supp. of Trustee s Mot. for Entry of an Order Approving the Picower Settlement at 7 8, Adv. Pro. No. 09-01197 (BRL) (Bankr. S.D.N.Y. Dec. 17, 2010), ECF No. 25 (the 9019 Mem. ) (Item No. 6).) The Trustee and the United States Attorney for the Southern District of New York ultimately coordinated their efforts to reach agreement with the Picower estate, providing closure and finality to the Picower Defendants in exchange for the return of all of their net withdrawals from BLMIS. (Id. at 11 12.) As a result of months of extensive negotiations among all three parties, the Trustee and the Picower Defendants reached an agreement (the Settlement Agreement ) under which the Picower estate agreed to return $5 billion to the BLMIS estate (the Bankruptcy Settlement Amount ) and forfeit approximately $2.2 billion (the Government Settlement Funds ) to the United States Attorneys Office for the Southern District of New York. (See 9019 Mem. at 11.) 8

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 16 of 42 2. The Picower Injunction In exchange for the return of 100% of the Picower Defendants net withdrawals, the Trustee agreed to and sought a narrowly-tailored permanent injunction from the bankruptcy court under Bankruptcy Code section 105(a) to prevent putative plaintiffs from filing lawsuits that were duplicative and derivative of the Trustee s claims and thus subjecting the Picower Defendants to potential duplicative recovery. The Picower Injunction (9019 Mem. Ex. A at 5 6.) enjoin[s] any BLMIS customer or creditor of the BLMIS estate who filed or could have filed a claim, anyone acting on their behalf or in concert or participation with them, or anyone whose claim in any way arises from or relates to BLMIS or the Madoff Ponzi scheme, from asserting any claim against the Picower BLMIS Accounts... and the Picower Releasees... that is duplicative or derivative of the claims brought by the Trustee, or which could have been brought by the Trustee, against the Picower Defendants. The Picower Injunction excludes from its scope actions where there is an independent basis on which to bring suit, but enjoins claims that would impact the administration of the BLMIS liquidation. (See 9019 Mem. at 23.) The Trustee specifically agreed to use his reasonable best efforts to obtain the Picower Injunction and to litigate any appeals of the Picower Injunction, and the injunction was identified by the Picower Defendants as an essential part of the settlement. (Id. at 27.) 3. The Bankruptcy Court s Approval of the Picower Settlement and Picower Injunction and the District Court s Affirmance The bankruptcy court approved the Picower Settlement and issued the Picower Injunction on January 13, 2011. (Order signed on 1/13/2011, Adv. Pro. No. 09-01197 (Bankr. S.D.N.Y. Jan. 13, 2011), ECF No. 43 (Item No. 7).) The District Court upheld the Picower Settlement and Picower Injunction on March 26, 2012. Fox, 848 F. Supp. 2d at 469. Only two objectors 9

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 17 of 42 appealed the bankruptcy court s order to the District Court, Fox and Marshall. 3 Judge Koeltl examined their two putative class actions and determined that their claims were duplicative and derivative of the Trustee s claims, and were thus barred by the Picower Injunction, as well as by the automatic stay. The District Court found that the Fox and Marshall Class Actions failed to identify any acts by the Picower Defendants directed toward or duties owed to Fox and Marshall alone. Fox, 848 F. Supp. 2d at 479. Similarly, the District Court concluded that the wrongs pleaded by the Trustee and Fox and Marshall were the same: like the Trustee s claim, Fox and Marshall alleged wrongful acts harmed every BLMIS investor (and BLMIS itself) in the same way: by withdrawing billions of dollars in customer funds from BLMIS and thus substantially diminishing the assets available to BLMIS to pay its customers and creditors.... Id. at 480. Thus, the claims asserted in the [Fox and Marshall Class] Actions are, at bottom, general ones that seek to recover for an injury that was inflicted... by a single set of actions that harmed BLMIS and all BLMIS customers in the same way and for the same reason. Id. (citing St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989). The District Court therefore concluded that the claims asserted by Fox and Marshall were property of the BLMIS estate. Fox, 848 F. Supp. 2d at 482. The District Court further held that the so-called tort damages sought in the Fox and Marshall Class Actions were of the same type 3 Fox also moved to intervene in the Government s forfeiture action, which the District Court denied, holding that Fox s dispute was with the Net Equity Decision, and that Fox had no claim to the forfeited assets. See generally United States v. $7,206,157,717 on Deposit at JP Morgan Chase Bank, N.A., 274 F.R.D. 125 (S.D.N.Y. 2011). Fox appealed from the District Court s order, and the United States Attorney for the Southern District of New York moved to dismiss the appeal as frivolous. (Affirmation of Assistant U.S. Att y 4, United States v. $7,206,157,717 on Deposit at JP Morgan Chase Bank, N.A., No. 11-CV-2898 (2d Cir. Jan. 26, 2012), ECF No. 44 (Item No. 12).) On April 17, 2012, the Second Circuit dismissed the appeal as lacking a basis in law or fact. No. 11-CV-2898 (Apr. 17, 2012), ECF No. 83. 10

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 18 of 42 suffered by every other customer and caused by the depletion of BLMIS s assets, and, therefore, subject to the automatic stay and Picower Injunction. Id. at 480 81. In addition, citing In re Dreier LLP, 429 B.R. 112, 133 (Bankr. S.D.N.Y. 2010), the Court held that the Picower Injunction was a proper exercise of the bankruptcy court s power. Fox, 848 F. Supp. 2d at 486. Finding once again that Fox s and Marshall s claims were not independent, the Court held that because the only claims being released belonged to the estate, the estate was the appropriate party to settle them, and that the injunction did not constitute a non-consensual third party release. Id. at 489 90. III. THE CLASS ACTION COMPLAINTS Appellants are BLMIS customers who participated in the claims resolution process. The classes they purport to represent are nothing less than all BLMIS customers the same customers represented by the Trustee. A. The Class Definitions Appellants sought permission from the bankruptcy court to file two putative class actions in federal court in Florida. Pamela Goldman seeks to certify a class consisting of: (1) all brokerage customers of BLMIS who at any time entrusted securities or cash to BLMIS and at such time granted to BLMIS or its employees or agents trading authority and discretion with respect to assets in such brokerage accounts for trading in the BLMIS stock/options trading program (the BLMIS Discretionary Trading Program ); and (2) who have not received the full account value of their BLMIS account(s) as of the date of the BLMIS bankruptcy/sipc liquidation; and (3) who have not received sufficient payments directly or indirectly from SIPC or from the BLMIS estate on behalf of SIPC to cover the full amount of their losses (the Class ). (Pamela Goldman Compl. 62 (A0115) (emphasis added).) A&G Goldman seeks to certify the following class: 11

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 19 of 42 (1) all brokerage customers of BLMIS who at any time entrusted securities or cash to BLMIS and at such time granted to BLMIS or its employees or agents trading authority and discretion with respect to assets in such brokerage accounts for trading in the BLMIS stock/options trading program (the BLMIS Discretionary Trading Program ); and (2) who have not received the full account value of their BLMIS account(s) as of the date of the BLMIS bankruptcy/sipc liquidation; and (3) who have not received and are not eligible to receive any payments directly or indirectly from SIPC or from the BLMIS estate on behalf of SIPC (the Class ). (See A&G Goldman Compl. 62 (A0029) (emphasis added).) Thus, while Pamela Goldman seeks to represent so-called net losers, A&G Goldman seeks to represent net winners. Together, they seek to represent customers and creditors already before the bankruptcy court, and for whom the bankruptcy court has already determined equitable distributions in accordance with the net equity method approved by the Second Circuit. Net Equity Decision, 424 B.R. at 142. The Goldman Class Actions thus seek to create a shadow estate, which would award a greater amount to customers than approved by the Net Equity Decision through claims that are the same as those settled by the Trustee. B. The Allegations in the Class Action Complaints Mimic the Trustee s Allegations and Seek Fraudulently Transferred Funds The Goldman Class Actions, like the Trustee s Picower Action and the Fox and Marshall Class Actions, which this Court previously found to be duplicative and derivative of the Trustee s Picower Action, allege that the Picower Defendants received billions of dollars of transfers from BLMIS under circumstances that suggest Picower knew or should have known that BLMIS was engaged in fraud. In the various actions, there is no substantive difference in the acts alleged by the Picower Defendants or the Picower Defendants relationship to the alleged class members. Indeed, as demonstrated in Exhibit A to the bankruptcy court s order (A0376 0392), the complaints are virtual carbon copies of each other. 12

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 20 of 42 The only thing new here is the labeling of these claims: instead of fraudulent transfers or conspiracy to defraud, Appellants allege Picower was a control person under section 20(a) of the Exchange Act with respect to BLMIS and participated with BLMIS in violations of Rule 10b-5 of the Exchange Act. (See, e.g., Pamela Goldman Compl. 4, 41 (A0101, A0109); A&G Goldman Compl. 4, 41 (A0015, A0023).) The purported federal securities laws violations are based on the Picower Defendants withdrawals from BLMIS: The volume, pattern and practice of the Defendants fraudulent withdrawals from BLMIS and their control over fraudulent documentation of underlying transactions at BLMIS establishes the Defendants control person liability under the federal securities laws. (Pamela Goldman Compl. 41 (A0109); A&G Goldman Compl. 41 (A0023).) The alleged wrongdoing by Picower consists of his fraudulent transfers from BLMIS, which mirror allegations in the Trustee s complaint. (See, e.g., Pamela Goldman Compl. 44 (A0110); A&G Goldman Compl. 44 (A0024) ( Jeffry Picower knew of the existence of [Madoff s] scheme and... Jeffry Picower was taking fraudulent profits from the BLMIS customer accounts. ); Pamela Goldman Compl. 45 (A0110); A&G Goldman Compl. 45 (A0024) ( Picower was able to control BLMIS and use BLMIS as a personal piggy bank by withdrawing funds for various entities he controlled, even if there was no legitimate underlying profitable transaction warranting a distribution of such funds. ); Pamela Goldman Compl. 51 (A0111 0112); A&G Goldman Compl. 51 (A0025 0026) ( The pattern of transactions in the Defendants accounts reveals their fraudulent nature. Each quarter, Picower, directly and through the other Defendants and other agents, directed the withdrawal of large sums of money divided into odd numbers spread over many of the Defendant accounts. ); see also Tr. Compl. 66 ( The Transfers were, in part, false and fraudulent payments of nonexistent profits supposedly 13

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 21 of 42 earned in the Accounts ( Fictitious Profits ). ); Mem. of Law in Support of Joint Mot. for Entry of Order Substantively Consolidating the Estate of Bernard L. Madoff Into the SIPA Proceeding of Bernard L. Madoff Investment Securities LLC, Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No. 08 1789 (BRL) (S.D.N.Y. May 5, 2009), ECF No. 196 ( This entanglement permitted Madoff, at his whim and desire, to engage in innumerable financial transactions wherein he essentially used BLMIS as his personal piggy bank,... ).) These circumstances were also alleged in the Fox and Marshall Class Actions (see, e.g., Fox Compl. (Item No. 9) 49 50; Marshall Compl. (Item No. 11) 49 50 ( The several BLMIS accounts of Defendant Decisions Incorporated, which was controlled by Picower, provide concrete examples of the obviously fictitious profits Defendants received as a result of their participation in the Ponzi scheme. These accounts were a primary source of Defendants cash withdrawals from BLMIS during the relevant time period, yet the accounts reflected virtually no trading activity and very few purported securities positions. )), which this court has already found to be duplicative and derivative of the Trustee s Complaint. Fox, 848 F. Supp. 2d at 483. Although their claims are based on the Picower Defendants fraudulent transfers from BLMIS, Appellants insist that their damages are not the loss of their investment with BLMIS, but the loss in value of their alleged security interest in BLMIS. (See App. Br. at 16 17.) As a threshold matter, Appellants filed SIPA customer claims based the purported value of their individual customer accounts held at BLMIS, and have received payment on those claims. This is fundamentally inconsistent with their new theory that what they owned was a security interest in BLMIS itself. In any event, however they characterize their damages, any losses attributable to the Picower Defendants were caused by the Picower Defendants withdrawal of 14

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 22 of 42 customer funds, which injured these Appellants the same way it injured all other creditors and BLMIS itself, by reducing its assets. There are no independent damages here. 4 IV. THE BANKRUPTCY COURT S DENIAL OF APPELLANTS MOTIONS On June 20, 2012, the bankruptcy court denied Appellants motions for a determination that the Class Actions do not violate the Picower Injunction or the automatic stay. See Order. The bankruptcy court expressed frustration at the tactics of Appellants and their counsel, and the proliferation of actions seeking to circumvent the Net Equity Decision and disrupt the pro rata distribution provided by SIPA. It s déjà vu all over again.... The Class Action Plaintiffs are attempting to use inventive pleading to sidestep the automatic stay and the Picower Injunction. (Order at *2 (internal quotations omitted).) The court emphasized that Appellants have simply repeated, repackaged, and relabeled the wrongs alleged by the Trustee [against the Picower Defendants] in an attempt to create independent claims where none exist. (Id.) In fact, the court found that Appellants re-iterate the Trustee s allegations almost verbatim. (Id.) The bankruptcy court rejected Appellants motions for three primary reasons. First, the court found that despite the nominal title of their causes of action, the Class Action Complaints raised issues substantially identical to the Trustee s Picower Complaint. (Order at *3.) Specifically, the court found that the Plaintiffs action is based on pleadings that are nearly identical to those of the Trustee, that they substantially parroted the Trustee s Complaint, and also mimic those set out in the Fox and Marshall complaints, which this Court found to be duplicative of the Trustee s, a finding the District Court affirmed. (Id.) The bankruptcy court recounted numerous examples of overlap between Appellants allegations and those of the 4 Not only do the Goldman Class Actions mimic the allegations in the Trustee s Picower Action, but they also parrot the allegations in the Fox and Marshall Class Actions (brought by the same counsel as here) that this Court has held to be duplicative and derivative of the Trustee s Picower Action. See Fox, 848 F. Supp. 2d at 483; Order Ex. A (A0376 0392). 15

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 23 of 42 Trustee, as well as those of Fox and Marshall. The court also included an exhibit, originally submitted by the Trustee, which substantially reflects and links the cloning of the pleadings. (Id. at *3 n.12; see id. Ex. A.) Second, the court found Appellants claims to be derivative of the Trustee s. (Order at *4.) Indeed, the court found that the alleged harms are limited to general direction and control and action to the detriment of all [BLMIS s] creditors. (Id.) Thus, the court found that Appellants did not state a particularized injury. Third, the bankruptcy court found that the Class Action Complaints, like the Fox and Marshall complaints, are simply yet another attempt by the same counsel to re-litigate [the] Net Equity Decision. (Id. at 5.) As the court found, the Class Action Plaintiffs seek the repayment of their entire principal investments... [but] the Net Equity Decision provides for the payment of only net losses. (Id.) As the court pointed out, Appellants seek to represent two classes: net winners who are not entitled to any distributions under the Net Equity Decision, and net losers who have already received disbursements from the Trustee.... (Id.) The court denied Appellants motions, and this appeal followed. SUMMARY OF ARGUMENT The Trustee determined that the most appropriate way to calculate net equity in this SIPA liquidation was through the net investment, or cash-in/cash-out, method, limiting recovery in the BLMIS Ponzi scheme to the actual net cash that customers invested in BLMIS. That determination was upheld by the Second Circuit. Unhappy with that determination, Appellants seek to use the class action mechanism to circumvent the Net Equity Decision. This Court has already affirmed the bankruptcy court s rejection of such an attempt once, and it should do so here as well. The fact that these claims have now been reinvented as securities claims does not change the analysis. For regardless of 16

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 24 of 42 how Appellants claims are nominally titled, Appellants counsel have again filed putative class actions based upon conduct that is duplicative and derivative of the conduct underlying the Trustee s complaint. Because the substance of Appellants claims are conduct and harm generalized to all BLMIS Ponzi scheme customers, and because the Class Action Complaints mimic the Trustee s claims, the Class Action Complaints are both duplicative and derivative of the Trustee s claims, and are thus barred by the Picower Injunction. This Court should also affirm the bankruptcy court decision because the Class Action Complaints violate the automatic stay and the District Court s related Stay Orders. The automatic stay extends to common claims against the debtor s alter ego or others who have misused the debtor s property in some fashion, St. Paul, 884 F.2d at 701, such as the generalized claims asserted by Appellants. If potential creditors could bypass the automatic stay injunction by simply pleading around it, even when the substance of their claims the wrongful acts pleaded, the relationships and duties between the actors, the nature of the damages suffered was identical to the substance of an action already brought by a trustee, then the bankruptcy laws core purpose would be severely undermined, because some potential creditors could obtain payment of their claims in preference to and to the detriment of other creditors simply by styling their pleadings as sounding in tort. Fox, 848 F. Supp. 2d at 481 (internal quotation omitted). Appellants wrongly contend that the bankruptcy court lacked jurisdiction to bar its claims. A bankruptcy court has the jurisdiction to bar general creditors from recovering claims from a third party where, as here, their claims are based on the debtors misconduct, and there is no independent basis for an action against [the third party] other than its receipt of transfers from [the debtor]. Dreier, 429 B.R. at 133. Appellants contention that the Picower Injunction is 17

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 25 of 42 essentially a non-consensual non-debtor release that fails to meet the Metromedia criteria is similarly misplaced. See Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 141 43 (2d Cir. 2005). As this Court held in Fox, the only claims subject to the injunction are the Trustee s own claims or claims that are duplicative or derivative of such claims, to which Metromedia does not apply. The bankruptcy court s decision should be affirmed. ARGUMENT THE BANKRUPTCY COURT CORRECTLY HELD THAT THE CLASS ACTIONS SHOULD NOT BE ALLOWED TO PROCEED This Court already has held that actions against the Picower Defendants asserting generalized claims that seek to recover for an injury inflicted on all BLMIS investors may only be brought by the Trustee. Fox, 848 F. Supp. 2d at 480 81. The allegations in the instant case are substantially identical to those in Fox, and thus the same result is warranted here. I. THE CLASS ACTION CLAIMS ARE DUPLICATIVE AND DERIVATIVE OF THE TRUSTEE S PICOWER ACTION A. The Bankruptcy Court Correctly Found the Class Action Claims To Be Duplicative and Derivative of the Trustee s Claims Appellants mischaracterize the bankruptcy court s decision, contending that the bankruptcy court inappropriately based its decision only upon the existence of common defendants and common facts. (App. Br. at 12.) That is not the case. The court analyzed the claims themselves, looked beyond the existence of common facts and common defendants to determine the substance of those claims, and made the factual determination that they were duplicative and derivative of the Trustee s claims. (Order at *3 (citing Fox, 848 F. Supp. 2d at 482).) 18

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 26 of 42 The significance of the identity between the Goldman Class Action complaints, the Fox and Marshall Class Action complaints and the Trustee s Picower Action complaint is not merely that they share common facts and defendants, but that they allege the same conduct, wrongs, and harms. Because the bankruptcy court found, as in Fox, that Appellants did not suffer a sufficiently particularized injury, the Court concluded that the Goldman Class Action claims were derivative of the Trustee s and no further inquiry was required. (Id. at *4.) The cases relied on by Appellants to challenge the bankruptcy court s analysis, see, e.g., Highland Capital Management LP v. Chesapeake Energy Corp. (In re Seven Seas Petroleum, Inc.), 522 F.3d 575, 585 (5th Cir. 2008), as the bankruptcy court noted in Fox, merely illustrate that it is possible for a bankruptcy estate and a creditor to own separate claims against third parties arising out of the same conduct. However, such is not the case here. Picard v. Fox, 429 B.R. 423, 433 (Bankr. S.D.N.Y. 2010). Appellants here have not and cannot allege any relationship with the Picower Defendants that could form the basis for an independent claim. They allege that Picower, in his position as a control person at BLMIS, harmed them. (See Pamela Goldman Compl. 4, 40 (A0101, A0109); A&G Goldman Compl. 4, 40 (A0015, A0023).) Appellants allege no direct misrepresentation by the Picower Defendants to the Appellants. Although they now attempt to recast their harm as the failure of the Picower Defendants to make material disclosures and to otherwise supervise or prevent the fraudulent sale of BLMIS securities (see App. Br. at 17), their draft complaints contain no such allegations. The only harm or bad acts alleged stem from the Picower Defendants alleged involvement in the Madoff Ponzi scheme, and the transfer of 19

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 27 of 42 billions of dollars in BLMIS-held customer funds to the Picower defendants. Fox, 848 F. Supp. 2d at 479. 5 The harm suffered by the Appellants here was suffered by every other customer who is already within the purview of the SIPA proceeding. In a similar case, the District Court upheld a permanent injunction in the Dreier Ponzi scheme, stating that the challenger s grandiose assertion that he is unique and should be hand-picked from a heap of victims whose property was likewise stolen by Dreier as part of his fraudulent scheme lacks both factual and legal support. Gardi v. Gowan (In re Dreier LLP), No. 10 Civ. 4758 (DAB), 2010 WL 3835179, at *4 (S.D.N.Y. Sept. 10, 2010). The same is true here. 1. The Bankruptcy Court Appropriately Evaluated the Substance of Appellants Claims The bankruptcy court correctly looked to the substance of the complaints, rather than the titles of the causes of action, to determine whether they stated independent causes of action. See Fox, 848 F. Supp. 2d at 481 82; see also Picard v. Stahl, 443 B.R. 295, 314 (Bankr. S.D.N.Y. 2011). In making this determination, courts look to the underlying wrongs as pleaded in the complaint and whether the plaintiff alleges a particularized injury to determine whether a claim properly belongs to the trustee. McHale v. Alvarez (In re 1031 Tax Grp. LLC), 397 B.R. 670, 5 Appellants also cite Knauer v. Jonathan Robert Financial Group, Inc., No. 01-1168, 2002 WL 31431484, at *7 (S.D. Ind. Sept. 30, 2002), for the proposition that their claims are different from the Trustee s claims because BLMIS benefited from the Picower Defendants misconduct. (App. Br. at 17.) As a threshold matter, the court in Knauer explicitly stated that the decision was not sufficiently... instructive to justify commercial publication or the subsequent citation of it in other proceedings. 2002 WL 31431484, at n.1. Regardless, whether the debtors actually benefited from the alleged misconduct was only at issue in Knauer to determine whether the trustee had standing to bring certain securities claims. As discussed further herein, the Trustee s hypothetical standing to bring claims that he never brought is irrelevant to the application of the Picower Injunction. See Fox, 848 F. Supp. 2d at 484 85. Furthermore, BLMIS did not benefit from any alleged misconduct, as any such misconduct would have only worsened BLMIS s insolvency. 20

Case 1:12-cv-06109-RJS Document 10 Filed 10/12/12 Page 28 of 42 679 (Bankr. S.D.N.Y. 2008); see also In re Swallen s, Inc., 205 B.R. 879, 884 (Bankr. S.D. Ohio 1997) (third party actions purportedly seeking relief of an entirely different character from that which the debtor could assert violated 362(a) because the plaintiffs were seeking redress for the very same acts which are the basis of the claims dealt with in the [debtor s] Settlement Agreement ). Regardless of the nomenclature, a claim is derivative if: (1) the claim alleges a general, indirect injury to the creditor[;] (2) the creditor s standing to sue the third party depends on its status as a creditor of [the debtor;] and (3) the successful prosecution [by the Trustee of his suit] will increase the assets available to all creditor claims. Keene Corp. v. Coleman (In re Keene Corp.), 164 B.R. 844, 854 (Bankr. S.D.N.Y. 1994). It is not the labels affixed to the claims, but rather the harm that is alleged, that determines whether a claim is independent. St. Paul, 884 F.2d at 701 ( These claims, although pleaded as claims personal to [plaintiff], if they are property of the corporation or are claims available to all creditors, are claims regarding the transfer of property to the estate and therefore properly brought by the bankruptcy trustee); see also 1031 Tax Grp., 397 B.R. at 680 84; Fisher v. Apostolou, 155 F.3d 876, 882 (7th Cir. 1998). In Fox, the Court found that the fact that Appellants claims sounded in tort did not affect the duplicative nature of the claims. Fox, 848 F. Supp. 2d at 481 82. Appellants repackaging of their fraudulent transfer claims as securities claims similarly does not save them. See Stahl, 443 B.R. at 313. Indeed, Appellants have sought and obtained relief before the bankruptcy court as holders of individual customer accounts held at BLMIS. This is fundamentally inconsistent with the notion they now advance, in an attempt to evade the Picower Injunction, that they in fact held a separate security issued by BLMIS. (See App. Br. at 20.) Having recovered through the SIPA proceeding as customers of BLMIS, they 21