Madoff Trustee Sues ADIA for $300 Million

(August 12, 2011) — Abu Dhabi’s sovereign-wealth fund has been sued by a court-appointed trustee recovering money for investors cheated by Bernard Madoff.

The lawsuit, filed on Thursday by Madoff trustee Irving Picard in US Bankruptcy Court in Manhattan, is seeking to recover $300 million, and marks the first time Irving Picard has targeted a sovereign wealth fund in the scandal.

However, unlike many other lawsuits that Picard has filed in the past year, according to the Financial Times, the claim against the Abu Dhabi Investment Authority (ADIA) does not allege that the sovereign wealth fund’s managers knew or should have known that Madoff was a fraud. Instead, the suit claims that ADIA invested in Madoff’s massive Ponzi scheme through the Fairfield Sentry hedge funds, withdrawing $300 million in 2005 and 2006. A trustee can seek the return of money withdrawn in the six years before a business collapses, according to US bankruptcy law.

With 95% of its assets deposited in the scheme, Fairfield Sentry was the largest Madoff feeder fund.

“Defendant ADIA claims that identifying and managing risk plays a central role in every stage of its strategic and day-to-day decision making. Further, defendant ADIA claims to monitor its investments and fund managers on an ongoing basis,” the complaint said.

While the Abu Dhabi fund does not disclose its net worth, its sum is estimated to be roughly $627 billion, making it the largest sovereign wealth fund in the Middle East, Picard noted. The case is Picard v. Abu Dhabi Investment Authority, 11- 02493, U.S. Bankruptcy Court Southern District of New York (Manhattan).

Picard has filed roughly 1,050 lawsuits seeking more than $103 billion for Madoff victims. Picard’s suit against ADIA follows a federal judge’s decision last month to limit his ability to pursue Madoff Ponzi scheme third parties, such as HSBC, which Picard sued for $9 billion. The judge ruled that the trustee cannot seek damages against third parties for failing to detect the fraud.

Earlier this week, the Connecticut Appellate Court ruled that the town of Fairfield cannot seek the millions of dollars in losses to its pension fund as a result of Madoff’s fraud scheme.

“Although the plaintiff’s complaint is rich with allegations that the Fairfield Greenwich defendants acted in concert with Madoff or in furtherance of Madoff’s fraudulent plan, it is devoid of any allegation that the Fairfield Greenwich defendants played any role in inducing the plaintiffs to invest in the Maxam Fund or in any other feeder fund, or with Madoff directly,” Judge Thomas A. Bishop wrote in the court’s decision obtained by the Daily Fairfield.