Defrauded Investors File Lawsuit Seeking Forced Bankruptcy for Madoff

Former clients of admitted Wall Street swindler Bernard Madoff have filed court papers seeking to force the disgraced money manager into involuntary bankruptcy in an effort to ensure that Madoff’s cash, real estate, and other personal assets are used to pay off investors and creditors.

Five investors who lost a combined $64 million in Madoff investments filed court papers today in U.S. Bankruptcy Court in New York. Lawyers for the investors claim that forcing Madoff into bankruptcy will make it easier for his victims to recover losses and prevent Madoff’s assets from being transferred to relatives or third parties.

Federal prosecutors and securities regulators opposed allowing investors to file suits seeking to force Madoff into bankruptcy. The Securities and Exchange Commission and the court-appointed trustee overseeing Madoff’s operation during the investigation into the fraud said they were working on plans to reimburse investors for losses in Madoff-run investments. Forcing Madoff into bankruptcy would be unnecessary, officials said.

However, a judge last week sided with former investors and agreed to allow cases seeking involuntary bankruptcy for Madoff. The same judge had ruled in December 2008 against allowing such cases.

Madoff, 70, is accused of running a massive Ponzi scheme that netted as much as $65 billion from thousands of investors over a period of nearly 20 years. He pleaded guilty in March 2009 and faces as long as 150 years in prison when he is sentenced in June.

Madoff has said he acted alone in ripping off investors, but so far, his former accountant has been charged with lying about having conducted independent audits of Madoff’s books and the operators of several “feeder funds” which pumped funds into Madoff-controlled investments have been accused of misusing client funds.

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