By Jonathan Stempel
NEW YORK (Reuters) - A federal judge has made it easier for the trustee seeking money for Bernard Madoff's victims to pursue more than $8 billion of claims against banks and other financial firms that received money from "feeder funds" that profited from the swindler's massive Ponzi scheme.
U.S. District Judge Jed Rakoff said federal bankruptcy law did not require the trustee, Irving Picard, to obtain final court orders against the feeder funds before pursuing claims against third parties to which those funds transferred money.
In a decision made public on Wednesday, the Manhattan judge said a contrary holding "could cause bankruptcy proceedings to drag on unnecessarily for years, wasting court resources as well as creating unnecessary uncertainty for potential defendants who may be subject to recovery proceedings."
The ruling keeps alive claims in roughly 57 cases, against defendants including affiliates of Bank of America Corp
Picard said he has so far recovered $9.5 billion of the roughly $17.3 billion of principal that Madoff's customers lost.
"This is a significant development in the liquidation proceedings as the ... trustee's current subsequent transfer complaints seek recoveries in excess of $8 billion," Amanda Remus, a spokeswoman for Picard, said in a statement.
Robinson Lacy, a Sullivan & Cromwell partner representing some of the third-party transferees, declined to comment.
The case related to Fairfield Sentry Ltd and Kingate Global Fund Ltd, two feeder funds that in 2009 went into liquidation.
Feeder funds sent customer assets for investment to Bernard L. Madoff Investment Securities LLC, which from time to time then returned payments based on the profits shown in often fictitious account statements. The feeder funds would then use these sums to pay clients, fund managers and others.
Picard, a partner at the law firm Baker & Hostetler, claimed he was authorized on behalf of Madoff victims to recover sums illegally transferred to the funds by Madoff's firm, and later transferred to the third parties.
In his decision, Rakoff said bankruptcy law did not require the trustee to bring or fully complete litigation against initial transferees, the feeder funds, before pursuing the third party transferees.
The judge also rejected an argument by some of the third party transferees that Picard missed a December 2010 deadline, two years after Madoff's fraud was uncovered, to sue them.
"In a complex case like this one, it is unreasonable that the trustee, who is a stranger to any non-debtor transactions, would be expected to bring all recovery proceedings against subsequent transferees" within two years, he said.
Picard has asked the U.S. Supreme Court to review a lower court ruling that blocks him from suing JPMorgan Chase & Co
Madoff, 75, pleaded guilty in March 2009 and is serving a 150-year prison term. Five former employees of his firm are now on trial in Manhattan for having allegedly aided in his fraud.
The case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC, U.S. District Court, Southern District of New York, No. 12-mc-00115.
(Reporting by Jonathan Stempel in New York; Editing by Alden Bentley)