...Last week's ruling doesn't answer the ultimate question of whether Picard can stop the Merkin settlement. It only means that Rakoff will decide critical questions underlying the dispute.
Schneiderman takes the position it would be "unprecedented for a federal court to enjoin the settlement of claims by a state law enforcement agency against non-debtors." Picard is suing Merkin for more than $500 million. If Schneiderman is allowed to settle, Picard contends Merkin won't have money left to pay his claims.
Whether Picard wins ultimately will decide who receives the $410 million from Merkin.
If Picard wins, halts the Attorney General's lawsuit, and recovers $410 million or more from Merkin, Picard will distribute the funds to Madoff customers and likely not include Merkin's own investors. The Attorney General, on the other hand, will turn over most of the $410 million to customers of Merkin.
The Madoff firm began liquidating in December 2008, with appointment of a trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm's liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.
Bad News for Ezra Merkin and his Investors
According to a report from Bloomberg News a federal court will decide some aspects of the Madoff-Merkin settlements. Although legal matters like this one are hard to sort out, this development is potentially bad news for Merkin's victims, and good news for Madoff's victims, as the story explains: