Madoff Investor Kingate Files for Bankruptcy in the U.S.
September 06 2019 - 5:05PM
Dow Jones News
By Tom Corrigan
Two British Virgin Islands funds managed by Kingate Management
Ltd. filed for bankruptcy in New York to protect a recent
settlement with the trustee responsible for marshaling funds to
repay victims of Bernard Madoff's Ponzi scheme.
Kingate Euro Fund Ltd. and Kingate Global Fund Ltd. sought
chapter 15 protection Thursday at the U.S. Bankruptcy Court in New
York, telling a judge they are concerned about the threat of
litigation from Deutsche Bank AG.
In court papers, representatives for the Kingate funds said news
of the settlement, worth as much as $400 million, has prompted
Deutsche Bank to try to revive a dispute over efforts dating back
to 2011 to buy bankruptcy claims that would give the German bank a
stake in the settlement proceeds.
If approved by Judge Stuart Bernstein, chapter 15 protection
would give the foreign funds the benefits of U.S. bankruptcy law,
including the so-called automatic stay that halts lawsuits and
blocks creditors from attempting to seize assets.
The Kingate funds are among the largest offshore fund managers
that fed cash to Bernard Madoff. The funds collapsed shortly after
Mr. Madoff's fraud was exposed in 2008 and have been in a
liquidation proceeding in the British Virgin Islands since
2009.
The two funds invested $1.73 billion in Mr. Madoff's firm
starting in 1994, according to court records. But they also
collected cash while the Ponzi scheme was in operation that came
from other investors.
After years of litigation, the funds agreed in June to return
$860 million, about 93% of what they received from Mr. Madoff's
phantom investment fund over their lifetimes.
Under the settlement, the funds also received an allowed claim
of $1.66 billion in the liquidation of Bernard L. Madoff Investment
Securities LLC, enabling them to recoup some of their loses and to
make distributions to their own investors.
The allowed claim should result in an initial distribution to
the funds' creditors of about $262 million, court papers show, and
future distributions could be somewhere in the range of $138
million. Before the settlement, the Kingate funds didn't have
significant assets in the U.S.
Court papers say that despite having limited contact with
Deutsche Bank for years, the funds fear the bank will try to
"resurrect" earlier efforts to buy the funds' bankruptcy claims now
that their value has increased.
The parties signed a letter confirming the terms of a trade but
never signed a formal purchase agreement, court papers show.
A spokesman for Deutsche Bank declined to comment Friday.
Offshore feeder funds that pooled investor cash and funneled it
to Mr. Madoff have been prime targets for Irving Picard, the
liquidating trustee who has spent a decade suing beneficiaries of
the Ponzi scheme to dig up funds for those who lost money.
As part of his global hunt for tainted cash, he has chased cash
that foreign entities received indirectly from Mr. Madoff through
feeder funds in the British Virgin Islands, Cayman Islands and
Bermuda.
Thus far, Mr. Picard has returned more than $12 billion to
victims on the giant Ponzi scheme run by Mr. Madoff, who is serving
a 150-year prison sentence in North Carolina.
Andrew Scurria contributed to this article
Write to Tom Corrigan at tom.corrigan@wsj.com
(END) Dow Jones Newswires
September 06, 2019 16:50 ET (20:50 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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