The District Court for the Southern District of New York recently issued an opinion in Picard v. Katz, et al., (In re Bernard L. Madoff Investment Securities LLC),1 which limits avoidance actions against a debtor-broker’s customers to those arising under federal law based on actual, rather than constructive, fraud. The decision was issued by US District Judge Rakoff in the Trustee’s suit against the owners of the New York Mets (along with certain of their friends, family and associates). It has the potential to substantially alter the litigation landscape in the Madoff proceedings, as it further clarifies the applicability of the Bankruptcy Code’s so-called “protected contracts” provisions in the context of insolvent stockbrokers.

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