Foreign investors who are concerned about the extraterritorial
application of U.S. bankruptcy law can draw some comfort from a
recent decision in the liquidation case of Bernard L. Madoff
Investment Securities ("BLMIS"). On July 6, 2014,
United States District Court Judge Jed S. Rakoff ruled that the
BLMIS Trustee could not use the Bankruptcy Code's avoidance
provisions to recover transfers made to foreign investors that had
invested in foreign feeder funds, such as the Fairfield Funds.
2014-07-06_BLMIS Decision
Judge Rakoff rejected the Trustee's contention that he could
use section 550(a)(2) of the Bankruptcy Code as a mechanism to
claw-back distributions that BLMIS had made to the feeder
funds, which then re-distributed the funds to foreigners who were
not otherwise subject to the jurisdiction of U.S. courts. The
Court reasoned that that would constitute an impermissible
extraterritorial application of the statute. The Court noted
that although the cash that
