US businessman Bernard Madoff is probably history's biggest swindler. Madoff used a Ponzi scheme to defraud thousands of well-known private investors and investment institutions all over the world of a total of $65 billion. In June 2009, Madoff was sentenced to a 150-year prison term for his crime, but his fraud and its effects are still making waves.
After the fraud was discovered, a trustee was appointed in the US for the liquidation of the assets of Bernard L. Madoff Investment Securities LLC (BLMIS), through which Madoff managed the billions of dollars invested with him over the years. Since then, the main goal of Irving H. Picard, the trustee, has been to give Madoff's victims their money back. He says that he has managed to return $9 billion to the victims.
Another dramatic development took place today in the affair in the Tel Aviv District Court, when Picard filed a NIS 367 million lawsuit through advocates Jonathan Agmon and Ady Norman from the Soroker and Agmon law firm against a series of Israeli academic and health institutions. The suit alleges that through the Yeshaya Horowitz Association, the institutions unknowingly received stolen money at the expense of Madoff's innocent victims, and are refusing to restore the money obtained through theft and fraud to its legal owners.
In December 2010 Picard filed a suit against Yeshaya and others in New York, in order to recover more than $154 million that, according to the trustee, were fraudulently transferred from BLMIS to Yeshaya and others. The claim asserted that the association and its legal counsel, Adv. Yair Green, knew of the fraud operated by Madoff. The claim is currently being litigated in the US.
The institutions now being sued by the trustee are among Israel's leading educational and health institutions. For example, the Hebrew University of Jerusalem is being sued for $36 million, Ben Gurion University of the Negev for $18 million, the Weizmann Institute - $13 million, Bar Ilan University - $10 million, Tel Aviv University - $6.5 million, Technion Israel Institute of Technology - $4 million, and Sheba Medical Center - $2.3 million. The technology commercialization companies of these institutions are also being sued, as are the University of Haifa, the Jerusalem Spinoza Institute, the Jerusalem Academy of Music and Dance, the Rambam Health Care Campus, the Schneider's Children Medical Center, the Kaplan Medical Center, the Tel Aviv Sourasky Medical Center (Ichilov Hospital) in Tel Aviv, Clalit Health Services, and other institutions.
Picard's complaint in the court claims that the Horowitz Association did not transfer these huge sums only as a donation to encourage research in Israel; it chose to act as an investor with economic interests, and made receiving the money contingent on the provision of proceeds through royalties.
The huge claim against these institutions alleges that the money they received through the Horowitz Association originated in theft, although it was classified as "donations" and "grants" from the Horowitz Association. According to the claim, it has been learned that the Horowitz Association's bank account received funds from an account belonging to BLIMS, Madoff's investment house. According to Picard, "“This account, which was part of the Ponzi scheme operated by BLMIS, performed no securities transactions and never generated profits for the approximately $3 million initially deposited upon opening the account. Nevertheless, Yeshaya withdrew approximately $126.5 million to its bank account, distributing it to various institutes in Israel, including the Defendants. The approximately $123 million withdrawn from BLMIS, used to financed Yeshaya activities and donations, were thus stolen from defrauded BLMIS customers and unlawfully transferred to Yeshaya,” the trustee's lawwsuit says. Picard estimates that $123 million of the money withdrawn by the Madoff association and BLIMS, which was used to pay for its donations, was stolen by Madoff and others and illegally transferred to the Horowitz Association, and some of the money was transferred from there to the plaintiff institutions.
The claim states, "While many lost everything and were left penniless in their old age, others, including respected and leading research and study institutions in Israel, illegally received substantial funds." Picard added, "The facts establishing the grounds for the claim explain how the innocent Madoff victims' money was given to hospitals and universities in Israel in the form of 'donations' and 'grants.' The money from theft and fraud was laundered through the respondents, who are now refusing to restore the money to its legal owners - Madoff's victims."
Possession not in good faith
In his lawsuit, Picard relies on unjust enrichment law, which states that a person or company who has received a stolen item in good faith must restore it to its legal owner when the source of the stolen item is revealed. He emphasizes that even after the respondent institutions became aware that the money they had received originated in fraud and theft, and even after he contacted each and every one of them, the institutions refused to restore the stolen funds. The trustee says that when the respondent institutions learned that they money they had received from the Horowitz Association originated in theft and fraud, they should have acted immediately on their own initiative to pay back the money from the crime. When they did not do so, they established the grounds for a claim against them.
According to Picard, the respondents refrained from restoring the money even after the Horowitz Association contacted some of them and explicitly informed them about the source of the money. His complaint states that even if the defendants' assertion that they did not know at the time that the source of the money was fraud and theft, lack of knowledge does not 'launder' the transferred stolen money.
The complaint states that “The special facts underlying this case, unlike any ever heard in Israel, call for the Honorable Court’s special attention seeing that the Defendants, wealthy and affluent institutions, deny the connection between the funds received and Madoff’s fraud. Thus, they refuse to return the funds unjustly received. When deliberating upon the case, the Honorable Court is requested to set before it the images of the fraud’s direct and indirect victims. The elderly individuals who are now forced to accept menial jobs instead of retiring; the needy, whose lives were overturned when the charities that supported them collapsed because of Madoff’s scheme; the thousands who, even today, almost seven years after the affair was revealed, are unable to recover and probably will not be able to until justice is served and their stolen investments are returned.”
Adv. Jonathan Agmon said, “Three years ago, the Hadassah Women’s Zionist Organization (through its organization in the US) returned millions of dollars received from BLMIS, a portion of which came through Yeshaya, upon discovering that the money was stolen from defrauded BLMIS customers. The defendants must follow suit and return the stolen money that they received. By refusing to take the moral and respectable path, the respondents associate themselves with the thief – Madoff – and not the victims. Returning the stolen money is the right thing to do.”
The Association of University Heads of Israel stated in the name of the respondents, "The money involved was legally donated to universities, and has already been used for research and academic needs." According to the Association of University Heads, "The universities do not have, and did not have, any information about how the Horowitz Association made its investments, and any demand for the restoration of the money donated to them is groundless. We emphasize that the lawsuit has not yet been received."
Published by Globes [online], Israel business news - www.globes-online.com - on December 9, 2015
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