Madoff clan denies fraud role, seek suit dismissal

NEW YORK (Reuters) - Nearly two years after the revelation of Bernard Madoff's epic investment fraud, family members who were executives at his firm insist they had nothing to do with it, asking a judge on Wednesday to halt a bid to sue them for nearly $200 million.

"If you read it as if their names are not Madoff, if the names were Richardson, this case would not have been brought," Marty Flumenbaum, a lawyer for Madoff sons Mark and Andrew, argued at the first court hearing on the year-old lawsuit.

But John Siegal, a lawyer for the court-appointed trustee who sued the Madoffs, said: "Bernard Madoff was telling the market that the sons were fully involved and if something were to happen to him, they were ready to take over."

The defendants, who also include Madoff's brother Peter and niece Shana, contend they worked for the firm's legitimate market-making and proprietary trading units, not the investment advisory arm at the center of the decades-long multibillion-dollar fraud.

Flumenbaum said outside court that the sons "were not told by Bernard Madoff they would have any role in the investment advisory business."

Lawyers for the Madoffs said in court that the trustee's complaint does not contain any allegations of wrongdoing, fails to cite documentation indicating compliance responsibilities at the firm and is full of "sweeping conclusory statements."

Judge Burton Lifland of U.S. Bankruptcy Court in New York reserved decision on whether the lawsuit may continue. He did not indicate when he would rule.

No defendants were required to appear at the hearing.

Bernard Madoff was arrested and charged in December 2008 when his sons, according to their lawyers, reported him to authorities after he confessed to running a massive $50 billion dollar Ponzi scheme. A Ponzi scheme is one in which early investors are paid with money deposited by new clients.

Madoff, 72, pleaded guilty in March 2009 and is serving a 150-year prison sentence.

Irving Picard, a lawyer appointed by the court to wind down Bernard L. Madoff Investment Securities LLC, sued the four Madoffs in a single lawsuit for $198.7 million on October 2, 2009.

It accused them of being negligent in their duties as executives of the firm and enriching themselves with money that belongs to customers.

The scale and duration of the Madoff fraud shook investor confidence, not least because subsequent investigations showed that the U.S. Securities and Exchange Commission market regulator missed it, despite several tip-offs and probes.

At one point during Wednesday's hearing, the judge said, "After all, this is not Merrill Lynch where you might have rogue activity. This is a real close family and any rogue activity that took place over time would be easily discernible, one would think."

In July 2009, Picard sued Madoff's wife, Ruth Madoff, seeking to recover nearly $45 million. She has until October 15 to respond to the lawsuit.

The case is Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC v Peter Madoff et al, U.S. Bankruptcy Court for the Southern District of New York No. 09-01503.

(Reporting by Grant McCool; Editing by Gary Hill)

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