(Adds details from decision, comments, byline)
By Jonathan Stempel
NEW YORK, July 7 (Reuters) - A federal judge has limited the ability of the trustee seeking money for victims of Bernard Madoff's Ponzi scheme to recoup sums allegedly transferred fraudulently outside the United States.
In a decision on Sunday, U.S. District Judge Jed Rakoff in Manhattan said Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, cannot invoke U.S. bankruptcy law to recover transfers abroad between foreign entities, including Madoff "feeder funds" and banks.
Rakoff cited a presumption that the law did not apply to conduct outside the country, pointing to a 2010 U.S. Supreme Court decision that limited the reach of domestic laws.
According to court records, the decision affects several dozen lawsuits that Picard has pursued, against defendants such as Spain's Banco Bilbao Vizcaya Argentaria SA, Bank Austria AG, Bank of America Corp's Merrill Lynch International unit and Royal Bank of Scotland Group Plc.
It came six days after the Supreme Court let stand the dismissal of Picard's claims against banks he accused of enabling Madoff's fraud.
Amanda Remus, a spokeswoman for Picard, said the trustee is reviewing Rakoff's decision, which sent the lawsuits to the Manhattan bankruptcy court for further proceedings.
Picard has recovered about $9.82 billion for former Madoff customers who lost roughly $17.5 billion of principal.
In April, he said he had filed 82 lawsuits to recover $7.2 billion overall in "subsequent transfers."
AVOIDING ABSURD RESULTS
Many of the cases that Rakoff reviewed involved transfers by feeder funds that typically funneled customer money to Madoff, but which sometimes withdrew funds and sent it elsewhere.
In one such case, the trustee sought to recoup $50 million allegedly transferred to CACEIS Bank Luxembourg by Fairfield Sentry Ltd and Harley International (Cayman) Ltd, two large Caribbean-based feeder funds that are now in liquidation.
Picard had argued that allowing such transfers could let U.S. debtors escape domestic bankruptcy laws by moving billions of dollars in assets offshore, and then retransferring them.
"To stop the efficacy of the Bankruptcy Code at the borders would have absurd results," Regina Griffin, a Baker & Hostetler partner representing Picard, said at a September 2012 hearing.
But Rakoff rejected what he called Picard's "clever" argument that a different bankruptcy law gave him control over Madoff property "wherever located and by whomever held."
The judge also said the presumption against applying U.S. law to non-U.S. conduct may lead to fewer "unintended clashes" between different countries' laws. He said Picard could try to invoke other countries' laws to address intentional fraud.
"We are gratified," Franklin Velie, a partner at Sullivan & Worcester who represented Bank Austria and argued the case for the defendants, said in an interview. "It is likely to have an impact in other international bankruptcy cases."
The Ponzi scheme was uncovered in December 2008. Madoff, 76, pleaded guilty and is serving a 150-year prison term.
The case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC, U.S. District Court, Southern District of New York, No. 12-mc-00115.
(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Jonathan Oatis)