Madoff Trustee Sued to Free Up Frozen Funds

Irving Picard, a court-appointed trustee for Bernard Madoff's firm, has been sued by the Rosenman family, over money that was deposited with Bernard L. Madoff Investment Securities shortly before the accused swindler's arrest.

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The Rosenman family were first-time investors to Madoff's firm and had deposited $10 million with the company in early December. However, the fund was not supposed to be open to their investment until Jan. 1, 2009, so the money was never deposited in a Madoff fund, but has been frozen as part of the inquiry into Madoff's activities.

Calls to the Rosenman family have not been returned.

According to the legal complaint dated Jan. 1, Martin Rosenman, the Rosenman family's managing member, talked on the phone with Madoff on Dec. 3 about investing in the investment advisory fund.

Madoff told Rosenman the fund was closed until Jan. 1, 2009, but he could wire money to an account where it would be held, the complaint in U.S. Bankruptcy Court in Manhattan said.

The family transferred $10 million to a JPMorgan Chase account on Dec. 5. Madoff was arrested and charged with securities fraud on Dec. 11.

Investigators, now three weeks into an inquiry into Madoff's activities, have received a list of assets held by Madoff and his firm, but are said to be far from determining where all the money in the alleged Ponzi scheme went.

Investors who received redemptions from Madoff as far back as 2002 are wondering whether they will be asked to return those funds under pressure from the court-appointed trustee. Particularly vunerable are investors who received a payout within 90 days of the collapse of the firm.

The 70-year-old Madoff is under house arrest in his Manhattan apartment and is subject to electronic monitoring.

The alleged scheme, which could involve some $50 billion, duped investors worldwide.

Among those caught up in the scheme was the Austrian private bank Bank Medici, which was placed under state supervision on Friday.

A source close to the matter told Reuters on Friday the bank holds over $3 billion in funds exposed to what could be Wall Street's biggest fraud. It is still not clear how much cash has been lost.

Medici said last month that two funds -- Herald USA Fund and Herald Luxemburg Fund, with a total volume of $2.1 billion -- were exposed to the alleged fraud but did say by how much.

Austria appointed a supervisor to the bank, financial regulator FMA said, in the first known case where a government has stepped in to run a bank caught in the alleged $50 billion Madoff fraud.

The regulator also said Bank Medici's chief executive Peter Scheithauer and board member Werner Tripolt have resigned. The appointment of a government supervisor means the bank cannot take any major decisions without state consent.

The bank -- founded and largely owned by high-profile banker Sonja Kohn, whom media say has close ties to Madoff -- said it would cooperate fully with the FMA.

"Bank Medici will in every way cooperate with the government supervisor and take all measures to ensure the most transparency and efficiency possible in solving the current challenges," it said in a statement.

It said Medici, which is 25 percent owned by UniCredit's Bank Austria, remains sound, has good liquidity and will present a new business model in the coming weeks.

It said clients' assets were not at risk "because of its (Medici's) strong capital base."

Banks across the globe have unveiled billions of dollars in damage from the scandal, with a number of private banks catering to rich clients and fund-of-fund businesses particularly prominent victims.

Other investors include wealthy society in the Americas and in Europe, banks, celebrities and charities all over the world in what could be Wall Street's biggest fraud.

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