REDACTED UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Adv. Pro. No.

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Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York Telephone: (212) Facsimile: (212) David J. Sheehan Ryan P. Farley Mark A. Kornfeld Keith R. Murphy Marc Skapof Thomas
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Baker & Hostetler LLP 45 Rockefeller Plaza New York, New York Telephone: (212) Facsimile: (212) David J. Sheehan Ryan P. Farley Mark A. Kornfeld Keith R. Murphy Marc Skapof Thomas L. Long Catherine E. Woltering Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Adv. Pro. No (BRL) Plaintiff-Applicant, SIPA Liquidation v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: COMPLAINT BERNARD L. MADOFF, Debtor. REDACTED IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Adv. Pro. No. _ (BRL) Plaintiff, v. NATIXIS, NATIXIS CORPORATE & INVESTMENT BANK (f/n/a IXIS CORPORATE & INVESTMENT BANK), NATIXIS FINANCIAL PRODUCTS, INC., BLOOM ASSET HOLDINGS FUND, and TENSYR LIMITED, Defendants. Irving H. Picard (the Trustee ), as Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC ( BLMIS ), and the substantively consolidated estate of Bernard L. Madoff, individually, under the Securities Investor Protection Act ( SIPA ), 15 U.S.C. 78aaa et seq., for this Complaint against NATIXIS, Natixis Corporate & Investment Bank ( Natixis CIB ) (f/n/a IXIS Corporate & Investment Bank ( IXIS CIB )), Natixis Financial Products, Inc. ( Natixis FP ), Bloom Asset Holdings Fund ( BLOOM ) and Tensyr Limited ( Tensyr ) (NATIXIS, Natixis CIB/IXIS CIB, Natixis FP, Natixis NA and BLOOM are collectively referred to herein as Natixis or Defendants ), alleges the following: I. NATURE OF THE ACTION 1. This adversary proceeding is part of the Trustee s continuing efforts to avoid transfers of and return BLMIS Customer Property1 that was lost as part of the massive Ponzi scheme perpetrated by Bernard L. Madoff ( Madoff ) and others. 1 SIPA 78lll(4) defines Customer Property as cash and securities at any time received, acquired or held by or for the account of a debtor from or for the securities accounts of a customer, and the proceeds of any such property transferred by the debtor, including property unlawfully converted. 2 2. With this Complaint, the Trustee seeks to recover approximately $400 million in subsequent transfers made to Natixis, a sophisticated, global financial institution, and $30 million from Tensyr, a collateralized fund obligation created by Natixis and the Fairfield Greenwich Group. These transfers or Customer Property originated from BLMIS. This Customer Property was transferred to Natixis and Tensyr in connection with alternative investment products offered by them, including total return swaps and structured notes. As part of these structured products, Natixis and Tensyr hedged their exposures to investors by purchasing and subsequently redeeming shares of various Madoff Feeder Funds2 having one or more BLMIS investment advisory accounts. 3. At the times when Natixis and Tensyr received the subsequent transfers of BLMIS Customer Property from the Madoff Feeder Funds, they were armed with both public and considerable non-public information about Madoff and BLMIS, which raised numerous red flags of possible fraud at BLMIS. A. Leverage And The Madoff Ponzi Scheme 4. For nearly a decade before Madoff s arrest, at a time when many, if not most investment firms were regularly using borrowed money in making their investments or loaning money to customers to make securities investments, it was widely known to money managers, investment bankers, institutional lenders, feeder funds, funds of funds, fund service providers, the hedge fund industry, and the financial community at large, that Madoff was adamantly opposed to the use of leverage. Madoff told his customers and prospective customers he did not personally use leverage, and claimed he would return their investments if they used leverage to 2 As used herein, and in other similar actions brought by the Trustee, a Madoff (or BLMIS) Feeder Fund is an investment vehicle which invested assets through BLMIS via direct customer accounts with BLMIS s IA Business. 3 invest through BLMIS. 5. Inasmuch as Madoff could have made huge personal gains by simply borrowing money and investing it using his split strike conversion strategy (the SSC Strategy ), and also could have substantially increased his commissions by permitting his customers to utilize leverage to increase the amount of funds they invested through BLMIS, Madoff s purported resistance to leverage was viewed for years by many industry participants as a red flag that he and others were possibly engaged in fraudulent activity. Madoff s explanations for not wanting to employ leverage personally made no logical sense and were seen by many sophisticated financial institutions as extremely suspicious. In truth, upon information and belief, Madoff attempted to limit the use of leverage because he feared sophisticated financial institutions like Natixis would conduct due diligence on BLMIS s investment strategy and operations, increasing the likelihood his fraud would be exposed to the world. 6. Madoff Feeder Funds, however, wanted to use leverage to increase the amount of assets invested through Madoff, which would increase their management and performance fees. The use of leverage also made sense given the extraordinarily consistent and low volatility of Madoff s historic, fictitious returns. Madoff Feeder Funds found very eager leverage-provider partners in large financial institutions, like Natixis, which created various alternative investment products designed for the same purpose to exploit Madoff s success for their own institutional gains. For fees paid to financial institutions like Natixis, investors could make large synthetic investments into Madoff Feeder Funds using the bank s balance sheet with reduced upfront capital outlay by investors in relation to the promised returns. 7. A synthetic investment simulates the return of an actual investment, but the return is actually created by using one or a combination of financial instruments, typically including derivatives 4 such as option contracts or an equity index and debt securities, rather than a single conventional investment. 8. These synthetic investments led to a seemingly win-win-win situation for those seeking to capitalize on Madoff s returns. The financial institutions providing the leverage earned significant structuring and steady financing fees; the Madoff Feeder Funds, into which these financial institutions made sizeable investments to hedge their promised returns to investor swap counterparties and noteholders, earned even more management and performance fees; and finally, the swap counterparties and noteholders earned multiples on the returns they would have earned based on the amount of capital they actually had available to invest. 9. Such alternative investment products created and offered by entities like Natixis included total return swaps and structured notes. These alternative investment financial instruments promised an opportunity for lucrative future returns for investors based upon the performance of a designated Madoff Feeder Fund, which in structured products like swaps and notes, is most often referred to as a reference fund. By investing in these structured products, institutional investors could potentially multiply their returns. 10. A swap is a bilateral financial transaction where one counterparty swaps the cash flows of a single asset or basket of assets in exchange for cash flows from the other counterparty. As a result, a swap allows the party receiving the total return to gain exposure and the upside returns from a reference fund without actually having to own it. A key feature of a swap is that the parties do not transfer actual ownership of the reference assets. This feature allows for greater flexibility and reduced up-front capital outlay to execute a potentially valuable trade. 11. In order to hedge its exposure to pay the return to the other party, typically a 5 financial institution like Natixis uses cash collateral from the swap party and its own money to purchase the underlying asset in this case, Madoff Feeder Fund shares. In exchange for promising to provide the total return based on the feeder fund shares, the financing institution often charges the swap counterparty a higher borrowing rate than if the bank had simply lent money to the investor. 12. funds. Total return swaps can be highly leveraged, making them a favorite of hedge The swap market is mostly institutional and over-the-counter ( OTC ). Market participants often include, among others, investment banks, commercial banks, mutual funds, hedge funds, funds of funds, private equity funds and pension funds. Swaps have been historically, and continue to be, very popular with hedge funds because they receive the benefit of a large potential upside gain with a reduced cash outlay at inception of the trade. 13. Total return swaps were frequently used by foreign investors to avoid the IRS tax rule for sourcing income. By investing in certain derivative products an investor may avoid the 30% withholding tax by avoiding the receipt of U.S. sourced income. These tax implications meant it was financially more advantageous for foreign investors to enter into a total return swap than to invest directly in the underlying asset. This savings was amplified when leveraged. 14. The other structured product developed and offered by financial institutions like Natixis is a structured note. With a structured note, in general terms, a financial institution issues a note a debt instrument that pays a return at some future date based upon the performance of a reference fund or index. A structured note also permits an investor to use borrowed funds for securities investment purposes. Another motivation for an investor to purchase leveraged notes is to obtain the potential for higher returns than would be available through a conventional investment. 6 15. Under a structured note program, an investor typically pays to the financial institution an amount of money, the original principal, for the investment at the outset of the trade. The investor often is charged fees by the financial institution for administering the note program, as well as a fee for providing leverage (the money essentially loaned to the investor noteholder). In return, the financial institution agrees to pay some multiple of the referenced fund s or the index s cumulative positive performance at the note s future maturity date. For example, a three times (3x) levered note would have the investor investing $100, but ultimately receiving a return as if the investor had invested $300 in the reference fund or index. 16. Even though they were not required to do so, to hedge its promise to pay the leveraged cumulative positive return at the note s future maturity date, a financial institution usually purchases shares of the reference fund(s). However, the financial institution is free to sell its hedging shares at any time. If the financial institution believes the reference fund s or index s value is falling, the financial institution can redeem its hedging shares preventing any loss to the financial institution. In contrast, the investor must wait until the maturity date of the note to unwind the transaction, unless the investor is willing to incur substantial financial penalties to break the trade. A note program typically requires investors to commit a minimum investment amount for a specific term e.g., three to seven years. 17. Unless they are designated as principal protected or guaranteed, structured notes do not guarantee the return of the investor s original investment with the financial institution. If the value of the reference fund or index falls below a specified level, at the note s maturity date, the financial institution owes nothing to the investor. 18. In the immediate aftermath of Madoff s arrest, Natixis made public statements and issued a press release stating that it had not made proprietary investments in hedge funds 7 managed by Madoff. The statements were misleading. Natixis purchased hundreds of millions of dollars of shares of several Madoff Feeder Funds to hedge exposures resulting from swaps executed and notes issued by Natixis. Natixis used its own money, at least in part, to purchase these Madoff Feeder Fund shares. In fact, upon information and belief, Natixis purchased in excess of $600 million of one particular Madoff Feeder Fund alone in connection with Natixis structured products. Natixis also purchased hundreds of millions of dollars of other Madoff Feeder Funds shares in connection with Natixis structured products. 19. In the six years leading up to December 10, 2008, Natixis submitted redemptions for shares of various Madoff Feeder Funds, and received multi-million dollar transfers of money from them, at times when Natixis knew or should have known of BLMIS s fraud. Specifically, upon information and belief, Natixis received approximately $210 million in transfers from its redemptions of one fund s shares and another approximately $190 million in transfers from its redemptions of another fund s shares. The funds used to pay for those redemptions are Customer Property recoverable by the Trustee as subsequent transfers of avoidable initial transfers from BLMIS. B. The Natixis Swaps 20. Between 2003 and 2008, a Natixis entity was a party to at least eight swaps that provided a return based on the performance of various Madoff Feeder Funds. Upon information and belief, Natixis hedged its exposure under the various swaps by purchasing and holding for its own benefit shares of the various Madoff Feeder Funds that comprised the referenced funds for the swaps. C. The Natixis Notes 21. Between October 2007 and July 2008, Natixis also sold structured notes that 8 provided a return based on the performance of Madoff Feeder Fund Fairfield Sentry Limited ( Sentry ). Specifically, the NATIXIS Notes (defined below), at maturity, provided four times (4x) leveraged exposure to the performance of Sentry. Natixis sold the notes mostly to European institutional investors in an original principal amount in excess of $105 million. Upon information and belief, the $105 million in aggregate original principal, multiplied by the applicable leverage amount, resulted in Natixis investing $415 million in Sentry with $105 million coming from the investors, and $310 million from Natixis. Original Principal Currency Conversion Amount Factor $7,500, $6,350, $14,480, $8,300, ,000, $15,000, ,000, ,000, ORIGINAL PRINCIPAL TOTAL: Equity Total $7,500, $6,350, $14,480, $8,300, $21,607, $15,000, $23,518, $9,342, $106,098, Total with Leverage 4 $30,000, $25,400, $57,920, $33,200, $86,430, $60,000, $94,074, $28,026, LEVERAGED TOTAL: $415,050, Leverage Amount D. The Tensyr Notes 22. Tensyr is a collateralized fund obligation, upon information and belief, created by Natixis and the Fairfield Greenwich Group ( FGG ), which managed Sentry. Tensyr issued hundreds of millions of dollars of notes linked directly to the performance of Sentry. Natixis was the co-arranger for the issuance of the Tensyr notes. The two primary beneficiaries of the Tensyr transaction were Natixis and FGG, as Natixis received fees from the noteholders and FGG s management companies received management fees based on Natixis s purchases of Sentry shares. Tensyr, upon information and belief, invested approximately $450 million in Sentry. Upon information and belief, Tensyr, either acting alone or in combination with Natixis or FGG, redeemed at least $30 million of Sentry shares at a time when Tensyr and Natixis had knowledge of numerous red flags of possible fraudulent activity by Madoff. The funds used to 9 pay for those redemptions are Customer Property recoverable by the Trustee as subsequent transfers of avoidable initial transfers from BLMIS. 23. Based upon information and belief, to pay for the Natixis and Tensyr redemptions, Sentry withdrew and/or utilized funds from its BLMIS accounts and transferred those funds to Natixis and Tensyr. The Trustee has filed suit against the Fairfield Greenwich funds, including Sentry, Fairfield Investment Fund Limited ( FIFL ) and other Fairfield-related defendants to avoid initial and certain subsequent transfers of Customer Property. See Picard v. Fairfield Sentry Ltd., et al. (In re Bernard L. Madoff Inv. Sec. LLC), No (Bankr. S.D.N.Y filed May 18, 2009) (as amended on July 20, 2010) (the Fairfield Amended Complaint ). For the reasons set forth in the Trustee s complaint in that action, the transfers between BLMIS and Sentry are avoidable. For the reasons set forth herein, the subsequent transfers, or the value thereof, between Sentry and Natixis and Sentry and Tensyr are recoverable and the Customer Property should be returned to the BLMIS estate. 24. The Trustee has also filed suit against Groupement Financier Limited ( Groupement ) and other Groupement-related defendants to avoid initial and certain subsequent transfers of Customer Property. See Picard v. UBS AG, et al. (In re Bernard L. Madoff Inv. Sec. LLC), No (Bankr. S.D.N.Y filed Nov. 24, 2010) (the Groupement Complaint ). For the reasons set forth in the Trustee s complaint in that action, the transfers between BLMIS and Groupement are avoidable. For the reasons set forth herein, the subsequent transfers between Groupement, or the value thereof, and Natixis are recoverable and the Customer Property should be returned to the BLMIS estate. 25. The Trustee has also filed suit against Harley International (Cayman) Limited ( Harley ) to avoid initial and certain subsequent transfers of Customer Property. See Picard v. 10 Harley International (Cayman) Limited, et al. (In re Bernard L. Madoff Inv. Sec. LLC), No (Bankr. S.D.N.Y filed May 12, 2009) (the Harley Complaint ). Harley defaulted in that action after failing to appear to answer the Trustee s allegations in the Harley Complaint. On or about November 10, 2010, Judge Lifland entered a default judgment against Harley in the amount of $1,072, For the reasons set forth in the Trustee s complaint in that action, and set forth in Judge Lifland s November 10, 2010 order that specifically identifies the Harley transfers avoided, the transfers between BLMIS and Harley have been avoided. For the reasons set forth herein, the subsequent transfers between Harley and Natixis, or the value thereof, are recoverable and the Customer Property should be returned to the BLMIS estate. 26. The Trustee has also filed suit against the Alpha Prime Fund Limited ( Alpha Prime ) and other Alpha Prime-related defendants to avoid initial and certain subsequent transfers of Customer Property. See Picard v. Alpha Prime Fund Limited, et al. (In re Bernard L. Madoff Inv. Sec. LLC), No (Bankr. S.D.N.Y filed July 15, 2009) (the Alpha Prime Complaint ). Alpha Prime defaulted in that action after failing to appear to answer the Trustee s allegations in the Alpha Prime Complaint. By agreement, that default was vacated. On or about December 5, 2010, the Trustee filed another Complaint against Alpha Prime and other defendants. See Picard v. HSBC plc, et al., (In re Bernard L. Madoff Inv. Sec. LLC), No (BRL) (Bankr. S.D.N.Y filed December 5, 2010) (the Amended Alpha Prime Complaint ). For the reasons set forth in the Trustee s complaint in that action, the transfers between BLMIS and Alpha Prime are avoidable. For the reasons set forth herein, the subsequent transfers between the Alpha Prime and Natixis, or the value thereof, are recoverable and the Customer Property should be returned to the BLMIS estate. 11 II. JURISDICTION AND VENUE 27. The Trustee brings this adversary proceeding pursuant to his statutory authority under SIPA 78fff(b), 78fff-1(a), and 78fff-2(c)(3), 11 U.S.C. 105(a), 544, 547, 548, 550(a), and 551 of 11 U.S.C. 101 et. Seq. (the B
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