Beacon Associates LLC I et al v. Beacon Associates Management Corp. et al (Case 1:14-cv-02294-AJP)

On April 2, 2014, a lawsuit captioned Beacon Associates LLC I et al. v. Beacon Associates Management Corp., et al. was filed in the Southern District of New York. The action seeks a judicial determination in connection with the valuation and distribution of several categories of Beacon Associates' and Andover Associates' assets including recoveries from the Madoff Trustee, other Madoff related actions, as well as other monies. This action will proceed before United States Magistrate Judge Andrew J. Peck. Additional factual detail is set forth in the Complaint, which is available by clicking on the link to the left. Public case documents such as motions and scheduling orders will be posted on this website shortly after the document has been filed with the Court.


As Fund Counsel, we know that the investors want a distribution as quickly as possible. As a result, this action was brought in coordination with the defendant parties to further the mutual goal of making a distribution of fund assets properly, fairly, and quickly.



Update of July 9, 2014: We previously notified investors of the briefing schedule in this action and that the time for an investor to submit support for, or object to, allocation positions sought by each side must arrive at our offices no later than September 12, 2014. PLEASE NOTE that pursuant to an updated scheduling memo endorsed by the Court on July 8, 2014, the briefing scheduled has been extended. The lawyers representing the two opposing allocation views must file Motions by August 8, 2014 explaining their position, and each side has the opportunity to respond to the other side's position by September 5, 2014. YOUR TIME to submit support for, or object to, allocation positions has been extended until September 26, 2014. Accordingly, you must have filed a timely written submission with our office (by September 26, 2014) to have your submission considered and/or to appear at the hearing on October 7, 2014.



Update of August 6, 2014: PLEASE NOTE that pursuant to an updated scheduling memo endorsed by the Court on August 6, 2014, the briefing scheduled has been extended. The lawyers representing the two opposing allocation views must now file Motions by August 22, 2014 explaining their position. The remaining dates have not changed. Each side has the opportunity to respond to the other side's position by September 5, 2014. YOUR TIME to submit support for, or object to, allocation positions remains September 26, 2014. Accordingly, you must have filed a timely written submission with our office (by September 26, 2014) to have your submission considered and/or to appear at the hearing on October 7, 2014.





Update of August 28, 2014: PLEASE NOTE that on August 27, 2014: (i) Income Plus filed a brief with the Court arguing that the method of distribution of the recovered (and to-be-recovered) Madoff related funds should be pursuant to the Valuation Method and they also filed several supporting documents including the Declarations of Brian Whitely and John Jeanneret together with supporting exhibits; and (ii) Fastenberg filed a brief with the Court arguing that the method of distribution of the recovered (and to-be-recovered) Madoff related funds should be pursuant to the Net Equity Method and his counsel also filed the supporting declaration of Max Folkenflik together with supporting Exhibits. These filings have been posted to the left of this paragraph. The lawyers representing the two opposing allocation views now have the opportunity to respond to the other side's position by September 5, 2014. YOUR TIME to submit support for, or object to, allocation positions remains September 26, 2014. Accordingly, you must file a timely written submission with our office (by September 26, 2014) to have your submission considered and/or to appear at the hearing on October 7, 2014.





Update of September 8, 2014: PLEASE NOTE that on September 5, 2014: (i) Income Plus filed a brief with the Court arguing in further support of its position that the method of distribution of the recovered (and to-be-recovered) Madoff related funds should be pursuant to the Valuation Method and in opposition of the Net Equity Method, and they also filed supporting documents including the Declarations of Brian Whitely together with an exhibit; and (ii) Fastenberg filed a brief with the Court further arguing that the method of distribution of the recovered (and to-be-recovered) Madoff related funds should be pursuant to the Net Equity Method and in opposition to the Valuation Method, and his counsel also filed the supporting declaration of Max Folkenflik together with a supporting exhibit. These filings have been posted to the left of this paragraph. YOUR TIME to submit support for, or object to, allocation positions remains September 26, 2014. Accordingly, you must file a timely written submission with our office (by September 26, 2014) to have your submission considered and/or to appear at the hearing on October 7, 2014.





Update of September 10, 2014: PLEASE NOTE that on September 8, 2014 Defendant Fastenberg filed a sur-reply letter with the Court in further opposition to Income Plus's distribution position. The letter is posted to the left.





Update of October 22, 2014: PLEASE NOTE that a Fairness Hearing was held before the Honorable Andrew J. Peck on October 7, 2014. The following minute entry was entered by the Court reflecting its decision. The parties are presently working together to prepare a proposed distribution order, as stated in the letters to the Court posted to the left.



Minute Entry for proceedings held before Magistrate Judge Andrew J. Peck: Fairness Hearing held on 10/7/2014. Proposed order due 10/10; further submissions due 10/17. Court rules that Madoff - related funds are to be distributed via the Net Investment Method (taking account also if amounts Beacon and Andover members rec'd from the class action settlement approved by Judge McMahon). The $19.6 million "clawback" amount is already distributed using Valuation Method and that is approved. Expenses to be allocated to moneys being distributed (so almost all will be allocated same as Madoff - related funds). Parties to discuss and brief what to do with moneys rec'd once all investors are made whole as to their investments.


Update of November 6, 2014: On October 31, 2014, Judge Peck issued a Final Distribution Order and Judgment which will serve as a road map for the future distribution of Beacon Fund and Andover Fund monies. A letter explaining the Final Distribution Order and Judgment and each investor's right to appeal the Final Distribution Order and Judgment was mailed to each investor on November 5, 2014. A copy of that letter can be found on this webpage.



On January 20, 2015, the Beacon Fund distributed $48,947,774 to 293 investors and the Andover Fund distributed $101,107 to 67 investors. In total, over $49 million of Madoff loss recovered proceeds was distributed to investors.

Prior to the January 2015 distribution, a question arose with respect to the calculation of the Net Equity for 19 Beacon investors. These situations involve Beacon investors who at some point had a beneficial interest in more than one Beacon account -- usually a closed account and a current open account. In calculating such an investor's Net Equity the question arose as to whether Madoff related profits taken out of the investor's closed Beacon account should be netted against the investor's second account thereby reducing that investor's Net Equity in the currently open account. In other words, the question is whether the Beacon Fund should combine the Net Equity of an investor who has related accounts. In some instances, direct transfers were made from one account to a second account and in other situations an investor closed the account and months or years later opened a new Beacon account. And, in some instances although an investor had a beneficial interest in two Beacon accounts, the account names are different. Four of the 19 investor accounts involve a situation unique to two investors because it involves the splitting of assets in four related Beacon accounts as a result of a divorce.

The Beacon Fund distributed to those 19 investors the lowest possible amount due to each of them (i.e., netting the two related accounts) but left in escrow the monies that might be due to them if the profits withdrawn from the first account should not be netted against the second account to determine a joint Net Equity for the two related accounts. A little more than $4 million has been escrowed for this issue. Each of these Beacon investors has been given notice, by letter, of the amount of their potential distribution which has been placed in escrow and the calculations used to support that amount.

The Court was notified about this issue and will be deciding the proper Net Equity calculation methodology for these 19 investors after hearing from these investors as well as two lawyers who represent many investors. The two lawyers representing many investors will be taking the position that under the law the Beacon Fund is required to net profits and losses in related accounts. More detail concerning this issue can be found in the letter titled January 23, 2015 Letter to Judge Peck (which can be found to the left of this posting).

If the Court decides that the Beacon Fund is required to net profits and losses in related accounts that affect some or all of the 19 investors, some or all of the approximate $4 million currently held in escrow will accordingly be available for distribution to the Beacon investors.

There are no Andover investors with this issue.

As this issue is briefed to the Court, we will update this Web Page and post any documents filed with the Court.



Update of March 4, 2015:

Please note that the Court has granted an extension of time to file opening briefs with respect to the net equity calculation issue described above. Opening briefs are now due on Thursday, March 12, 2015 (extended from the original date of March 6). The time to file any responsive/answering papers remains on March 23, 2015. A copy of the Endorsed Letter Extending Time to File Opening Briefs is posted to the left.





Update of March 12, 2015:

Please note that the Court has granted a one day extension of time to file opening briefs with respect to the net equity calculation issue described above. Opening briefs are now due on Friday, March 13, 2015. The time to file any responsive/answering papers remains on March 23, 2015.





Update of March 16, 2015

: On March 13, 2015, the following documents were filed in this action. These materials, posted to the left, contain confidential information and are therefore redacted. Certain exhibits have been filed under seal pursuant to the Protective Order and are therefore not available here.
  • Memorandum in Support of AIJED International Ltd.'s Application for Release of Funds Due Pursuant to This Court's Oct. 31, 2014 Order; Declaration of Mitchell P. Hurley; and Declaration of Arthur S. Gordon.
  • Defendant Fastenberg's Memorandum of Law In Support of His Request for a Mandatory Injunction and a Declaratory Judgment; and Declaration of Max Folkenflik In Support of Adjustments to Net Equity.
  • Memorandum of Law of Defendant Income-Plus Investment Fund Relating to Calculation of Net Equity for Certain Investors; Declaration of Brian E. Whiteley and Exhibit 1; and Declaration of John P. Jeanneret, Ph.D.
  • Beacon Fund Counsel's Letter forwarding two investor submissions.


Update of March 24, 2015: On March 23, 2015, the following documents were filed in this action. These materials, posted to the left, contain confidential information and are therefore redacted. Certain exhibits have been filed under seal pursuant to the Protective Order and are therefore not available here.

  • Reply Memorandum in Further Support of AIJED International Ltd.'s Application for Release of Funds Due Pursuant to This Court's Oct. 31, 2014 Order;
  • Second Declaration of Arthur S. Gordon;
  • Declaration of Rachel J. Presa (with Exhibits A & B);
  • Defendant Fastenberg's Reply Memorandum of Law on Computation of Net Equity;
  • Reply Declaration of Max Folkenflik in Further Support of Adjustments to Net Equity;
  • Reply Memorandum of Defendant Income-Plus Investment Fund Relating to Calculation of Net Equity for Certain Investors; and
  • Declaration of John P. Jeanneret, PhD.




Update of April 9, 2015: On April 8, 2015, the Court issued its decision with respect to the Holdback issue described above. The Court stated:

"After reviewing all of the parties' submissions on this issue. . . the Court holds that, in equity and fairness, each related account should be treated as a single entity for purposes of determining Net Equity."


Update of April 14, 2015:
AIJED International, Ltd. has filed a Notice of Appeal, giving notice that it appeals the Court's Order entered On April 8, 2015.





Update of April 17, 2015
: The Court has set an expedited briefing schedule to hear AIJED's application for a stay of the April 8, 2015 Order. The Court will hear argument on this issue on April 27, 2015.



Update of April 21, 2015
: On April 20, 2015 AIJED filed a Memorandum of Law in Support of its Motion to Stay Enforcement and for a Preliminary Injunction Pending Appeal and the Second Declaration of Rachel J. Presa. These documents are posted to the left.





Update of April 23, 2015
: On April 23, 2015, the following documents were filed in this action:

  • Defendant Income-Plus Investment Fund's Opposition to AIJED's Motion for a Stay;
  • Defendant Fastenberg's Memo of Law in Opposition to AIJED's Stay Request; and
  • Declaration of Max Folkenflik in Opposition to AIJED's Stay Request and Exhibits A - E.


Update of April 27, 2015
: On April 24, 2015, the following documents were filed in this action:

  • Reply Memorandum of Law in Support of AIJED's Motion for a Stay; and
  • Third Declaration of Arthur S. Gordon and Exhibits A - D.



Update of April 29, 2015: On April 27, 2015 a conference was held before Judge Peck concerning AIJED's Motion to Stay Enforcement of the April 8, 2015 Order. At the hearing, the Court ruled that Beacon should maintain the Holdback funds of only AIJED International in escrow pending the outcome of AIJED's appeal. The Court also instructed AIJED to post a $100,000 bond. Additionally, the Court directed that any Holdback Investor who wishes to have its Holdback funds held in escrow must file a Notice of Appeal to the Second Circuit and must file a stay request to Judge Peck by May 8, 2015.

Additionally, on April 28, 2015, AIJED filed the following documents in its appeal before the Second Circuit.

  • Notice of Appearance Form;
  • Form C along with Addendums A-C; and
  • Form D.


Update of July 17, 2015:
AIJED has withdrawn its appeal to the Second Circuit. On July 13, 2015, Judge Peck entered a Memo Endorsement providing that Beacon is free to distribute the Holdback Funds pursuant to the April 8, 2015 Order.





For more information, please contact:

Arthur G. Jakoby at +1 (212) 592-1438 or [email protected]
Leah Kelman at +1 (609) 542-3817or [email protected]

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