Trouble Ahead for Ruth? Handicapping the Madoff Forfeiture Battle

[WSJ Law Blog]

Earlier today, we blogged on federal prosecutors’ intent to get Bernie and Ruth Madoff to forfeit many of their pricey possessions (cars, boats, pianos and the like). So how will it all play out in court? The WSJ’s Amir Efrati sniffed around, and here’s what he came up with:
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The government is aware that Ruth Madoff has money that’s truly separate from her husband’s. She received a $10 million gift from her father several decades ago and later received a significant inheritance, according to a person familiar with the matter. (The government would not have originally accepted the terms of Bernie’s bail had they believed that tainted funds were being used to secure it, said another person familiar with the matter.)

According to Dan Ruzumna, a former federal prosecutor in Manhattan now with Patterson Belknap Webb & Tyler in New York, the government should have a relatively easy time getting a federal judge to sign a “preliminary order of forfeiture” for Ruth’s assets, after arguing that they assets were obtained using money traced back to Bernie’s fraud.

At that point, the burden will shift back to Ruth to prove that she purchased the assets that were unrelated to the fraud. That might be a tall order. “In this environment, it will be difficult for her to prove entire stock of assets she has now is traceable to legitimate sources,” Ruzumna says. Prosecutors will also be able to get a substantial portion of any bank accounts or assets owned jointly by the Madoffs, he says.

Ruth Madoff is currently being repped by Peter Chavkin of Mintz Levin.

However, prosecutors may run into roadblocks when they try to seize a $11 million Palm Beach, Fla., mansion owned by Ruth because under state law certain residences are immune to forfeiture regardless of whether the assets are traced to illegitimate proceeds, he says.