Analysis of Simkin v. Blank

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10 Responses

  1. Chadd says:

    Informative analysis. Pity the exceedlingly lopsided comments at the Times link were so ignorant of this.

  2. Jon says:

    I am not sold. When the Simkins opened an account with Madoff, the account was assigned a name and number and the Simkins’ money was allocated by Madoff to that account. The first account statement issued by Madoff to the Simkins confirmed this deposit. The account existed.

    Madoff then stole money from the Simkin account to pay withdrawing investors. This may be a crime, but the account still existed. It existed from the moment the Simkins’ original deposit was confirmed as received and allocated to that name/number account.

    Steve Simkin makes a creative but fallacious argument that: “It was irrelevant whether the fictional account had some value for some time. Though withdrawals could be made, the money would have been stolen from others. . . .” In reality, money was stolen by Madoff from the SImkin account to pay withdrawing investors. The Simkin account existed from the very day it was created and funded.

  3. James Buckman says:

    Essential attributes of a valid investment account never existed. Funded with S&L’s real money, that money vanished into vapor, despite meticulous false facades fronting as attributes of a real account.

    Also interesting: the wife is an “heiress.” The NYT comments lined up against the man largely because people thought he was the richer of the two. Sounds like Laura is richer, thanks to family money, than Steve, who apparently has the long-hour life of big-law partner.

  4. David in nY says:

    Seems to me that this is not anything like the dime case. In cases like that, the most common of the “mutual mistake” cases, the loss ultimately falls on the seller in a buyer-seller situation, thus restoring the status quo ante. This is entirely just, because the seller is as a rule the person with the best information about the value of an asset, having held it longer and had more opportunity to learn of defects in it. If somebody is going to take the loss, it ought to be the seller.

    Here that principle in no way favors Simkin. The account was his, and he arranged a deal where he kept it. He did not have to do this, and there’s no basis, as in the coin case, for his shifting his loss to his ex-wife. He, as the contact with Madoff, should be presumed under the appropriate application of the “mutual mistake” theory, to be the one with the best access to information about any defects in the asset, and there’s no unfairness in leaving the loss with him. Indeed, there’s no substantive rationale (except his disappointment) for shifting the loss to her, as there is in a true mutual mistake case.

    Unless the “mutual mistake” doctrine is bounded by some rationale, it’s really just gibberish, a bunch of formalistic rules in search of a justification. But the proper justification does not favor Simkin here.

  5. Lawrence Cunningham says:

    David in nY:
    Where do you get the idea that Simkin owned the Madoff account? It was a joint account, just as with most of the couple’s assets.

    Why do you assume Simkin rather than Blank was in a better position to inspect the account statements and detect for fraud? The evidence does not support any such assertion.

    What makes you say “he arranged” a deal to keep the Madoff account? That arrangement was likewise joint.

    Take away all your assumptions and you are left with a fraudulent account that is much like the fraudulent dime, though not exactly, which no two cases ever are.


  6. David in nY says:

    How do you know it was a joint account, Mr. Cunningham? It appears that you assume it was “just as with most couple’s assets.” But the majority opinion plainly says, “The parties agreed that each would keep accounts titled in his or her name.” And it plainly says, “This account was titled in plaintiff’s name.” In addition, the dissent states “[a]t the time of the agreement, Steven had an account in his name with [Madoff].”

    Thus, it is clear that “Simkin owned the Madoff account.” Since that’s true, Simkin was plainly the favored one who was allowed by Madoff to invest with him.

    I say the loss is Simkin’s. The account was his, and he can’t shift the loss to an innocent party.

    And you might have done me the favor of reading the opinion before questioning my accuracy.

  7. Lawrence Cunningham says:

    David in nY: “And you might have done me the favor of reading the opinion before questioning my accuracy.” Please let’s not get testy! Of course I read the three judicial opinions in the case, along with the complaint, answer, and various briefs. I respect your opinion, both about how to determine ownership of marital assets under New York law, and what that means for the contract law of mutual mistake. I simply do not share your opinion on either point, for the reasons I’ve indicated. Thanks for the comments, which are useful and interesting to me.

  8. David in nY says:

    But I don’t understand, then. Your “points” seem to be that it wasn’t Simkin’s account (thought the opinion said it was) and that he didn’t “arrange” to keep that account, although according to the opinion, he plainly entered into an agreement which stated that all parties would keep the accounts which were titled in their own names. So I don’t get your positions at all.

    Is there something I’m missing?

  9. Lawrence Cunningham says:

    David in nY:

    My understanding:

    (1) the contract split the marital assets, which were the joint property of the couple, however titled or denominated (including Steven’s law practice);

    (2) the two agreed that these assets had an aggregate value of $13.2 million, which they agreed to split down the middle, with different forms of consideration changing hands, mostly cash to Laura (other than, for convenience, some assets already separately listed in her sole name), securities and other items to Steven (same caveat); and

    (3) in fact, they were mutually mistaken about the existence (validity, legitimacy, genuineness) of one line item on the asset list, erroneously entered at $5.4 million.

    In this view, Steven was not the sole owner of the fraudulent account or risk-bearer of its validity, but the two shared its ownership, divided its value, and were both innocently mistaken about what they were doing.

  10. Great post. I especially found it useful, thanks.