In an opinion dated Sunday, July 6, Judge Rakoff ruled that the trustee administering Bernie Madoff’s defunct investment firm could not invoke the Bankruptcy Code to recover funds transferred between two foreign entities. Citing Morrison v. Nat’l Austria Bank Ltd., Judge Rakoff held that Section 550 of the Bankruptcy Code, like other federal statutes, did not have extraterritorial reach absent specific congressional intent. As part of his wide-ranging efforts to clawback profits paid out to Madoff investors, the Madoff trustee Irving Picard had argued that the language of Section 541, which defines “property of the estate” as having no borders, allows for the clawback of funds transferred from offshore “feeder funds” to foreign banks. Judge Rakoff disagreed. Calling his argument “clever,” Judge Rakoff explained that the funds only become “property of the estate” once the Trustee has recovered them. Judge Rakoff recognized Picard’s concern that such a ruling would allow U.S. debtors to fraudulently transfer all of his assets offshore and then retransfer those assets to avoid the reach of U.S. bankruptcy law. Nonetheless, Judge Rakoff ruled that the desire to close such “loopholes” must be “balanced against the presumption against extraterritoriality, which serves to protect against unintended clashes between our laws and those of other nations which could result in international discord.”