By Jonathan Stempel
(Reuters) - A federal appeals court rejected a bid by former Bernard Madoff investors, including a charitable foundation for New Jersey Senator Frank Lautenberg, to pursue claims against family members of the imprisoned swindler.
The Lautenberg Foundation, the town of Fairfield, Connecticut, and other investors had sought to pursue claims against Madoff's brother Peter, as well as Madoff's son Andrew and the estate of his late son, Mark.
But a panel of the 2nd U.S. Circuit Court of Appeals in New York upheld a February 2011 injunction issued by U.S. Bankruptcy Judge Burton Lifland in Manhattan in favor of Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC and recovering money for its former customers.
"The preliminary injunction serves the legitimate purpose of preserving the debtor's estate for the creditors and funneling claims to one proceeding in the bankruptcy court," the three-judge panel said in an unsigned order.
"Were it not for the preliminary injunction, there would ensue a chaotic rush to the courthouse - or rather, multiple courthouses -- of those seeking assets that the trustee claims are properly part of the BLMIS estate," it added.
Jennifer Hradil, a lawyer for the Lautenberg foundation, did not immediately respond to a request for comment.
Amanda Remus, a spokeswoman for Picard, declined to comment.
In opposing the claims, Picard's lawyer David Sheehan told the 2nd Circuit that Madoff family members "are the people that ran the fraud ... They never made an honest nickel. And that is the money that we're trying to bring back into the estate."
Picard has largely been successful in stopping lawsuits that he believes impair his ability to recover money for Madoff victims.
Last week, he asked Lifland for permission to distribute another $505 million to customers, which would boost the amount of money advanced or distributed to customers to $5.44 billion.
Peter Madoff had been chief compliance officer at his brother's firm, and was sentenced in December to 10 years in prison over his role in the fraud.
Andrew and Mark Madoff were co-directors of trading at the firm. Mark Madoff committed suicide in December 2010.
Bernard Madoff, 74, is serving a 150-year prison sentence.
The Lautenberg case is The Lautenberg Foundation et al v. Picard, 2nd U.S. Circuit Court of Appeals, No. 11-5421.
(Reporting by Jonathan Stempel in Washington, D.C.; Editing by Nick Zieminski)