Madoff Victims' Legal 'Savior' Accused of Conflicts in Lawsuit

(Bloomberg) -- A New York lawyer who was scammed by Bernard Madoff has for years held herself out as a courtroom "savior" to other victims, offering to help them keep investment profit or recover lost principal while ignoring her own conflicts of interest, two clients said in a proposed class-action suit.

Helen Davis Chaitman, who signed up hundreds of fellow victims as her clients since the con man’s arrest almost a decade ago, made a name for herself suing the trustee unwinding Madoff’s defunct securities firm in bankruptcy court. Her central claim is that the trustee, Irving Picard, is wrongfully settling claims based on money deposited minus money withdrawn, when they should be based on victims’ final account statements, which include fake profit.

But in her effort, Chaitman violated ethics rules by representing opposing classes of victims: those who lost principal, known as "net losers," and those who made fake profit, known as "net winners," according to a breach-of-contract and fraud complaint filed Thursday in federal court in Manhattan.

"Ms. Chaitman represented both net winners and net losers in a zero-sum game; the more money collected from some of her clients (the net winners), the more available to be distributed to her other clients (the net losers)," the suit says. Her clients "were in direct conflict with each other."

Chaitman declined to comment on the lawsuit, which stems from a complaint filed by the same plaintiffs in November. In her request for dismissal of the the earlier case, she said the lead plaintiff, Kevin Shulman, sued in a bid for press attention after Chaitman sued him for unpaid fees in New Jersey. She also says the suit should be tossed because it’ll never get class-action status.

The new complaint alleges Chaitman also made hundreds of thousands of dollars in additional fees from her net-winner clients by making false statements about Picard’s legal tactics to discourage them from settling with the trustee. "To make matters worse, Ms. Chaitman herself is a net loser, which means she personally stands to receive money taken from her net-winner clients," they said.

Picard has recovered more than $13 billion for victims, largely by suing net winners and early Madoff customers who made billions of dollars in illicit profit from securities trades that never took place. Chaitman has lately been fighting in court for access to Picard’s massive database of trading records and other documents seized from Madoff’s firm to advance a fringe theory that the fraud wasn’t technically a Ponzi scheme.

The case is Shulman v. Chaitman, 1:18-cv-08125, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Blumberg, Joe Schneider

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