Madoff’s Sons Cleared in London Trial

Of the many questions asked about Bernard L. Madoff’s Ponzi scheme, among the most frequent is whether his sons, Andrew and Mark, knew about the fraud despite their staunch insistence that they were kept in the dark.

For the first time, a judge has weighed in on this question, concluding that neither had any knowledge of their father’s scheme.

Andrew Madoff and Mark Madoff, who killed himself in 2010, were two of eight associates of Mr. Madoff who won a significant victory on Friday when a judge in London dismissed a case brought against them by the trustee seeking money for victims of the fraud.

After a six-week trial, Judge Andrew Popplewell dismissed all of the claims against Mr. Madoff’s sons, ruling that neither of them “knew of, or suspected, the fraud” and stated that “their honesty and integrity has been vindicated.”

“The decision confirms what Mark and Andrew stated from day one â€" that they did not know of or participate in the fraud perpetrated by their father,” said Martin Flumenbaum, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison who has represented the Madoff sons since their father’s arrest.

Andrew and Mark Madoff managed the legitimate market-making and proprietary-trading divisions of their father’s firm. Mark Madoff committed suicide in December 2010 on the second anniversary of his father’s arrest, only a few days after the lawsuit was filed in Britain. Neither has been criminally charged in the case.

The ruling in London comes during the same week that a criminal trial of five low-level employees of Mr. Madoff â€" none of whom were part of the London case â€" began in Federal District Court in Manhattan. Mr. Madoff, 75, is serving a 150-year sentence; nine people, including Mr. Madoff, have pleaded guilty.

From the start, lawyers for Andrew and Mark Madoff argued it was unfair for them to face the claims in a London court.

While the liquidator of Mr. Madoff’s British unit technically brought the case, the Madoff trustee in the United States, Irving H. Picard, financed the lawsuit and was the interested party. They were seeking to recover $50 million on behalf of the scheme’s victims.

“We are obviously extremely disappointed with the judgment handed down today as claims made against the defendants were serious and there was undoubtedly a case to answer,” said Amanda Remus, a spokeswoman for the trustee.

Judge Popplewell had harsh words for Mr. Picard. He criticized the “poisonous press releases” issued in the case and how he had pursued the defendants “aggressively and relentlessly over several years, on occasion with an unfair degree of hyperbole.” The judge also noted the “stress imposed” on “Andrew Madoff, seriously ill with cancer, and his and his brother’s families” by the lawsuit. Andrew Madoff is undergoing treatment in Seattle for mantle cell lymphoma.

Mr. Picard has so far recovered about $9.4 billion of the estimated $17.5 billion in cash losses from the Madoff fraud. He continues to trace the victims’ money in a process that is likely to take years. Mr. Picard and his lawyers have earned hundreds of millions of dollars in fees from the case.

In addition to the London action, Mr. Picard has a lawsuit pending against Andrew, Mark and other members of Mr. Madoff’s family. The lawsuit, which seeks about $255 million, contends that the family was “completely derelict” in ensuring that the firm’s operations were legal.

“I expect the findings by the court in England will have a significant impact on the trustee’s litigation in the United States,” Mr. Flumenbaum, the lawyer for Andrew and Mark Madoff, said.

The London case centered on payments that flowed between the Madoff firm’s London and New York offices. The liquidator contended that as directors of the overseas unit, Andrew and Mark Madoff, along with the other board members, were aware that certain payments from the United States were a sham. The trustee has described the London unit as “critical piece of the facade of legitimacy that Madoff constructed.”

Judge Popplewell said that the directors were not to blame.

“An honest and intelligent man in the position of each brother could reasonably have believed that the payments were in the interests of the company,” the judge wrote.

Other directors cleared in the case include Sonja Kohn, an Austrian banking executive who was close to Mr. Madoff, and Stephen Raven, the British unit’s chief executive.

The 188-page opinion contains a number of noteworthy passages detailing the complex relationship between Mr. Madoff and his sons.

“The brothers held Bernard Madoff in the high respect which the latter’s record, reputation and position as paterfamilias commanded,” wrote the judge. If Mr. Madoff, who was the chairman and effectively sole owner of the British unit, “regarded the research as being of value, they would ultimately have deferred to his view even had they raised objections.”

Judge Popplewell also expressed dismay over what Mr. Madoff’s sons, along with the other defendants, are being put through in the wake of the fraud.

“I very much regret that I must have added to their burden by the time it has taken to prepare this judgment,” he wrote. “The resolute and temperate way they have conducted themselves in these proceedings does them great credit.”