Madoff trustee tries comeback as JPMorgan, HSBC oppose appeal
As the liquidator of Bernard Madoff’s firm tries to come back from a series of defeats in U.S. district court, banks including JPMorgan Chase & Co. and HSBC Holdings Plc are preparing to argue against his appeal of judges’ rulings that threw out about $30 billion of his claims.
U.S. District Judge Jed Rakoff in July dismissed almost $9 billion in damages that Madoff trustee Irving Picard sought from HSBC and feeder funds, saying Picard exceeded his powers. Picard sued for $19 billion from the con man’s banker, JPMorgan, which U.S. District Judge Colleen McMahon dismissed, agreeing with Rakoff. The banks, including UBS AG and UniCredit SpA, have a deadline today to file arguments in federal appeals court in New York on why the judges were right to rule as they did.
Picard alleged in his lawsuits that the banks ignored “red flags” warning of Madoff’s fraud, hurting Madoff’s customers. Rakoff said Picard’s powers as a bankruptcy trustee are limited. While he can try to recover some money for the Ponzi scheme operator’s estate, he can’t sue banks on behalf of Madoff customers, and he can’t accuse them of fraud because he is trustee for a fraudulent enterprise.
“How far will the courts allow someone to be aggressive in their use of the law?” said Michael Clark, a former federal prosecutor with Duane Morris LLP in Houston who specializes in financial fraud and has handled appeals. “When lower court judges and trustees are too activist, there’s a tendency for higher courts to look and say, ‘You have spread your wings too far.’”
Power and Wealth
Picard, a New York bankruptcy lawyer, filed multibillion- dollar lawsuits against the biggest banks, charging $273 million for his firm’s work since Madoff’s 2008 arrest. Now, he’s having to defend his aggressive approach.
The HSBC and JPMorgan rulings came after the Anna Nicole Smith case, when the U.S. Supreme Court in June limited bankruptcy judges’ ability to rule on common-law claims. That stopped the former Playboy model’s heirs from collecting millions of dollars from Texas billionaire J. Howard Marshall’s estate, and put district judges in control of more bankruptcy issues.
The Madoff trustee’s appeals may not bring a reversal, said Peter Henning, a former Securities and Exchange Commission lawyer who teaches at Wayne State University in Detroit.
“Rakoff and McMahon were on fairly solid legal ground, so the appeals judges are less likely to reverse them,” he said.
Racketeering Suit
Separately, Picard on March 21 filed a notice of appeal in his biggest case, a $59 billion racketeering suit against UniCredit, Sonja Kohn and other parties, bringing the total amount he is fighting for to $90 billion. The current appeal involves a smaller amount sought from Italy’s UniCredit in the HSBC case.
If he loses the appeals, Madoff clients will have a smaller pot from which to recover losses, and investors who bought discounted claims on the con man’s estate may lose the bets they made. The trustee’s more than 1,000 suits demanded about $100 billion initially.
Amanda Remus, a Picard spokeswoman, has previously said Picard remains confident of his right to make the claims against the banks. She didn’t respond to an e-mail seeking comment for this story.
Picard’s demands for money from JPMorgan equaled his estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed, according to his lawsuit. The bank could have stopped the fraud by passing on its suspicions to regulators, he alleged.
Didn’t Know
JPMorgan, based in New York, said it didn’t know about the fraud or participate in it, and can’t be blamed for a scheme orchestrated by Madoff alone.
HSBC, based in London, has faulted Picard for insisting it had obligations to all Madoff investors and should have probed the fraud. HSBC wasn’t a “watchman” and didn’t have a duty to all of Madoff’s investors, a lawyer for the bank told Rakoff at a Manhattan court hearing last year.
Madoff, 73, is serving a 150-year sentence in a federal prison in North Carolina.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The district court cases are Picard v. JPMorgan, 11-5044, Picard v. UBS, 11-5051, Picard v. UniCredit, 11-5175, Picard v. HSBC, 11-5207, all in the U.S. Court of Appeals, Second Circuit (Manhattan).