Citigroup Inc. (C), accused by the trustee liquidating Bernard Madoff’s firm of ignoring warning signs of a massive Ponzi scheme, asked a bankruptcy judge to throw out the $430 million lawsuit.
The trustee doesn’t allege and can’t claim that Citigroup defendants had actual knowledge of the insolvency of Madoff’s firm or that any transfer they received was made with a fraudulent purpose, the New York-based bank said in a filing yesterday in U.S. Bankruptcy Court in Manhattan. The bank also rejected the trustee’s assertion that it should have detected the fraud at Bernard L. Madoff Investment Securities LLC.
“The trustee largely relies on the combination of widely known but innocuous information about BLMIS, along with obscure economic discrepancies developed by the trustee and his experts over the past two years,” Citigroup said in the filing.
The trustee, Irving Picard, said in a complaint unsealed in February that a Citigroup executive “concluded” by June 2007 that returns reported by a Madoff feeder fund, Fairfield Sentry Ltd., couldn’t have come from the publicized trading strategy.
The executive reached his conclusion after meeting with Harry Markopolos, an analyst and whistleblower who also alerted U.S. regulators to the fraud, Picard said. Madoff was arrested in December 2008.
At least four banks sued by Picard have taken their cases to district court. U.S. District JudgeColleen McMahon in Manhattan is handling Picard’s $19 billion suit against JPMorgan Chase & Co. (JPM) and claims of $2.6 billion against UBS AG. (UBSN)
Feeder Funds
U.S. District Judge Jed Rakoff is handling Picard’s $9 billion suit against HSBC Holdings Plc (HSBA) and so-called feeder funds, and a $59 billion suit against UniCredit SpA, Bank Medici AG, its founder, Sonja Kohn, and dozens of Italian and Austrian parties.
Amanda Remus, a spokeswoman for Picard, didn’t immediately return a call seeking comment after regular business hours yesterday. Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment beyond yesterday’s filing.
The $430 million Picard demanded from Citigroup consisted of money earned “in connection with” a loan to a Madoff feeder fund and a swap transaction with a Swiss hedge fund linked to a second feeder fund. Separately he named an affiliate of the bank, Citi Hedge Fund Services Ltd. of Bermuda, in a $975 million suit against feeder fund Kingate Global Fund Ltd., saying it took fees of more than $4 million from Kingate.
Around March 2008, Citigroup had “red flag information” that Madoff was making fraudulent transfers from an unidentified employee whose previous firm had blacklisted Madoff-related investments, Picard said in the main lawsuit.
Soon after, the bank began to unwind its Madoff trades and rid itself of its remaining Madoff exposure, he said.
Madoff, whose Ponzi scheme cost investors about $19 billion in principal, is serving a 150-year prison sentence in Butner, North Carolina.
The case is Picard v. Citibank, 10-05345, U.S. Bankruptcy Court, Southern District of New York(Manhattan).
To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net; Edvard Pettersson in Los Angeles at epettersson@bloomberg.net
To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net
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