SIPC Faults District Judge for Tossing Claims Against HSBC in Madoff Case
By Linda Sandler – Sep 1, 2011 7:02 AM ET
The company that hired the liquidator of Bernard Madoff’s firm faulted a U.S. district judge for tossing about $9 billion in common-law claims against HSBC Holdings Plc (HSBA) and feeder funds, saying the case was “wrongly decided.”
U.S. District Judge Jed Rakoff in New York ruled July 28 that trustee Irving Picard can’t sue on behalf of customers or the Madoff estate, using common-law claims against parties “who allegedly violated a duty to Madoff Securities’ customers by failing to detect Madoff’s fraud.” The trustee was free to pursue bankruptcy claims, Rakoff ruled.
The Securities Investor Protection Corp., citing investor- protection and other law, said Rakoff “erred” in finding the trustee had only the powers available to a bankruptcy trustee, and couldn’t sue on behalf of the estate. By contrast, the trustee had an obligation to recover and distribute customer property, it said in a filing in U.S. District Court in Manhattan yesterday.
“The trustee has standing to bring his common law claims,” SIPC said. The ruling contained errors and “misunderstanding,” it said.
Picard appealed Rakoff’s ruling last week. SIPC made the statements in court papers defending the trustee’s $19 billion suit against JPMorgan Chase & Co. to the judge handling the case, U.S. District Judge Colleen McMahon. The second-biggest U.S. bank asked McMahon last month to dismiss the case, citing Rakoff’s ruling.
Picard’s suit blames JPMorgan, the con man’s banker, for all losses suffered by all Madoff customers, saying the Ponzi scheme would have collapsed earlier without the bank’s “assistance.” In addition to the $19 billion in damages, he is demanding return of $400 million allegedly taken out of the Madoff firm, plus $500 million in “additional revenue.”
JPMorgan has denied wrongdoing.
Picard and his law firm, Baker & Hostetler LLP, have collected about $179 million in fees for work since Madoff’s 2008 arrest. Madoff, 73, is serving a 150-year sentence in a federal prison in North Carolina.
The case is Picard v. JPMorgan Chase & Co. (JPM), 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).
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