Most of two lawsuits filed by Irving Picard against JPMorgan Chase & Co and UBS AG have been dismissed by a federal judge. Those suits sought $19.9 billion and $2 billion by Picard, the trustee seeking money for victims of Bernard Madoff’s fraud. The decision by U.S. District Court Judge Colleen McMahon in Manhattan is a huge setback for the trustee, but not for folks who were defrauded by Madoff. Picard has spent nearly three years liquidating Bernard L Madoff Investment Securities LLC. JPMorgan had been Madoff’s main bank for two decades. Judge McMahon’s decision wipes out about $19 billion of Picard’s case against JP Morgan, the largest U.S. bank.
“The trustee’s theories fail,” Judge McMahon wrote in her opinion, finding that Picard had no power to pursue common law claims against the banks, saying such claims properly belong to former Madoff customers. The judge returned what is left of the cases to the U.S. bankruptcy court in Manhattan. In concluding that Picard exceeded his power, Judge McMahon followed a July decision in another lawsuit by Judge Jed Rakoff, a colleague who dismissed about $8.6 billion of claims against HSBC Holdings Plc and other Defendants. Picard says he will appeal to the federal appeals court in New York.
Picard has filed roughly 1,050 lawsuits on behalf of former Madoff customers since the Ponzi schemer’s firm collapsed on Dec. 11, 2008. The JPMorgan lawsuit has been his second-largest after a $58.8 billion case against Defendants, including Bank Medici AG founder Sonja Kohn and Italy’s UniCredit SpA. In September, Judge Rakoff had capped potential damages in Picard’s lawsuit against the owners of the New York Mets baseball team, who were also former Madoff customers, at $386 million, a reduction down from the $1 billion sought.
In the HSBC case, Judge Rakoff rejected what he called Picard’s ”convoluted theories,” and accepted HSBC’s arguments that the trustee could not pursue common law claims. Judge McMahon, in her decision, said she was “persuaded as well” by the essentially identical arguments raised by JPMorgan and UBS, and that the HSBC ruling “convincingly established” the trustee’s lack of standing to pursue common law claims.
The bulk of Picard’s cases are referred to as “clawback” lawsuits against former Madoff customers that Picard believes took too much cash out of the firm before its collapse. In contrast, the lawsuits against JPMorgan, UBS, HSBC, UniCredit and “feeder funds” that steered client money to Madoff, accused the Defendants of ignoring red flags about Madoff’s fraud, in an effort to obtain more fees or commissions. JPMorgan argued that Picard failed to show anyone at the bank had “actual knowledge” of Madoff’s crimes, or ”deliberately collaborated” with Madoff to obtain banking fees. The trustee has said he has recovered roughly $8.7 billion to cover about $17.3 billion of valid customer claims. As we all know, the 73 year old Madoff is serving a 150-year prison sentence. I will mention below why J.P. Morgan – because of the victory described above – may have been “counting chickens before they were hatched.”
Source: Insurance Journal
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