Madoff Trustee Asks Supreme Court to Let Him Sue Banks

By PETER LATTMAN

Updated, 7:27 p.m. | The trustee seeking to recover money for the victims of Bernard L. Madoff’s Ponzi scheme asked the Supreme Court on Wednesday to review a ruling that prohibits him from suing several of the world’s largest banks that he contends aided the fraud.
In June, a federal appeals court in Manhattan decided that the trustee, Irving H. Picard, did not have standing to sue JPMorgan Chase, UBS, HSBC and UniCredit Bank Austria on claims that they abetted the multibillion-dollar fraud, which lasted decades. That opinion upheld a lower-court ruling by Judge Jed S. Rakoff of Federal District Court in Manhattan.
On Wednesday, lawyers for Mr. Picard filed a petition to the Supreme Court requesting that it hear an appeal of the case.
“Bernard L. Madoff did not act alone,” Mr. Picard’s lawyers said. The scheme “could not have persisted for so long, or defrauded so many of so much, without a network of financial institutions, feeder funds and individuals who participated in his fraud or acquiesced in it — just like any large-scale financial fraud.”
In a statement, the lawyers for the trustee said the ruling by the United States Court of Appeals for the Second Circuit contradicted the decisions of other appeals courts across the country.
Such conflicts often provide an impetus for the Supreme Court to hear a case, though it accepts only a fraction of appeal requests. The court receives about 10,000 petitions for a so-called writ of certiorari each year, yet grants only about 75 to 80 of those cases, according to its Web site.
The legal issue in the Madoff case centers on whether the trustee has the right to pursue claims against a third party, like a bank, that collaborates with a broker — in this case Mr. Madoff — to defraud customers. The appeals court ruled that under the law, the trustee “stands in the shoes” of Mr. Madoff’s firm and thus cannot sue the banks for losses caused by Mr. Madoff’s fraud.
Mr. Picard’s lawyers said the appeals court ruling undermined the intent of the Securities Investor Protection Act.
“If this decision is allowed to stand, the law governing S.I.P.A. liquidations will be in turmoil, making collaboration with future Madoffs risk-free for big financial institutions,” wrote David B. Rivkin Jr., a lawyer for Mr. Picard at Baker Hostetler. “In other words, the bad guys win.”
Mr. Picard is trying to recover billions of dollars from the banks that he said turned blind eyes to clear warning signs of the Madoff fraud. He contends, for instance, that JPMorgan was “thoroughly complicit” in the fraud, having obtained many indications of misconduct and failed to report the suspicious activity.
The lawsuit filed against JPMorgan highlights several examples in which JPMorgan officials expressed concerns about Mr. Madoff’s business. On June 15, 2007, a senior risk-management officer at the bank e-mailed colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
In another e-mail, a top private wealth management executive at the bank was routinely urging clients to avoid investments with exposure to Mr. Madoff because his “Oz-like signals” were “too difficult to ignore.”
Federal prosecutors continue to investigate whether JPMorgan failed to properly alert regulators about Mr. Madoff’s business, said people briefed on the investigation. A JPMorgan spokesman declined to comment.
Cash losses from the fraud are estimated at about $17 billion, but the paper wealth that was wiped out totaled more than $64 billion. Mr. Picard has thus far recovered about $9.4 billion and continues to pursue lost money.
Mr. Madoff is serving a 150-year sentence in a federal prison in North Carolina after pleading guilty in March 2009.
While the trustee’s lawyers at Baker Hostetler try to pursue a case against JPMorgan, they have another legal connection to the banking giant. Mr. Rivkin and Oren J. Warshavsky are representing Bruno Iksil, the JPMorgan trader nicknamed the London Whale, who is cooperating with the government in its investigation into the bank’s record trading loss.

In addition, jury selection for the first criminal trial related to the Madoff case is under way in federal court in Manhattan. Five former employees of Mr. Madoff, including his longtime personal secretary and two computer programmers, are fighting charges that they helped their boss carry out his fraud. The trial is expected to take as long as five months.

Link: http://dealbook.nytimes.com/2013/10/09/madoff-trustee-appeals-to-supreme-court-in-suit-against-banks/?_r=0

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/