December 06, 2010
The Next Phase in the Madoff Case: The Big Clawbacks
Posted by Christine Hurt

The statute of limitations under which the Madoff trustee, Irving Picard, must operate will run in a few days.  Accordingly, Picard has sued three big fish in his attempt to gather compensation for the Madoff victims:  UBS, J.P. Morgan and HSBC.  The complaints, parts of which are sealed, allege that these institutions and their co-defendants either sponsored or facilitated feeder funds that invested in Madoff's fund, even though they suspected fraud.  If allegations that the institutions suspected fraud prove true, then the bankruptcy trustee will be able to claw back profits, which could be profits earned by related feeder funds or possibly fees earned by facilitating trades.  Punitives are also claimed.  Together, these suits allege $17.4 billion in damages.

The juicy stuff is under seal -- the evidence Picard has that these institutions suspected fraud.  It is entirely possible that there were suspicions, but finding evidence will be the tricky part.  According to Andrew Kirtzman's book on Madoff, neither Societe Generale or Credit Suisse would invest with Madoff's international arm because of concerns with his description of his methodology.  Interestingly, that book also reports that J.P. Morgan stopped investing with Madoff's feeder funds in 2008 because of suspicions.  If that is accurate, then I really would like to see the sealed complaint!

Stay tuned.

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