Madoff Trustee May Have to Drop $2 Billion in Claims on UBS

The liquidator of Bernard L. Madoff’s firm may have to drop about $2 billion in claims against UBS AG after telling a district court judge he will stop demanding damages from the Swiss bank, based on data from a filing by UBS.

Trustee Irving Picard sued UBS twice, seeking $2.6 billion and alleging the Zurich-based bank aided Madoff’s fraud by setting up so-called feeder funds and agreeing “to look the other way” at irregularities. He told U.S. District Judge Colleen McMahon in Manhattan this month he would ask UBS only to return money taken from the Ponzi scheme before its 2008 collapse. He had sought “in excess of $2 billion” based on accusations of wrongdoing, UBS said in the filing last month.

Madoff investors will get much less money if Picard drops damage claims in other cases. His lawsuit against JPMorgan Chase & Co. (JPM) asks for $19 billion in damages, equal to all money lost in the fraud. A $1 billion suit against the New York Mets’ owners uses common-law claims to demand the return of $700 million in principal.

“Picard may have made a tactical decision” to retreat from bigger claims, said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky, who isn’t involved in Madoff litigation. The U.S. Supreme Court ruling in the Anna Nicole Smith case indicated that bankruptcy courts will have smaller powers in the future, he said.

Amanda Remus, a Picard spokeswoman, said the trustee’s decision to drop two common law causes of action against UBS and its affiliates “has no impact either on the strength of our case or on the amounts of recoveries and damages that the trustee’s actions will seek for ultimate distribution” to Madoff customers.

Giving Up $2 Billion

After reviewing Picard’s original suit against UBS, Bowles said the trustee “will get large sums of money using garden variety bankruptcy law, but he is giving up at least $2 billion based on common and state law claims.”

UBS shares trading in Switzerland before U.S. markets opened rose as much as 4.4 percent to 13.91 Swiss francs after the withdrawal of Picard’s claims was reported. In New York Stock Exchange composite trading, UBS rose 60 cents, or 3.7 percent, to $16.98 at 2:56 p.m.

Picard’s letter to the judge wasn’t filed in court. McMahon, who is reviewing the case, noted the trustee’s “amendment of right” and withdrawal of common law claims in a letter to both sides’ lawyers filed yesterday in court.

She asked them to clarify by July 22 what claims remain and what funds Picard is trying to recoup relying solely on “garden variety bankruptcy” principles.

1,000 Lawsuits

Picard filed 1,000 suits to recover $100 billion for Madoff investors. Instead of trying to recoup only money taken out of the bankrupt firm, he mostly demanded damages, using common law and other laws that banks say a liquidator isn’t entitled to use.

HSBC Holdings Plc (HSBA) asked U.S. District Judge Jed Rakoff to dismiss a $9 billion suit against the U.K. bank and so-called feeder funds, arguing that Picard went beyond his role as liquidator of the Madoff firm.

Rakoff also is considering whether the trustee had a right to use U.S. racketeering law to triple his demands in a $59 billion suit against UniCredit SpA; Bank Medici AG; its founder, Sonja Kohn; and dozens of Italian and Austrian parties.

McMahon, the judge in Picard’s $19 billion suit against New York-based JPMorgan, granted UBS’s request to review the case this month, saying it raises similar issues to the JPMorgan suit about whether Picard has a right to demand damages.

The case is Picard v. UBS AG (UBSN), 11-cv-04213, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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