HSBC Settles Thema Fund’s Suit Over Madoff-Linked Losses

Thema International Fund Plc and HSBC Holdings Plc (HSBA) settled a lawsuit over the London-based bank’s liability for the fund’s losses of about $1.1 billion through Bernard Madoff’s Ponzi scheme.

HSBC and Thema said the deal, for an undisclosed amount, doesn’t include an “admission of liability on the part of any party.” The settlement needs to be approved by Thema shareholders, who are expected to meet in July for that purpose, the parties said in a joint statement today.

“Thema believes that it has a strong case but the settlement provides certainty and an early recovery, avoiding further years of expensive litigation,” according to the statement. HSBC said “it has good defenses but recognizes the risks and uncertainties inherent in defending a complex UCITS claim of this nature together with the significant burden and expense involved in doing so.”

Thema was seeking to recoup its losses from HSBC at a trial at the High Court in Dublin that started on April 30 and was scheduled to last 14 weeks. The case is one of dozens to focus on banks’ role as “custodians” to investment funds that deposited money with Madoff. HSBC, Europe’s biggest bank, faces more than 50 complaints in Ireland over claims it failed to discover Madoff’s activities.

UCITS Funds

The fraud hurt several European Union-regulated funds, or UCITS, like Dublin-based Thema. At least three UCITS, which stands for Undertakings for Collective Investment in Transferable Securities, were liquidated because of Madoff-related losses.

“This suit is the investors’ only hope of recovery,” Dermot Gleeson, a lawyer for Thema, told the Dublin court’s Judge Peter Charleton during opening arguments on April 30. HSBC was the expert and put itself forward to be custodian, said Gleeson. “It’s a deliver it or pay-up task.”

The total amount at stake was about $1.5 billion, including interest, Gleeson said at trial.

Madoff, 75, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history. He is serving a 150-year sentence in U.S. federal prison.

HSBC settled a related case last year, a day after the trial started in Dublin. Kalix Fund Ltd., which had invested money with Thema, was seeking $35.6 million before reaching the confidential settlement.

Hundreds of suits were also filed in Luxembourg against UBS AG (UBSN) over its custodian duties to Access International Advisors LLC’s LuxAlpha Sicav-American Selection, another UCITS fund, which failed after Madoff’s activities were discovered.

LuxAlpha had invested 95 percent of its money with Madoff and had $1.4 billion in net assets a month before the former Nasdaq Stock Market chairman’s December 2008 arrest.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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