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Madoff Trustee Seeks to Pursue Racketeering Claim Against Kohn

The trustee liquidating Bernard Madoff’s former firm asked a U.S. judge not to dismiss civil racketeering claims from a $58.8 billion lawsuit against Bank Medici AG founder Sonja Kohn and UniCredit SpA’s Bank Austria.

David Sheehan, a lawyer for trustee Irving Picard, asked U.S. District Judge Jed Rakoff in Manhattan yesterday to deny the defendants’ request that he throw out claims brought under the Racketeer Influenced and Corrupt Organizations Act, or RICO. The law provides the basis for most of the damages Picard seeks in the case.

Lawyers for the defendants argued that Picard lacks standing to sue because he stands in the shoes of the Madoff firm, which was responsible for the fraud, and that Kohn didn’t run a separate racketeering enterprise for purposes of the RICO law.

The defense lawyers also told Rakoff that RICO doesn’t cover a racketeering enterprise that is located primarily overseas. Most of the defendants in the suit, including Kohn, based in Austria, were located outside the U.S., they said.

In a complaint filed in December, Picard, calling Kohn Madoff’s “criminal soul mate,” sued her, along with UniCredit, Bank Austria, Bank Medici and dozens of other Austrian and Italian parties. He claimed Kohn fed more than $9.1 billion of investor money into the Madoff fraud.

‘Illegal Scheme’

UniCredit, Picard alleged, ignored signs of fraud at the Madoff firm and participated in the “illegal scheme” with Kohn. Picard demanded $19.6 billion, which was his estimate at the time of all the principal lost by Madoff investors. Because RICO provides for triple damages, the trustee could recover as much as $58.8 billion. The claim is the largest of about 1,000 suits Picard has filed to recover money for victims of the Madoff fraud.

“If we win this case, no money is going to Butner prison,” Sheehan told Rakoff yesterday, referring to the federal prison in Butner, North Carolina where Madoff is serving a 150-year sentence. “Where is it going to go? It’s going to all of the customers” defrauded by the con man.

In June, Rakoff agreed to take the case from U.S. Bankruptcy Court, saying the case required “significant interpretation of RICO.”

“I don’t see how I have any leeway on the standing issue,” Rakoff said to Sheehan. He also questioned Sheehan’s argument that Kohn headed a scheme that was separate from Madoff’s and still subject to U.S. racketeering law.

“If she’s the brains of that scheme, then why isn’t this a foreign scheme?” Rakoff asked.

Rakoff didn’t say when he will decide the motion.

The case is Picard v. Kohn, 11-cv-01181, U.S. District Court, Southern District of New York (Manhattan).

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