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Madoff Trustee Rejected by U.S. High Court on Bank Suit

Madoff Trustee Irving Picard
A file photo shows Irving Picard, the trustee for Bernard L. Madoff Investment Securities LLC, walking past the media outside U.S. Bankruptcy Court in New York, on Feb. 2, 2010. Photographer: Daniel Acker/Bloomberg

The U.S. Supreme Court rejected an appeal by the liquidator of Bernard Madoff’s firm, ending a bid to collect billions of dollars from banks alleged to have helped funnel money into a Ponzi scheme.

The justices today said they wouldn’t hear arguments from the Madoff trustee, Irving Picard, who sought to sue HSBC Holdings Plc, UniCredit SpA and UBS AG to recoup customer losses. A federal appeals court said Picard lacked authority to press those suits.

Picard argued in his appeal that the banks “are as responsible as Madoff for the enormous magnitude of customer losses.”

Picard, who so far has collected almost $10 billion for victims of the fraud, was seeking a new avenue to recover losses. The fraud cost investors about $17 billion before Madoff was arrested in December 2008. Madoff is serving a 150-year federal prison sentence in North Carolina.

The appeals court also said Picard couldn’t pursue JPMorgan Chase & Co., which in January took itself out of the legal dispute by agreeing to settle Picard’s claims for $543 million. JPMorgan also said it would pay more than $2 billion to resolve government allegations.

In throwing out Picard’s suits against the banks, the New York-based appeals court said he lacked the legal right, or standing, to sue on behalf of defrauded investors. The appeals court pointed to a 1972 Supreme Court decision that said bankruptcy trustees are authorized to collect only money owed to the estate, not sums owed to creditors.

‘Unremarkable Conclusion’

In court papers, HSBC and UniCredit called that an “unremarkable conclusion” that wasn’t worthy of Supreme Court scrutiny.

The Obama administration joined the banks in urging the nation’s highest court to reject the appeal. The appeals court ruling “does not preclude customers from pursuing their own actions” against the banks, the administration said in court papers.

Picard argued that the appeals court misinterpreted the U.S. Securities Investor Protection Act, a 1970 law that governs the liquidation of failed brokerage firms.

Among other arguments, Picard contended that SIPA, as the law is known, authorizes trustees to sue wrongdoers to recoup money the Securities Investor Protection Corp. gave investors as advances. Picard also says SIPA lets trustees pursue some claims under New York state law.

Picard accused HSBC, UniCredit and UBS of facilitating the fraud by promoting “feeder funds” that sent new cash to Madoff and kept his Ponzi scheme afloat. The banks deny wrongdoing and say they were victims of the Madoff fraud.

The Supreme Court case is Picard v. JPMorgan Chase, 13-448.

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