HSBC Wins Dismissal of Class-Action Over Madoff Feeder Funds

  • Investors claimed bank ignored ‘red flags’ in Madoff fraud
  • U.S. judge rules claims can’t go forward against HSBC

HSBC Bank Plc defeated a class-action lawsuit by investors who lost money in Bernard Madoff’s fraud and claimed the bank ignored warnings while administering a group of “feeder funds” that placed money with the con man.

A judge on Thursday threw the case out, saying the court lacked jurisdiction over the HSBC units located outside the U.S. that were sued. U.S. District Judge Laura Taylor Swain also said a law governing securities-fraud cases barred the claims against HSBC’s U.S. unit.

The Madoff investors said HSBC aided the fraud by marketing structured financial products that funneled hundreds of millions of dollars to Madoff through the feeder funds. The bank ignored "serious red flags" that should have alerted officials to the fraud, according to the investors.

Madoff, 78, pleaded guilty in 2009 and was sentenced to 150 years in prison. At the time his Ponzi scheme fell apart, customer statements reflected about $65 billion in non-existent investments. Five Madoff employees were convicted after a trial in 2014.

Swain ruled that a 1998 law, the Securities Litigation Uniform Standard Act, barred the investors’ claims, applying an appeals court ruling that threw out similar claims against JPMorgan Chase & Co. and Bank of New York Mellon in 2014. That ruling was based on an earlier decision by the U.S. Supreme Court in another case.

"The court was following a misinterpretation of the Supreme Court’s standard," Andrew Entwistle, a lawyer for the investors, said in a telephone interview. "We’re disappointed, of course."

HSBC spokesman Rob Sherman declined to comment on the ruling.

The case is Hill v. HSBC Bank Plc, 14-cv-09745, U.S. District Court, Southern District of New York (Manhattan).

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