In a decision released Tuesday, Judge Colleen McMahon of United States District Court in Manhattan ruled that the trustee, Irving H. Picard, did not have the legal right to pursue $20 billion in combined damage claims against JPMorgan Chase Company and UBS.
JPMorgan Chase served for decades as Mr. Madoff’s banker and also created and sold derivatives pegged to his investment performance. UBS provided various banking and administrative services to a host of European investment funds that steered money into Mr. Madoff’s hands.
The ruling on Tuesday echoed the reasoning offered in July by Judge Jed S. Rakoff, also of United States District Court, when he barred the trustee from seeking a combined $8.8 billion in similar damage claims against HSBC, the London-based banking giant, and UniCredit, one of Italy’s largest banking groups.
The banks’ arguments before Judge Rakoff persuaded him to dismiss the disputed claims, Judge McMahon noted in her opinion. “I am persuaded as well,” she said.
As in the cases before Judge Rakoff, the issue before Judge McMahon was whether Mr. Picard, as the trustee for Mr. Madoff’s bankrupt estate, could sue the banks for harm they supposedly caused to Mr. Madoff’s investors, as opposed to harm inflicted on the bankrupt estate.
And like Judge Rakoff, Judge McMahon determined that when Mr. Picard sued third parties for damages, he stood in the shoes of Mr. Madoff, the Ponzi schemer, not in the shoes of Mr. Madoff’s victims. Therefore, he could sue only if the defendants had harmed Mr. Madoff, which they clearly had not done, since their banking services facilitated the flow of cash into his fraud from around the world.
Therefore, only Mr. Madoff’s creditors — his victims — have legal standing to sue the various bank defendants for damages, Judge McMahon said.
Underlying Mr. Picard’s arguments was the question of whether those victims had the practical means or the leeway under bankruptcy law to individually pursue multibillion-dollar claims against a roster of global banks.
The trustee’s lawsuits accused the defendant banks of willfully turning a blind eye to evidence that Mr. Madoff was operating a fraud, thereby allowing his scheme to continue and increasing the financial destruction it caused. Mr. Picard argued in court that federal law gave him the power to pursue those damage claims on behalf of the creditors.
Judge McMahon acknowledged that “allowing the trustee to pursue claims that belong properly to individual creditors would accrue to the benefit of all creditors by augmenting the bankruptcy estate,” the primary source from which Mr. Picard hopes to compensate the cash losers in Mr. Madoff’s scheme.
And she noted that if Mr. Picard were able to collect enough in damages, he could also make payments to those who lost only their paper profits in the scheme, although they would not receive as much as the cash losers.
But those practicalities did not tilt her ruling in favor of Mr. Picard’s legal theory.
“This theory is not supported by the statute’s text and history or by any persuasive case law,” Judge McMahon concluded. She said the points of law put forward by the trustee before her and before Judge Rakoff were “no more persuasive to me than they were to him.”
As a result of her ruling, the trustee’s claims against the two giant banks will be limited to those that fall under the terms of the federal bankruptcy code, which allows Mr. Picard to recover fictional profits withdrawn during a specific period before the collapse of the Madoff fraud in December 2008.
For JPMorgan Chase, according to the trustee’s calculations, those claims are less than $500 million, a fraction of the $19 billion Mr. Picard was seeking. However, he remains free to pursue just over half of the $2 billion he sought from UBS in the bankruptcy court.
In a statement, the trustee’s lawyers said they had appealed Judge Rakoff’s ruling and intended to appeal this latest decision as well. The trustee and his counsel “remain confident in the cases,” the statement continued.
Article source: http://feeds.nytimes.com/click.phdo?i=cbe065c65e708dbf8f8c4581e5c64d58