NEW YORK A lawyer for the trustee seeking money for Bernard Madoff's victims asked an appeals court on Wednesday to restore nearly $30 billion in claims against JPMorgan Chase & Co (JPM.N) and other banks, saying it would force those who furthered the fraud to "pay their fair share."
In arguments before the 2nd U.S. Circuit Court of Appeals, the trustee's lawyer sought to overturn lower court rulings that only Madoff victims themselves -- not the trustee -- could sue third parties such as banks for damages.
The trustee has said JPMorgan, Madoff's main bank for two decades, and other banks ignored numerous warning signs about Madoff's business -- allegations the banks have denied.
Oren Warshavsky, a lawyer for trustee Irving Picard, told the appeals court that federal law empowers Picard to pursue claims on behalf of Madoff customers. He said the banks' failure to detect that the money manager was running a Ponzi scheme exacerbated the victims' losses.
"Anybody who suffered by virtue of this fraud, their suffering was increased each time it was extended," Warshavsky said. "Those that helped propagate it should pay their fair share."
Lawyers for the banks said only the victims of a purported fraud themselves can pursue fraud claims.
"A trustee has no standing generally to sue third parties on behalf of creditors," said John Savarese, a lawyer for JPMorgan.
The Madoff fraud was revealed in December 2008, when the financier ran out of money to meet redemption requests from his customers. Madoff, 74, is serving a 150-year prison sentence.
The trustee was appointed to liquidate Madoff's firm, Bernard L. Madoff Investment Securities LLC, and hunt for recoveries for the swindler's victims. As part of his efforts, Picard sued various banks or "feeder funds" that did business with Madoff, saying they ignored red flags about the fraud, often to win more fees or commissions.
In a setback for the trustee, U.S. District Judge Colleen McMahon in Manhattan last November tossed all but $425 million of Picard's $19.9 billion lawsuit against JPMorgan. Her decision followed a similar ruling in July 2011 from U.S. District Judge Jed Rakoff, who dismissed $8.6 billion of Picard's claims against HSBC Holdings Plc (HSBA.L) and the Italian bank UniCredit SpA (CRDI.MI).
Picard has recovered more than $9.2 billion for former Madoff customers. The Rakoff and McMahon rulings wiped out close to one-third of the trustee's more than $103 billion of claims against banks and other defendants. Individual Madoff customers also have sued banks.
The cases are Picard v. HSBC Bank Plc et al, No. 11-5175 and Picard v. JPMorgan Chase & Co et al, No. 11-5044, both in the 2nd U.S. Circuit Court of Appeals. (Reporting by Joseph Ax; Editing by Martha Graybow and Dan Grebler)
Trending On Reuters
On paper, India's households have more reason than ever to save. But convincing them that the central bank can keep inflation low is proving difficult, hindering the country's ambitious growth plans. Full Article