JURIST - Paper Chase: Federal judge dismisses suit for Madoff victims

[JURIST] A judge for the US District Court for the Southern District of New York [official website] on Tuesday denied a court-appointed bankruptcy trustee [decision, PDF] from seeking damages from banks and third parties for the victims of Bernard Madoff's Ponzi scheme. Irving Picard, who was designated by the court in 2008 as trustee [official website] of the assets seized from the Ponzi scheme, had filed suit against JPMorgan Chase & Co. [corporate website] to recover damages for the victims of Madoff's fraud. In her ruling, Judge Colleen McMahon said that Picard did not have a case because he represented Madoff and not the victims. She held that there was no legal indication that Picard had a right to bring a claim for the victims:

Practically, giving the Trustee the power to pursue the claims on behalf of creditors would usurp the creditors' right to determine whether and in what forum to vindicate their legal injuries and would raise difficult issues of preclusion. Moreover, were the Trustee empowered to pursue the claims of third party creditors, the debtor's assets would be depleted to enforce rights possessed by third parties and defendants would face the danger of duplicative recoveries.

McMahon also cited a ruling from earlier this year, where Judge Jed Rakoff dismissed [opinion] a case against HSBC Holdings [corporate website]. In that case, Rakoff held that Picard could not bring the claim, because he had no "personal stake in the outcome of the controversy." Picard plans to appeal McMahon's decision.

The first payouts to Madoff's victims were approved [JURIST report] by the court in July. Picard filed almost 60 lawsuits [JURIST report] for victims of Madoff's fraud in December 2010, including the suits against JPMorgan Chase and HSBC. Judge Louis Stanton made Picard the trustee [order] of Bernard L. Madoff Securities, LLC in December 2008. Madoff was sentenced [JURIST report] in June 2009 to 150 years in prison for securities fraud stemming from his Ponzi scheme. He pleaded guilty [JURIST report] to 11 counts of securities fraud in March 2009.