November 2, 2011
Another Court Significantly Reduces Madoff Trustee's Claims Against Banks
Judge McMahon (S.D.N.Y.) ruled on November 1 that Madoff Trustee Picard did not have standing to pursue common law claims against JPMorganChase andd UBS to recover on behalf of the defrauded customers, based on allegations that the banks knew, should have known or consciously avoided discovering, that Madoff' was illegally misappropriating customers' funds. Picard v. JPMorgan Chase & Co., Picard v. UBS AG (No. 11 civ. 913 (CM)Download Picard.JP Morgan. ( She thus joins Judge Rakoff (also S.D.N.Y.), who recently ruled similarly in Picard v. HSBC Bank PLC, 454 B.R. 25, in holding that the Trustee's authority under the Bankruptcy Code and SIPA extends only to recovering funds on behalf of the brokerage firm. Accordingly, the amount of money the Trustee can recover from the banks is significantly reduced.
Judge McMahon held that:
- There was no doubt that the common law causes of action belong to the creditors, not the brokerage firm; and
- The Trustee cannot pursue the common law causes of action on behalf of the brokerage firm as a consequence of the equitable doctrine of in pari delicto.
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