Judge aims for speedy Madoff resolution

A HIGH Court judge has made rulings aimed at a cost-effective and speedy resolution of a raft of legal actions brought here after more than €830 million of investor money entrusted to the Irish arm of European banking giant HSBC ended up with now jailed US billion-dollar fraudster Bernard Madoff.

Mr Justice Frank Clarke remarked yesterday that it seemed the investors had lost “very substantial” funds channelled to a “fictitious hedge fund” operated by Bernard Madoff Investment Securities LLC (BMIS) and other Madoff companies.

He made rulings effectively meaning that, while key legal issues in the actions by mutual funds which used HSBC as a custodian will be first determined, all other cases by investors will be linked with those in a way intended to achieve the speediest resolution of all cases. A decision on the sequencing of the actions will be made later.

Arising from the Madoff bankruptcy, Thema International Fund plc and AA (Alternative Advantage) plc, both of Fitzwilton House, Wilton Place, Dublin, had late last year brought proceedings against HSBC Institutional Trust Services (Ireland) Ltd (Hitsi), Grand Canal Square, Dublin.

Thema operates the Thema sub-fund and is alleged to have entrusted hundreds of millions of euro to Hitsi as custodian, which in turn passed the monies to BMIS. AA operates the Landmark Investment Ireland Fund and other sub-funds said to have assets of €107 million.

A total of 47 legal actions have now been brought arising from the handing over of the investor monies to the Madoff companies. In addition to the claims by Thema and AA against Hitsi, some 43 cases have been brought against Thema over its passing on of monies to Hitsi.

Among the claims are breaches of Hitsi’s duties as custodian and failure to carry out due diligence of the Madoff companies. Breaches of trust and duty and of EU regulations governing custodians are also alleged.

It is claimed Hitsi was reckless and negligent and, as a result, facilitated misappropriation of the investment funds. Hitsi is alleged to have failed to take account of what the judge described as “various red flags” in relation to the workings of Madoff companies.

In the US courts last March, Madoff pleaded guilty to using money from new clients to pay off earlier investors and was sentenced in June to 150 years’ imprisonment. The US courts heard as much as $65 billion (€43.6 billion) was invested with his companies.

In the Commercial Court here, Hitsi had sought an order staying other actions pending the outcome of the proceedings brought against it by Thema.

That application was opposed by Kalix Fund Ltd, registered in the British Virgin Islands, and a private Italian bank, Unione de Banche Italiane Societa Cooperativa Per (UBI Banca), which have respectively brought claims seeking more than $35 million and €12 million.

Mr Justice Clarke decided that all 47 Madoff-related cases, which include both High and Commercial Court cases, should be linked and admitted to the Commercial Court, where they will be subject to strict case management.

The Irish connection

THE SPECTRE of Bernie Madoff may have been hovering over Court Five yesterday but the matter under consideration was considerably less flamboyant than the errant financier.

Essentially, it was a question of procedure: should a number of cases concerning millions lost in Madoff's pyramid scheme be heard together or separately.

HSBC, a custodian of funds invested with Madoff and one of the parties being sued, wanted claims by investors to be delayed while other, similar, cases by mutual funds went ahead.

Mr Justice Frank Clarke decided against this, plumping instead for hearing all the claims at the same time, while dealing with the various particular issues in a sequence to be settled later.

HSBC, whose application was thus refused, said later that it welcomed the move to clarify procedure. The bank "vigorously" denies any liability in relation to Madoff.

It is all a long way from the yachts and mansions with which Madoff was associated before his fall from grace and imprisonment for 150 years in June this year.

His move into disgrace came after the flow of money through his gigantic Ponzi scheme dried up. He could no longer pay older investors with cash from newer investors and the game was up.

The surprise in all of this was that he wasn't living in Albania circa 1996, but was a full member of New York's financial elite. With him fell the savings of many high-profile figures such as actors Kevin Bacon and John Malkovich, while the fallout extended around the world to slightly less exciting parties including those in Dublin's High Court yesterday. The Irish link comes from some of the funds whose monies ended up with Madoff being based here.

The issues at hand for Mr Justice Clarke will be watched closely by the financial sector across Europe. Custodians, the banks charged with handling cash for investment funds, will be particularly entranced, amid general moves to increase their responsibilities for the money they mind.

UNA McCAFFREY