A federal judge has dismissed two of the larger lawsuits filed by the court-appointed trustee in the Bernard Madoff case.
Irving Picard does not have the right to seek some $21 billion from JPMorgan Chase, Madoff's primary banker for decades, and UBS, U.S. District Judge Colleen McMahon ruled. The judge cited an earlier ruling, from July, dismissing a similar, $8.8 billion lawsuit against two other banks, HSBC and UniCredit.
Picard accused the two banks of turning a blind eye to Madoff's $65 billion Ponzi scheme, and argued that his lawsuit was the only practicable way for Madoff's victims to receive recompense from the banks.
McMahon did not disagree with that point, noting that "allowing the trustee to pursue claims that belong properly to individual creditors would accrue to the benefit of all creditors." But, "this theory is not supported by the statute's text and history or by any persuasive case law."
McMahon ruled, as her colleague U.S. District Judge Jed Rakoff did earlier, that when dealing with third parties, Picard represented Madoff, and not Madoff's victims. Only the fraudster's victims—his creditors—can sue third parties.
Picard can continue to pursue his actions against the two banks, but at a much-reduced level. He can only seek to recover the fictional profits withdrawn by the banks over a two-year period prior to Madoff's arrest in December 2008. That means JPMorgan is on the hook for less than $500 million, while UBS could face claims in excess of $1 billion.
Picard said he planned to appeal McMahon's ruling.