Madoff Trustee Asks Supreme Court to Let Him Sue Banks

By PETER LATTMAN

Updated, 7:27 p.m. | The trustee seeking to recover money for the victims of Bernard L. Madoff’s Ponzi scheme asked the Supreme Court on Wednesday to review a ruling that prohibits him from suing several of the world’s largest banks that he contends aided the fraud.
In June, a federal appeals court in Manhattan decided that the trustee, Irving H. Picard, did not have standing to sue JPMorgan Chase, UBS, HSBC and UniCredit Bank Austria on claims that they abetted the multibillion-dollar fraud, which lasted decades. That opinion upheld a lower-court ruling by Judge Jed S. Rakoff of Federal District Court in Manhattan.
On Wednesday, lawyers for Mr. Picard filed a petition to the Supreme Court requesting that it hear an appeal of the case.
“Bernard L. Madoff did not act alone,” Mr. Picard’s lawyers said. The scheme “could not have persisted for so long, or defrauded so many of so much, without a network of financial institutions, feeder funds and individuals who participated in his fraud or acquiesced in it — just like any large-scale financial fraud.”
In a statement, the lawyers for the trustee said the ruling by the United States Court of Appeals for the Second Circuit contradicted the decisions of other appeals courts across the country.
Such conflicts often provide an impetus for the Supreme Court to hear a case, though it accepts only a fraction of appeal requests. The court receives about 10,000 petitions for a so-called writ of certiorari each year, yet grants only about 75 to 80 of those cases, according to its Web site.
The legal issue in the Madoff case centers on whether the trustee has the right to pursue claims against a third party, like a bank, that collaborates with a broker — in this case Mr. Madoff — to defraud customers. The appeals court ruled that under the law, the trustee “stands in the shoes” of Mr. Madoff’s firm and thus cannot sue the banks for losses caused by Mr. Madoff’s fraud.
Mr. Picard’s lawyers said the appeals court ruling undermined the intent of the Securities Investor Protection Act.
“If this decision is allowed to stand, the law governing S.I.P.A. liquidations will be in turmoil, making collaboration with future Madoffs risk-free for big financial institutions,” wrote David B. Rivkin Jr., a lawyer for Mr. Picard at Baker Hostetler. “In other words, the bad guys win.”
Mr. Picard is trying to recover billions of dollars from the banks that he said turned blind eyes to clear warning signs of the Madoff fraud. He contends, for instance, that JPMorgan was “thoroughly complicit” in the fraud, having obtained many indications of misconduct and failed to report the suspicious activity.
The lawsuit filed against JPMorgan highlights several examples in which JPMorgan officials expressed concerns about Mr. Madoff’s business. On June 15, 2007, a senior risk-management officer at the bank e-mailed colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
In another e-mail, a top private wealth management executive at the bank was routinely urging clients to avoid investments with exposure to Mr. Madoff because his “Oz-like signals” were “too difficult to ignore.”
Federal prosecutors continue to investigate whether JPMorgan failed to properly alert regulators about Mr. Madoff’s business, said people briefed on the investigation. A JPMorgan spokesman declined to comment.
Cash losses from the fraud are estimated at about $17 billion, but the paper wealth that was wiped out totaled more than $64 billion. Mr. Picard has thus far recovered about $9.4 billion and continues to pursue lost money.
Mr. Madoff is serving a 150-year sentence in a federal prison in North Carolina after pleading guilty in March 2009.
While the trustee’s lawyers at Baker Hostetler try to pursue a case against JPMorgan, they have another legal connection to the banking giant. Mr. Rivkin and Oren J. Warshavsky are representing Bruno Iksil, the JPMorgan trader nicknamed the London Whale, who is cooperating with the government in its investigation into the bank’s record trading loss.

In addition, jury selection for the first criminal trial related to the Madoff case is under way in federal court in Manhattan. Five former employees of Mr. Madoff, including his longtime personal secretary and two computer programmers, are fighting charges that they helped their boss carry out his fraud. The trial is expected to take as long as five months.

Link: http://dealbook.nytimes.com/2013/10/09/madoff-trustee-appeals-to-supreme-court-in-suit-against-banks/?_r=0

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/

KRCL Stanford Ponzi Scheme Litigation Update

            It has been more than four years since the District Court for the Northern District of Texas appointed Ralph Janvey as Receiver for the Stanford Entities-shutting down what the SEC alleged to be a $7 billion Ponzi scheme. In that time, R. Allen Stanford and some of his associates have been tried and convicted in criminal courts, while hundreds of civil lawsuits continue to creep forward. Most of the civil suits are consolidated for pretrial purposes into MDL 2099, in the Northern District of Texas. This litigation alert will briefly address the criminal convictions, followed by an update on the SLUSA appeal that KRCL wrote about in April.[1] Lastly, this alert will report on some of the new complaints filed by the Receiver and the Official Stanford Investors Committee in February.

The Criminal Trials

On June 14, 2012, Judge Hittner of the Southern District of Texas sentenced R. Allen Stanford to 110 years in federal prison for various counts of fraud, conspiracy, and obstruction. The court also imposed a $5.9 billion judgment against Stanford individually. Stanford has appealed the conviction to the Fifth Circuit Court of Appeals.

Stanford's conviction and judgment followed a six-week trial at which his former chief financial officer, James Davis, testified against Stanford as part of a plea agreement. The court sentenced James Davis to five years in prison and imposed a $1 billion money judgment.

Laura Pendergest-Holt, Stanford's former chief investment officer, plead guilty to obstruction and received a sentence of 36 months in prison and no monetary judgment.

On February 14, 2013, the court sentenced Gilbert Lopez, Stanford's former chief accounting officer, and Mark Kuhrt, the former controller, to 20 years in prison. These defendants have signaled their intentions to appeal.

The Lopez and Kuhrt sentences bring an end to the criminal trial proceedings, other than those related to Leroy King, an Antiguan banking regulator whom prosecutors are attempting to extradite to the United States for trial.

The SLUSA Appeal

As we have previously written, the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") prohibits state-based securities class actions if the claims allege "a misrepresentation or omission of a material fact in connection with the purchase of a covered security." Judge Godbey in the Northern District of Texas previously ruled that the plaintiffs' claims, which related to CDs issued by Stanford International Bank, were sufficiently related to "covered securities" to warrant SLUSA preemption.

On appeal, the Fifth Circuit reversed the district court, holding that SLUSA preemption does not apply and breathing life back into the plaintiffs' claims.

Last month, the United States Supreme Court granted certiorari to review the SLUSA issue.[2] The Supreme Court granted certiorari in spite of opposition from the Solicitor General, who wrote in an amicus brief that the facts presented are too peculiar to provide any assistance to lower courts that may later face SLUSA preemption issues.

The Supreme Court will hear oral argument in the October 2013 Term. If the high court reverses the Fifth Circuit, the plaintiffs' claims that are based on state law securities violations will be dismissed, significantly diminishing the plaintiffs' ability to recover against financial services defendants.

The February 15 Lawsuits

The Official Stanford Investors Committee is a court-appointed group consisting of seven members that purportedly represent a "cross-section of the Stanford victims' community." The Receiver assigned certain of its claims to the Committee, which has brought suits in its own name and has also intervened in some lawsuits.

Despite the uncertainty created by the pending SLUSA appeal, the Committee has recently increased its litigation activity. On February 15, 2013, the Committee filed three complaints with the MDL Court-a complaint in intervention and two original complaints.

The Committee filed the complaint in intervention in Rotstain v. Trustmark National Bank, HSBC Bank PLC, The Toronto-Dominion Bank, and Bank of Houston, No. 3:09-cv-2384. Rotstain is a purported class action brought by victims of Stanford's purported Ponzi scheme. The Receiver and the Committee had previously intervened, but had not alleged claims directly against the defendant banks until this filing. The Committee alleges various claims related to fraudulent transfers, conversion, and conspiracy. The Committee also seeks punitive damages for the banks' alleged participation or abetting of Stanford's fraudulent scheme.

On the same day, the Committee filed an original complaint styled The Official Stanford Investors Committee v. Bank of Antigua, et al., No. 3:13-cv-0762. In this action, the Committee seeks recovery from eight foreign banks for claims similar to those alleged in the Rotstain matter. The Committee alleges that the Antiguan government and its monetary regulator, the Eastern Caribbean Central Bank, were complicit in and integral to Stanford's fraud. According to the complaint, the Antiguan government's seizure of the Bank of Antigua (a Stanford-controlled entity) resulted in the dissemination of Stanford assets to various Caribbean-based banks. The Committee seeks to recover these assets, alleged to be in the tens or hundreds of millions of dollars, under theories of fraudulent transfer and conversion.

In addition, the Committee filed suit directly against the nation of Antigua and Barbuda, in a case styled The Official Stanford Investors Committee v. Antigua and Barbuda, No. 3:13-cv-0760. In this Complaint, the Committee levies its most serious accusations against the Antiguan government, alleging that the country "became a 'blood brother' to Stanford" and that key government officials "were literally Stanford's partners in crime." By this action, the Committee seeks to recover almost one hundred million dollars in unpaid loans made by Stanford to the government of Antigua and Barbuda.

The Receiver also filed a new lawsuit on February 15, 2013. In Janvey v. Pablo M. Alvarado, et al., No. 3:13-cv-0775, the Receiver seeks to recover from 23 former directors and officers of various Stanford entities for breach of fiduciary duty. The suit essentially alleges that the directors and officers either knew of the fraud or facilitated the fraud by ignoring numerous "red flags." Laura Pendergest-Holt, Mark Kuhrt, and Gilberto Lopez are among the defendants.

KRCL will continue to monitor the Stanford litigation closely.

[1] The Fifth Circuit Court of Appeals Revives Securities Fraud Claims in Stanford Entities Securities Litigation
[2]The consolidated cases are Chadbourne & Park LLP v. Troice, No. 12-79; Willis of Colorado, Inc. v. Troice, No. 12-86; and Proskauer Rose LLP v. Troice, No. 12-88.

Source.

Read more: http://sivg.org/article/2013_krcl_Stanford_Ponzi_Scheme_Litigation_Update.html

For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org/forum/