Banks including JPMorgan Chase and HSBC can't be sued by the Bernard Madoff firm's liquidator for $30 billion because he is tainted by the con man's fraud, an appeals court ruled.
Madoff trustee Irving Picard appealed rulings barring him from demanding damages from banks that allegedly ignored Madoff's fraud for the sake of fees. Federal district judges Colleen McMahon and Jed Rakoff, both in Manhattan, had said Picard can't accuse the banks of fraud because he's the trustee for a fraudulent enterprise, citing a legal principal called in pari delicto.
The U.S. Court of Appeals in New York agreed today, saying Picard's "scattershot responses" had "missed the mark."
"Picard stands in the shoes of BLMIS and may not assert claims against third parties for participating in a fraud that BLMIS orchestrated," according to the ruling. BLMIS is the former securities firm of Madoff, who orchestrated the biggest Ponzi scheme in U.S. history.
Picard's defeat today means that Ponzi customers will have a smaller pot from which to recover their remaining losses, and some investors who bought discounted claims on the con man's estate may lose the bets they made.
Madoff, 75, is serving a 150-year sentence in a federal prison in North Carolina.
Picard spokeswoman Amanda Remus said she couldn't immediately comment on the decision. JPMorgan spokeswoman Jennifer Zuccarelli didn't immediately respond to an e-mail seeking comment.
The bankruptcy case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The appeal is In re Bernard L. Madoff, 11-05175, U.S. Court of Appeals for the Second Circuit (Manhattan).
