Bloomberg News

Judge to Vet Madoff Trustee’s $59 Billion UniCredit Suit

June 08, 2011

(Updates with HSBC suit in sixth paragraph.)

June 8 (Bloomberg) -- U.S. District Judge Jed Rakoff said he will decide if the trustee liquidating Bernard L. Madoff’s firm can use U.S. racketeering law to sue Milan-based UniCredit SpA with other banks for $59 billion, in the biggest challenge so far to Irving Picard.

Picard sued Bank Medici AG, its founder, Sonja Kohn, and dozens of Austrian and Italian parties including UniCredit for $19.6 billion in New York in December, using the Racketeer Influenced and Corrupt Organizations Act to treble the amount. The bankruptcy court suit represents almost two-thirds of the $90 billion Picard is seeking through 1,000 lawsuits for investors in the Ponzi scheme.

UniCredit, accused by Picard of ignoring signs of fraud at the Madoff firm and participating in an “illegal scheme” with Kohn, asked Rakoff last month to decide whether the racketeering law applies outside the U.S. Acceding to the request, Rakoff said he also will rule on whether Picard “plausibly” alleged the elements of racketeering, according to a June 6 court filing.

“For the purpose of resolving” issues of federal non- bankruptcy law, Rakoff said, he would temporarily take the case out of U.S. Bankruptcy Judge Burton Lifland’s court in New York. He will give his reasons in a written opinion later, he said.

Right to Sue

Rakoff said he also will resolve whether Picard has standing to bring the Kohn action against UniCredit, and whether as the liquidator of Madoff’s firm he has a right to sue on behalf of the confidence man’s customers.

HSBC Holdings Plc, target of a $9 billion Picard suit, along with feeder funds, also took its case to Rakoff. Last month, Europe’s biggest bank asked the judge to dismiss the trustee’s suit, saying he isn’t allowed by law to bring class- action style suits on behalf of Madoff’s customers.

Picard defended his right to sue the U.K. bank this week, saying his suit was on behalf of a customer fund, not customers.

In another challenge to Picard, JPMorgan Chase & Co., the second-biggest U.S. bank, asked U.S. District Judge Colleen McMahon this month to dismiss a $6.4 billion lawsuit by Picard.

According to Picard, Kohn ran a scheme centered on Bank Medici, parts of which overlapped with Madoff’s own fraudulent enterprise, delivering $9.1 billion into the Ponzi scheme.

Medici Enterprise

Portraying UniCredit as a “full member of the Medici enterprise,” the trustee accused the bank of participating in the illegal scheme “despite its concerns” about the Madoff firm’s legitimacy. UniCredit acquired a stake in Vienna-based Bank Medici by buying Bank Austria. Picard is trying to recoup at least $1.7 billion that he says Bank Austria withdrew from the Madoff firm before the con man’s 2008 arrest.

Kohn and UniCredit are fighting the suit.

UniCredit’s Manhattan branches held more than $17.5 billion in U.S. assets in June 2010, Picard said in his suit, citing the Federal Reserve Board.

Asking Rakoff to take its case, the Italian bank said a recent U.S. Supreme Court ruling “upended” historical tests for applying U.S. law in other countries. That casts doubt on whether Picard can use RICO to reach “an alleged enterprise existing almost wholly outside of the United States and expressly directing its alleged conduct to persons living abroad,” UniCredit said in a court filing.

Amanda Remus, a Picard spokeswoman, declined to comment.

The case is Picard v. Kohn, 10-05411, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The District Court case is Picard v. Kohn, 1:11-cv-1181, U.S. District Court, Southern District of New York (Manhattan).

--Editors: John Pickering, Charles Carter

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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