Bloomberg News

UBS to Get Review of Madoff Trustee Suit by District Judge

July 14, 2011

(Updates with judge’s comment in seventh paragraph.)

July 14 (Bloomberg) -- A U.S. district judge said she will review lawsuits against UBS AG by the liquidator of Bernard Madoff’s firm, at least the fourth time a bank in the Madoff case gained access to a higher court.

Trustee Irving Picard sued UBS twice in bankruptcy court, demanding $2.6 billion and alleging the Zurich-based bank aided Madoff’s fraud by setting up so-called feeder funds and agreeing “to look the other way” at irregularities. U.S. District Judge Colleen McMahon in Manhattan, who is handling Picard’s $19 billion suit against JPMorgan Chase & Co., said the UBS case raises similar issues of whether Picard has a right to sue for damages.

Her acceptance of the case, noted on a court docket today, is another challenge to Picard, who has filed 1,000 lawsuits seeking $100 billion for the Ponzi scheme’s investors. HSBC Holdings Plc has asked U.S. District Judge Jed Rakoff to dismiss a $9 billion suit against the U.K. bank and so-called feeder funds, arguing that Picard went far beyond his role as liquidator of the Madoff firm.

Rakoff also is considering whether the trustee had a right to use U.S. racketeering law in a $59 billion suit against UniCredit SpA, Bank Medici AG, its founder Sonja Kohn and dozens of Italian and Austrian parties.

While suits to recoup money taken out of a bankrupt firm are common, Picard is mostly suing for damages, using laws that banks say are open to question.

‘Threshold Issues’

UBS, Switzerland’s biggest bank, may not have got all it wanted, according to a July 12 letter to the judge from lawyer Marshall King. The bank challenged Picard’s use of common law, as well as issues such as the trustee’s standing to mount a type of class action on behalf of Madoff investors, he wrote.

“I am only interested in dealing with the threshold issues now -- SLUSA preemption and standing,” McMahon wrote on the front of the letter, filed in court. “I don’t want to deal with other issues.”

SLUSA is the Securities Litigation Uniform Standards Act, which governs class actions.

JPMorgan accused Picard of mounting a “back door” class action, and said he has no standing to sue on behalf of Madoff customers, because he was hired to liquidate the Madoff firm.

McMahon said in May that a bankruptcy judge isn’t empowered to decide whether Picard has the right to sue New York-based JPMorgan on behalf of the con man’s customers, and she would handle that case.

The case is Picard v. UBS AG, 11-cv-04213, U.S. District Court, Southern District of New York (Manhattan).

--Editors: John Pickering, Stephen Farr

To contact the reporter on this story: Linda Sandler in New York at

To contact the editor responsible for this story: John Pickering at

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