Bloomberg News

Madoff Liquidator Loses Bid to Sue UBS in Bankruptcy Court

July 27, 2011

(Updates with judge order in fourth paragraph.)

July 27 (Bloomberg) -- The liquidator of Bernard Madoff’s firm lost a bid to pursue a $555 million lawsuit against UBS AG in bankruptcy court, according to a court filing today.

A district judge said she would handle the suit along with a $2 billion lawsuit against the Swiss bank by trustee Irving Picard, as the two were related.

Trustee Irving Picard sued UBS twice, seeking a total of $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. He told U.S. District Judge Colleen McMahon in Manhattan this month he would drop some claims from the smaller, $555 million suit, and ask UBS only to return money taken from the Ponzi scheme before its 2008 collapse.

By doing so, he removed the claims that raised questions about his “standing” to sue UBS in that case, leaving only an “intrinsically bankruptcy claim” to recover transfers that would “ordinarily” be handled by a bankruptcy court, McMahon said in a written order today. She agreed to UBS’s request that she handle both cases in district court because Picard alleged in both cases that UBS didn’t take money out of the Ponzi scheme “in good faith,” she said.

Jury Trial

“That issue should not be litigated simultaneously in two separate courts,” McMahon said, referring to allegations that UBS knew Madoff was running a criminal enterprise. UBS in addition was entitled to a jury trial which U.S. Bankruptcy Judge Burton Lifland couldn’t handle unless both parties consented, McMahon said.

McMahon, who also is handling Picard’s $19 billion suit against JPMorgan Chase & Co., had agreed to consider handling the UBS suits as well because she said they raised similar nonbankruptcy issues of whether the trustee was entitled to sue for damages on behalf of Madoff investors.

The cases are Picard v. UBS AG, 11-cv-04212 and 11-cv- 04213, U.S. District Court, Southern District of New York (Manhattan).

--Editors: John Pickering

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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