(Updates with ruling in second paragraph.)
Oct. 13 (Bloomberg) -- The charitable foundation of U.S. Senator Frank Lautenberg asked a judge to let it continue a $9 million lawsuit against Bernard Madoff’s brother Peter, saying a ruling in the HSBC Holdings Plc case bars the liquidator of Madoff’s firm from stopping their suit.
U.S. District Judge Jed Rakoff ruled that trustee Irving Picard can’t sue HSBC on behalf of the Madoff estate, using common-law claims against parties “who allegedly violated a duty” to the con man’s customers. The trustee can no longer argue that claims against Peter Madoff belong to him and must let the Lautenbergs continue their suit, they said in a filing yesterday in U.S. District Court in Manhattan.
The Lautenberg filing is the latest by Picard’s targets as they use recent rulings to fight the trustee. The town of Fairfield, Connecticut, said yesterday that Picard and the bankruptcy court have no right to stop its suit against the Madoff family after the HSBC decision.
Safra National Bank of New York and Rye Select Broad Market XL Portfolio Ltd., based in the Cayman Islands, cited Rakoff’s Sept. 27 ruling in the New York Mets owners’ case in their pleadings. Picard said yesterday the rulings have opened the “floodgates.”
Picard said the Lautenbergs and Fairfield are “mistaken” in saying the bankruptcy court can’t stop their suits.
Lautenberg’s son and daughter joined the foundation in seeking to recover losses from Peter Madoff, claiming that as chief compliance officer at Bernard L. Madoff Investment Securities LLC, he was culpable for the Ponzi scheme run by his brother. The appealed in Manhattan district court in March after a bankruptcy judge stopped their suit. Yesterday’s filing updates their appeal with Rakoff’s July 28 ruling, they said.
U.S. Bankruptcy Judge Burton Lifland ruled in February that the Lautenbergs and nine other Madoff clients who filed lawsuits must wait until Picard concludes two suits seeking $244 million from Madoff family members.
The ruling in Manhattan halted the lawsuit by the New Jersey Democrat’s foundation in federal court in Newark, New Jersey, as well as nine other lawsuits against Madoff family members. The other plaintiffs include the pension plans for Fairfield, Connecticut, and Emilio Chavez Jr., who is an inmate in a Texas prison, according to the complaint.
Picard filed his own complaints against Peter Madoff; his daughter, Shana; Bernard’s wife, Ruth; and their sons, Andrew and Mark. Mark Madoff committed suicide on Dec. 11, the two-year anniversary of his father’s arrest.
Bernard Madoff, arrested in 2008, is serving 150 years in prison for the largest Ponzi scheme in U.S. history. Picard this month started sending holders of 1,230 Madoff accounts $312 million, or about 4.6 percent of the money he said they lost in the fraud. About $5 billion of the $8.7 billion he said he has recovered to pay principal of $17.3 billion is tied up in court challenges.
The Lautenberg appeal is In re Bernard L. Madoff, 11- cv-02135, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from David Voreacos in Newark, New Jersey. Editors: Mary Romano, Glenn Holdcraft
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