The Securities Investor Protection Corporation argued in a Nov. 8 filing that the trustee appointed to recover money on behalf of victimized Madoff investors should be authorized to seek funds from JPMorgan, Swiss banking giant UBS, global bank HSBC and other financial institutions.
Urging the Supreme Court to consider the case, the SIPC brief argued that allowing trustee Irving Picard's lawsuits against the banks to proceed would give Madoff's former customers "the greatest and most equitable pro rata distribution of their lost investments as Congress intended."
The legal argument is a long-shot effort to reverse a federal appeals court ruling in June that upheld lower court decisions barring Picard from suing parties who may have enabled Madoff's scam to continue. The lower courts ruled the federal law that empowers the trustee limits him to customer claims against Madoff's now-insolvent business.
The Supreme Court has set a Dec. 9 deadline for the banks and other financial entities to file reply briefs. They have repeatedly argued they acted in good faith and could not have detected or stopped the scam.
Attorneys for the trustee have argued that the banks should have spotted suspicious activity in Madoff's account and taken action. Billions of dollars flowed through Madoff's retail checking account at JPMorgan Chase "in suspicious and repetitive round-trip transactions," according to a petition the trustee filed with the Supreme Court last month.
Madoff confessed to the fraud in 2008 and subsequently pleaded guilty without standing trial. He's now serving a 150-year federal prison term. Five former Madoff employees are currently standing trial in New York on charges that they knew about and facilitated the scheme. The five hav! e argued they, too, were Madoff victims.
The Supreme Court historically agrees to review only a fraction of the petitions it receives each term. The SIPC brief, echoing legal arguments in Picard's petition, noted that several federal appeals courts have issued conflicting rulings on similar issues. The Supreme Court sometimes accepts such cases to resolve legal discrepancies.
If the high court declines to accept the case, Picard may not be able to make full repayment to the charities, celebrities, ordinary investors and others burned by the Madoff scam. Accountants and financial experts working for the trustee determined that the scheme ran up $17.5 billion in losses. Picard reported that he had tentatively recovered more than $9.5 billion as of Oct. 30.
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