NEW YORK, July 27 (Reuters) - UBS AG won a U.S. judge's
order transferring a $550 million lawsuit by the trustee
seeking money for victims of Bernard Madoff's fraud to federal
district court from bankruptcy court.
U.S. District Judge Colleen McMahon in Manhattan had
already agreed to hear issues in a separate $2 billion lawsuit
against UBS by the trustee, Irving Picard, turning on whether
the Swiss bank knew Madoff was running a criminal enterprise.
"That issue should not be litigated simultaneously in two
separate courts, the bankruptcy court and this court," she
said. McMahon added that UBS is entitled to a jury trial, which
the bankruptcy court cannot provide.
McMahon also rejected bids by the Luxembourg Investment
Fund and Landmark Investment Fund Ireland, together known as
the "LIF" funds, for her to hear their challenges to the $550
million case, saying Picard's "garden-variety" claims to "claw
back" money are bankruptcy issues that belong in bankruptcy
court.
Also on Wednesday, the Government Accountability Office has
agreed to evaluate whether Picard is treating the Ponzi scheme
victims fairly, according to Representative Scott Garrett of
New Jersey, who chairs the House Financial Services
Subcommittee on Capital Markets and Government-Sponsored
Enterprises and requested a probe.
The GAO will also examine the U.S. Securities and Exchange
Commission's role, and the Securities Investor Protection
Corp's oversight in the liquidation of Bernard L. Madoff
Investment Securities LLC, Garrett said.
Amanda Remus, a spokeswoman for Picard, had no immediate
comment on the UBS ruling. "We will provide our full
cooperation in conjunction with any inquiry by the GAO," she
added.
Representatives for the LIF funds could not immediately be
located. An SEC spokesman declined immediate comment. SIPC did
not immediately return a request for comment.
Madoff, 73, is serving a 150-year prison sentence for his
Ponzi scheme, which was uncovered on Dec. 11, 2008.
RULING ON TRUSTEE'S STANDING PENDING
McMahon's ruling for UBS is a defeat for Picard, who
oversees the Madoff firm's liquidation, and has filed roughly
1,050 lawsuits to recover more than $103 billion for victims.
He has argued that case law, consumer protection laws and
common sense let him sue banks and others that he believes
helped Madoff commit fraud, rather than simply claw back money
from beneficiaries of the Ponzi scheme.
Banks such as UBS have vehemently disagreed. They say that
while the law lets Picard sue to recover investors' property,
it does not let him pursue fraud claims that can be brought
only by victims. They also say Picard's lawsuits raise
non-bankruptcy claims that a bankruptcy judge cannot resolve.
U.S. Bankruptcy Judge Burton Lifland, who oversees the
Madoff firm liquidation, has endorsed Picard's methodology for
deciding which customers are "net winners" who should be forced
to turn over money. That ruling is being appealed.
Picard's $550 million lawsuit demands the return by UBS and
the two European funds of fees and other sums obtained
improperly from the Ponzi scheme.
His $2 billion lawsuit, known as the Luxalpha case, accuses
UBS of aiding the fraud by sponsoring foreign feeder funds,
including Luxalpha SICAV, that sent money to Madoff, lending
them "an aura of legitimacy."
McMahon also oversees the trustee's $19.9 billion case
against JPMorgan Chase & Co. Her colleague Jed Rakoff oversees
a $58.8 billion case against Italy's UniCredit SpA, Austria's
Bank Medici and its founder Sonja Kohn, and a $9 billion case
against HSBC Holdings Plc.
Rakoff has said he expects to decide this month whether
Picard has standing to pursue some of his largest claims.
The cases are Picard v. UBS AG et al, U.S. District Court,
Southern District of New York, Nos. 11-04212 and
11-04213.
For Picard: Deborah Renner of SNR Denton and Marc
Hirschfield of Baker & Hostetler.
For the UBS entities: Mark Kirsch, Marshall King, Matthew
Kelsey and Gabriel Herrmann of Gibson, Dunn & Crutcher.
(Reporting by Jonathan Stempel; Additional reporting by
Sarah N. Lynch)