Lawyers for the Madoff Estate and HSBC Holdings met in federal court to argue the merits of a $9 billion lawsuit that accuses the bank of enabling Bernie Madoff's massive fraud.  Irving Picard of Baker & Hostetler, as the Madoff trustee is tasked with recovering funds for victims of the Ponzi scheme.  Cleary Gottlieb Steen & Hamilton, representing HSBC, argued in that the law did not allow trustee Irving Picard to bring the case of financial fraud and misconduct against HSBC.  The bank has denied the allegations.

The two sides now will have to wait until the end of July to hear whether or not U.S. District Judge Jed Rakoff allows the Madoff firm trustee to proceed with its lawsuit.  At the end of oral arguments, Judge Rakoff said, "I am going to spend a lot of time re-reading the papers.  I will commit to a written decision by the end of July."

In all, the judge will be making decisions on challenges to 5 lawsuits filed by the Madoff trustee against banks amounting to nearly $100 billion.

Trustee Picard's Complaint and HSBC's Response.    Mr. Picard, who's liquidating former financier Bernie Madoff's firm after its collapse, last December accused HSBC of enabling the fraud.  He charges that the bank created, marketed and supported an international network of a dozen feeder funds based in Europe, the Caribbean, and Central America.  Oren Warshavsky, a lawyer for the trustee, argued on Thursday that "we say [the banks] are like the fellows helping the thieves."

In response, HSBC lawyers argued that the Securities Investor Protection Act "neither cloaks the trustee with the mantle of exclusive champion of customer property nor provides him with weapons necessary to carry out such a crusade."

JPMorgan Chase, which was sued for $6.4 billion, has made similar challenges, as has UniCredit SpA.  The Italian bank is part of a $20 billion lawsuit against Austrian banker Sonja Kohn, whom Picard described as one of Madoff's main partners in his crimes. Kohn has denied the allegations.

The case is Irving H. Picard v. HSBC Bank PLC et al, U.S. District Court for the Southern District of New York, No. 11-00763.    [Thomson Reuters, 6/23/11]