Judge: Madoff-related cases to be linked

A HIGH Court judge has made rulings aimed at a cost-effective and speedy resolution of a raft of legal actions brought here after more than one billion dollars of investor monies entrusted to the Irish arm of European banking giant HSBC ended up with now jailed US billion-dollar fraudster Bernard Madoff and his companies.

Mr Justice Frank Clarke remarked yesterday it seemed the investors had lost “very substantial” funds channelled to a “fictitious hedge fund” operated by Bernard Madoff Investment Securities LLC (BMIS) and other Madoff companies.

He made rulings effectively meaning, while key legal issues in the actions by mutual funds which used HSBC as a custodian will be first determined, all other cases by investors will be linked with those in a way intended to achieve the speediest resolution of all cases. A decision on the sequencing of the actions will be made later.

He rejected a bid by HSBC Institutional Trust Services (Ireland) Ltd (HITSI) to stay all other claims pending the outcome of the mutual funds’ actions against it.

Arsing from the Madoff bankruptcy, Thema International Fund plc and AA (Alternative Advantage) plc, both of Fitzwilton House, Wilton Place, Dublin, had late last year brought proceedings against HITSI, Grand Canal Square, Dublin.

Thema operates the Thema sub-fund and is alleged to have entrusted hundreds of millions of euro to HITSI as custodian which in turn passed the monies to BMIS. AA operates the Landmark Investment Ireland Fund and other sub-funds said to have assets of €107 million. Both AA and Thema suspended dealings in their funds when the Madoff collapse emerged.

A total of 47 legal actions have been brought arising from the handing over of the investor monies to the Madoff companies. In addition to the claims by Thema and AA against HITSI as custodian of their funds, some 43 cases have been brought against Thema over its passing on of monies to HITSI.

Among the claims are breaches of HITSI’s duties as custodian and failure to carry out due diligence of the Madoff companies. Breaches of trust and duty and of EU regulations are also alleged.

It is claims HITSI was reckless and negligent and, as a result, facilitated misappropriation of the investment funds. HITSI is alleged to have failed to take account of what the judge described as “various red flags” in relation to the workings of the Madoff companies.

In the US courts last March, Madoff pleaded guilty to using money from new clients to pay off earlier investors and was sentenced in June to 150 years imprisonment. US courts heard as much as $65 billion was invested with his companies.

In the Commercial Court here, HITSI had sought an order staying other actions pending the outcome of the proceedings brought against it by Thema.

That application was opposed by Kalix Fund Ltd, registered in the British Virgin Islands and a private Italian bank, Unione de Banche Italiane Societa Cooperativa Per (UBI Banca), which have respectively brought claims seeking more than $35m and €12m.

Yesterday, Mr Justice Clarke decided all 47 Madoff-related cases, which include both High and Commercial Court cases, should be linked and all admitted to the Commercial Court where they will be subject to strict case management.

He decided the Thema, AA, Kalix and UBI Banca proceedings will be linked, managed together and come to trial together. That trial will be a sequenced trial with the sequence to be decided later. Other investor cases are to be progressed only where that progress avoids duplication and is necessary to ensure all issues are resolved speedily, he said.

He also indicated it is likely he himself will continue to case manage the various sets of proceedings.