HSBC gets more time in Madoff case

A HIGH Court judge has permitted the Irish arm of European banking giant HBSC to refrain from specifying — at this stage — the capacity in which hundreds of millions of investment monies were passed on by it to companies controlled by US fraudster Bernard Madoff.

Mr Justice Frank Clarke, who is case managing 47 actions brought over the payment of huge sums to Madoff companies, accepted arguments by HSBC’s Irish arm it is not yet in a position to set out — in its defence to actions by two sub-funds — whether certain monies were passed by it to Madoff companies as sub-custodian, broker/dealer or other.

In those circumstances, the judge said he would allow HSBC Institutional Trust Services (Ireland) Ltd (HITSI), Grand Canal Square, Dublin, to amend its defence to the two actions so as to plead it cannot yet say the category via which Madoff companies received funds from HITSI.

Such a plea might have costs implications at a later stage, the judge warned. However, he would permit it at this point.

The directions were made in proceedings by Thema and AA (Alternative Advantage) plc, both of Fitzwilton House, Wilton Place, Dublin, against HITSI arising from the Madoff bankruptcy.

The judge noted, in the early stages of the events surrounding the Madoff fraud, it was alleged HITSI had, under EU law and the Euclid Regulations, breached its duties as “custodian” of the funds’ monies in passing them on to Madoff companies.

When HITSI put in its defence, it pleaded it was not prepared to admit the funds were passed on to the Madoff entities in a capacity as “sub-custodian” of those monies. It was that particular plea that had given rise to issues between the sides.

The judge said he had already ruled it was appropriate for HITSI to amend its defence to clarify its case to essentially argue, while accepting that Madoff entities were appointed as sub-custodian of some funds, those entities also had other roles. HITSI was not admitting in what capacity funds were passed on to the entities.

The issue now was whether that was an appropriate position in which to leave the pleadings in the case at this stage, he said. It seemed to him HITSI was effectively pleading an alternative defence, that monies had come into a category but it could not yet say what category.

In light of that ruling, the judge directed HITSI to deliver, within one week, its amended defence after which the plaintiffs have three weeks to reply.

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.

Both funds allege breaches of HITSI’s duties as custodian and failure to carry out due diligence of the Madoff companies before those companies were allegedly made sub-custodian of the funds entrusted to HITSI.

Mr Justice Clarke is managing some 47 cases in the Irish courts against HSBC over allegedly entrusting more than €500m and $500m in investor monies to Madoff and his companies.