Most of $19.9B Madoff case against JPMorgan tossed

NEW YORK (Reuters)—A federal judge threw out most of a $19.9 billion lawsuit against JPMorgan Chase & Co. and a $2 billion case against UBS A.G. by the trustee seeking money for victims of epic swindler Bernard Madoff's fraud.

The decision by U.S. District Court Judge Colleen McMahon in Manhattan is one of the largest setbacks for the trustee, Irving Picard, who has spent nearly three years liquidating Bernard L Madoff Investment Securities L.L.C.

JPMorgan had been Mr. Madoff's main bank for two decades, and Judge McMahon's decision wipes out about $19 billion of Mr. Picard's case against the largest U.S. bank.

"The trustee's theories fail," Judge McMahon wrote in an opinion released on Tuesday.

She said Mr. Picard had no power to pursue common law claims against the banks, saying such claims properly belong to former Madoff customers. The judge returned what is left of the cases to the U.S. bankruptcy court in Manhattan.

Mr. Picard plans to appeal to the federal appeals court in New York, and remains "confident" in his claims and his standing to pursue them, spokeswoman Amanda Remus said in an email.

In concluding that Mr. Picard exceeded his power, Judge McMahon followed a July decision by her colleague Judge Jed Rakoff, who threw out about $8.6 billion of claims against HSBC Holdings P.L.C. and other defendants.

JPMorgan spokeswoman Jennifer Zuccarelli and UBS spokeswoman Torie von Alt said their respective banks are pleased with the decision.

Mr. Picard has filed roughly 1,050 lawsuits on behalf of former Madoff customers since the now-imprisoned Ponzi schemer's firm collapsed on Dec. 11, 2008.

The JPMorgan lawsuit has been his second-largest after a $58.8 billion case against defendants, including Bank Medici A.G. founder Sonja Kohn and Italy's UniCredit S.p.A.

Judge Rakoff also handles that case. In September, he also capped potential damages in Mr. Picard's lawsuit against the owners of the New York Mets baseball team, who were also former Madoff customers, at $386 million, down from $1 billion.

In the HSBC case, Judge Rakoff rejected what he called Mr. Picard's "convoluted theories" and accepted HSBC's arguments that the trustee could not pursue common law claims.

Judge McMahon, in her decision, said she was "persuaded as well" by the essentially identical arguments raised by JPMorgan and UBS, and that the HSBC ruling "convincingly established" the trustee's lack of standing to pursue common law claims.

She likened Mr. Picard's position to that of a garage owner who trying to sue on behalf of a customer whose car got scratched while stuck in traffic, before it was parked in the garage.

"What interest could the garage possibly have in going after the stranger?" she wrote. "The garage would have no legal standing to vindicate that injury."

The bulk of Mr. Picard's cases are "clawback" lawsuits against former Madoff customers that Mr. Picard believes took too much cash out of the firm before its collapse.

In contrast, the lawsuits against JPMorgan, UBS, HSBC, UniCredit and "feeder funds" that steered client money to Mr. Madoff accused the defendants of ignoring red flags about Mr. Madoff's fraud, often to win more fees or commissions.

JPMorgan argued that Mr. Picard failed to show anyone at the bank had "actual knowledge" of Mr. Madoff's crimes, or "deliberately collaborated" with Mr. Madoff to win banking fees.

The trustee has said he has recovered roughly $8.7 billion to cover about $17.3 billion of valid customer claims. Mr. Madoff, 73, is serving a 150-year prison sentence.

The cases are Picard vs. JPMorgan Chase & Co. et al., U.S. District Court, Southern District of New York, No. 11-00913; and Picard vs. UBS A.G. et al. in the same court, No. 11-04212.