A federal judge refused to approve a proposed settlement between HSBC Holdings and Thema, an Irish fund that acted as a 'feeder fund' in funneling money to Bernard Madoff's Ponzi scheme. HSBC acted in a custodial role for Thema International Fund, whose investors lost their entire investment valued at over $300 million to Madoff's scheme. The two parties had announced in June that they had reached a settlement in which HSBC, while admitting no wrongdoing, would pay $62.5 million, or roughly 20% of Thema investor losses. The balance in the fund at the time of Madoff's arrest was over $1 billion, but most of those profits were fictitious.
United States District Judge Richard Berman, while noting that he generally favored the settlement of suits - especially class actions - noted several "obvious deficiencies" in refusing to accept the proposed settlement, including the setting aside of a $10 million reserve for attorney's fees to pursue claims against non-settling defendants also named in the suit. Judge Berman also took issue with what he perceived as the inadequate disclosure of legal costs. Reflecting on the settlement, Judge Berman noted that while he would consider a revised accord, the current settlement was "not fair, reasonable or adequate -- even at this preliminary stage."
Proposed settlements, while subject to a judicial stamp of approval, are routinely approved and viewed as essential to trimming judicial dockets of cases that should not be tried. The rejection is notable in that HSBC had recently won the dismissal of common law claims filed by Irving Picard, the court-appointed trustee overseeing the liquidation of Madoff's failed brokerage. There, United States District Judge Jed S. Rakoff had ruled that Picard lacked standing to bring those claims against HSBC, and that the proper party to bring those claims were the wronged investors. Picard has appealed that decision to the Second Circuit Court of Appeals.
A Copy of Judge Berman's Order is here.