In December 2010, HSBC and a dozen 'feeder-funds' were sued by Irving Picard for $9 billion. Picard, the court-appointed trustee overseeing the liquidation of Madoff's firm, charged that the banking giant and funds were complicit in Bernard Madoff's fraud. During a hearing in New York today, HSBC argued that Picard and his attorneys lacked standing to bring such a suit on behalf of defrauded investors. Such a legal strategy is a common argument used to counter trustee-initiated lawsuits.
Under 28 U.S.C. §754, receivers are vested with "complete jurisdiction and control of all such property with the right to take possession thereof." Under this theory of exclusive jurisdiction, Picard argued in a filing earlier this month that as a trustee, he had "standing to assert common law claims to seek damages." Had HSBC reacted appropriately to the red flags surrounding Madoff's activities Picard argued, the scheme would have been uncovered much earlier, saving billions in losses.
In addition to contesting Picard's standing in bringing the suit, HSBC has also pointed to massive losses it incurred as a result of Madoff's fraud. HSBC has alleged that it sustained losses of nearly $1 billion invested in the feeder funds that evaporated when Madoff's fraud was exposed. District Judge Jed Rakoff has indicated that he plans to issue a written ruling by the end of July.