Business Irish

Thursday 30 March 2017

HSBC will pay $62m to investors defrauded by Madoff

fraud

Siobhan Creaton

International bank HSBC has agreed to pay $62m (€42m) to a group of investors in an Irish-based hedge fund who were defrauded by Bernie Madoff (right).

The investors' cash was held in the bank's Thema fund, based in Dublin's International Financial Services Centre, which was transferred to the convicted fraudster who operated the biggest Ponzi scheme in history.

The investors, who had filed a class-action lawsuit seeking compensation, will receive about 20 cents on the dollar of the money they lost. The Thema fund lost $312m.

HSBC did not admit liability as part of the settlement, which must be approved by a New York judge.

Investors who lost vast sums of money over many years have filed lawsuits against the bank in Ireland, the US and Luxembourg, including a $9bn claim lodged by the trustee appointed by the US courts to recover money for Madoff's victims.

Those who invested in the Thema fund will dismiss any claims the trustee, Irving Picard, would make on their behalf.

Commenting on the settlement, Frank Bottini, the lawyer representing the investors in the fund, said they were relieved their legal action did not have to be fought out in the Irish courts.

In Ireland it is impossible for investors to mount a legal action and, as investors in a fund rather than being direct clients of Madoff, they would not have been eligible to receive any compensation the trustee might secure in the future.

"We think it is a good settlement," Mr Bottini said. "HSBC paid their fair share. They had a largely administrative function, although an important one."

He also said this group of investors may have had a stronger case than some others who have lost vast amounts of money because the Thema fund's documentation made no mention of Madoff's role in it.

HSBC acted as custodian for Thema and other funds that fed money to Madoff. At the end of November 2008, the fund was said to have assets of $1.1bn but most of the assets proved to be fictitious.

The $62m pay-off is only a small part of the bank's overall exposure to Madoff's investment schemes.

Mr Picard accused HSBC of enabling the fraud through these international "feeder funds" and said the bank was "willfully and deliberately blind to the fraud even after learning about numerous red flags surrounding Madoff".

This week Madoff's former payroll manager, Eric Lipkin, pleaded guilty in a New York court to his involvement in the multi-billion dollar fraud.

He said he "worked to deceive auditors" and pleaded guilty to six charges including falsifying documents and bank fraud.

He entered a plea that was part of an agreement to co-operate with the US government's investigation into the fraud.

He is the ninth person to be charged with an involvement in this crime. Madoff is serving a 150-year prison sentence.

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