independent

Friday 18 April 2014

Irish arm of HSBC bank being sued over Madoff scheme

Bernard Madoff

THE Irish arm of HSBC bank is being sued for more than half a billion dollars arising from the massive Ponzi scheme run by jailed US fraudster Bernard Madoff.

Defender Ltd, an investment fund with registered offices in the British Virgin Islands, has sued HSBC Institutional Trust Services Ireland Ltd, (HITSI) with registered offices at Grand Canal Square, Dublin, for around US$540m (€398m) over alleged breaches of an agreement relating to custody of funds.

The case is centred on the role of banks' as "custodians" to investment funds that deposited monies with Madoff entities.

Mr Justice Peter Kelly granted an application by John Gleeson SC, for Defender, to fast-track the proceedings in the Commercial Court.

Michael Cush SC, for HITSI, consented to the transfer and the sides also agreed a timetable for exchange of legal documents for the action, to be heard early next year.

Defender alleges HITSI is in breach of a custodian agreement of May 2007 in the manner in which it appointed, or continued the appointment, of Bernard L. Madoff Investment Securities (BLMIS) as sub-custodian.  It is alleged HITSI failed, in particular,  to carry out any, or any appropriate, due diligence and/or monitoring and/or supervision of the actions of BLMIS.

Among various orders sought, Defender wants an order directing HITSI to deliver up to it the sum of US$539,725,585 which, it is claimed, was represented by HITSI to be held on the Defender account in November 2008, the last valuation date prior to dealing being suspended in December 2008.

Among a series of claims, the fund alleges HITSI failed to warn it that its assets were endangered and failed to advise it that HSBC was not in a position to confirm the existence of its assets. It also claims HITSI failed to communicate to it concerns held by HBSC concerning BLMIS.

The fund is also claiming damages on grounds including for alleged negligence and breach of contract and wants additional orders requiring that HITSI indemnify it against any claims made against it arising from the loss of the funds.

The case is the latest of some 50 sets of proceedings, involving claims for hundreds of millions of Euro,  to have been initiated here arising from the Madoff collapse.

Last week, separate proceedings by AA (Alternative Advantage) plc, of Fitzwilton House, Wilton Place, Dublin, were settled against HITSI.

Other proceedings by Thema International Fund Plc, also of Fitzwilton House, were settled earlier this year.

In addition to the cases by Thema and AA against HITSI as custodian of their funds, some 43 cases were brought against Thema over its passing on of monies to HITSI.

HSBC previously settled a case brought against it here by Kalix Fund Ltd, registered in the British Virgin Islands, which had claimed some US$36m.

Bernard Madoff pleaded guilty in 2009 to orchestrating what prosecutors described as the biggest Ponzi scheme in history, using

$65 billion in real and artificial assets. He admitted using money from new clients to pay off earlier investors and was sentenced by the US courts to 150 years imprisonment.

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