Sunday 26 January 2020

HSBC settles action taken by fund that lost €1.1bn in Madoff scheme

Bernard Madoff. Photo: Getty Images
Bernard Madoff. Photo: Getty Images
Donal O'Donovan

Donal O'Donovan

HSBC has settled an Irish legal action taken against it by an IFSC-based fund that lost €1.1bn in the Bernie Madoff ponzi scheme.

Thema International Fund went to court in Dublin in April seeking compensation from HSBC for failing to spot Madoff's scam when it acted for the fund.

The trial had been expected to take 14 weeks at the High Court in Dublin but was settled yesterday.

The Thema case is one of potentially dozens arising from HSBC's role as custodian to funds known as Undertakings for Collective Investment in Transferable Securities (UCITS) that invested in the Madoff hedge fund.

In 2009, Madoff himself pleaded guilty to orchestrating the biggest Ponzi scheme in history, which saw him take in tens of billions of euro from investors before the scheme collapsed.

Yesterday, HSBC and Thema said the settlement deal did not include any "admission of liability on the part of any party".

The deal still has to be approved by Thema shareholders at a vote expected to take place in July.

"Thema believes that it has a strong case but the settlement provides certainty and an early recovery, avoiding further years of expensive litigation," the joint statement said.

For its part, HSBC "has good defences but recognises the risks and uncertainties inherent in defending a complex UCITS claim of this nature together with the significant burden and expense involved in doing so", the statement said.

The settlement ends what had been set to be an epic legal trial at the High Court in Dublin in front of Mr Justice Peter Charleton.

The judge had set aside 14 weeks to hear evidence from all sides. Lengthy hearings and the need to fly in experts and witnesses from New York as part of the proceedings mean trial costs would quickly have run into millions of euro.

Last year, HSBC settled a related case taken by Kalix Fund Ltd, a fund that had invested money with Thema. The settlement details in that case, which was also taken in Dublin, are confidential.

The discovery of the Madoff scandal hit headlines around the world in 2008, when the global financial shock made the US tycoon's pyramid scheme impossible to hide.

Madoff eventually pleaded guilty to helping himself to a staggering $17.5bn of investors' money.

The scale of the problem posed serious questions about the oversight of investors' money by the wider financial system, not just custodians like HSBC.

Madoff is now serving a 150-year prison sentence in the US.

The European Parliament is currently considering proposals that would impose tougher rules for banks that have a role in managing investors' cash to prevent a repeat of the Madoff affair, though it could take years for a new regime to actually come into force.

Irish Independent

Also in Business