HSBC and The Bank of New York Mellon Secure Affirmance of Dismissal of Madoff Feeder Fund Investor Class Actions

September 16, 2013

On September 16, 2013, the United States Court of Appeals for the Second Circuit affirmed the dismissal of class action lawsuits against Cleary Gottlieb clients HSBC and The Bank of New York Mellon and other defendants brought by investors in foreign investment funds that placed their investors’ money with Bernard L. Madoff Securities (“BLMIS”).

The Court of Appeals affirmed by summary order a decision from the United States District Court for the Southern District (Berman, J.) dismissing the claims against HSBC and other defendants on grounds of forum non conveniens. The Second Circuit held that the District Court did not abuse its discretion in concluding that claims by foreign investors in investment funds located in Ireland, Luxembourg and the Cayman Islands against mostly European-based defendants should be litigated in Ireland and Luxembourg, respectively, where claims by these funds and their investors against many of the same defendants are already pending.

In a separate published opinion, the Second Circuit also affirmed the dismissal of claims against New York-based defendants The Bank of New York Mellon and JP Morgan as precluded under the Securities Litigation Uniform Standards Act (“SLUSA”), 15 U.S.C. § 78bb(f). The Court of Appeals rejected plaintiffs’ arguments that SLUSA should not apply because the feeder fund shares in which they invested were not “covered securities” under the statute and because they did not allege that the defendants made fraudulent misstatements or omissions in connection with plaintiffs’ purchases of their feeder fund shares. The Court adopted defendants’ arguments that the claims were predicated on the defendants’ alleged involvement with BLMIS’s fraudulent transactions in covered securities and hence precluded by SLUSA.