HSBC Wins Motion to Dismiss Claims Against Individual Foreign Investors in Madoff Feeder Funds

March 1, 2017

On March 1, 2017, Cleary Gottlieb’s motion to dismiss a complaint filed against various HSBC affiliates by two individual foreign investors in Hermes International Fund was granted by the U.S. District Court for the Southern District of New York.

The motion was granted on the grounds that the court lacked personal jurisdiction over the foreign HSBC defendants and the plaintiffs lacked standing to bring their claims.

Hermes is a British Virgin Islands fund that placed its assets with Bernard L. Madoff Investment Securities LLC.

The plaintiffs had sought to recover against the HSBC defendants, many of whom provided various services to Hermes, under theories of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, negligent misrepresentation, and unjust enrichment.

In granting the motion to dismiss, U.S. District Judge Laura Taylor Swain found that allegations that the foreign HSBC defendants communicated with and transmitted funds to the New York-based BLMIS, including through the use of New York correspondent accounts, were insufficient to establish personal jurisdiction over those defendants under New York’s long-arm statute because these contacts were merely incidental to fulfilling contracts negotiated and executed outside of New York. Judge Swain also rejected plaintiffs’ claims that the foreign HSBC defendants were subject to specific jurisdiction on the basis of BLMIS’s tortious conduct in New York, concluding that plaintiffs could not succeed on an agency theory of jurisdiction in which the crux of their claims was that the HSBC defendants abrogated any sort of supervision or control over BLMIS. Finally, Judge Swain found that the plaintiffs lacked standing to bring their claims against HSBC Bank USA, N.A., the only U.S.-based HSBC defendant, as Hermes was incorporated in the BVI, and BVI law bars shareholders from bringing a direct suit to recover a loss that is merely reflective of a loss suffered by the company.