Madoff Trustee Claims Against HSBC, Credit Agricole, Citibank and BNPP Dismissed

November 22, 2016

On November 22, 2016, Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York issued a decision dismissing billions of dollars in avoidance claims brought by Irving H. Picard, the trustee appointed for the liquidation of Bernard L. Madoff Investment Securities LLC, against multiple Cleary Gottlieb clients. 

Several Cleary teams representing separate major financial institutions worked together in moving to dismiss the Trustee’s claims, which sought to recover subsequent transfers from foreign BLMIS “feeder” funds to foreign defendants. The clients included HSBC, Credit Agricole, Citibank and BNPP.

The Bankruptcy Court, applying a 2014 decision of the District Court for the Southern District of New York, dismissed the majority of the Trustee’s claims against Cleary’s clients on grounds of international comity and the presumption against extraterritorial application of the clawback provisions of the Bankruptcy Code under which the Trustee filed suit. 

The Bankruptcy Court dismissed, on comity grounds, all of the Trustee’s claims that duplicated claims that were brought or could have been brought in the foreign liquidation proceedings of foreign feeder funds that invested with BLMIS. With respect to claims brought as a result of transfers from foreign feeder funds that are not subject to a foreign liquidation proceeding, the Bankruptcy Court, consistent with the District Court’s ruling that Section 550(a)(2) of the Bankruptcy Code does not apply extraterritorially, dismissed claims in which the Trustee pled that funds were transferred from the foreign feeder fund to a defendant’s bank account located outside of the United States, or to a defendant’s correspondent bank account for the purposes of effectuating a transfer to a bank account located outside of the U.S.