Blaming banks for Madoff

Big names targeted in the fresh batch of lawsuits

Blaming banks for Madoff

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The last few weeks of 2010 brought a flurry of new lawsuits against Wall Street’s heavy hitters, as lawyers for the victims of Bernard Madoff’s Ponzi scheme raced against a Dec. 11 legal deadline marking two years since the financier’s arrest. Among the big names targeted in the fresh batch of lawsuits are JPMorgan Chase, UBS, HSBC, Citigroup and Merrill Lynch-Bank of America.

The banks have called the lawsuits “unfounded” and “utterly baseless.” But Irving Picard, the court-appointed trustee who’s spearheading the effort to recoup defrauded investors’ money, says it’s Madoff’s financial activity that bore little resemblance to reality—and big banks should have known. The lawsuit against HSBC alleges the bank failed to notice that some of Madoff’s trades had been settled on a Saturday, when stock markets are closed, and that for three years his investor statements misnamed a fund in which he claimed to have put client money. HSBC did hire an independent auditor to look at Madoff’s deals, and the probes warned of possible shams and fraud. But the bank is accused of turning a deaf ear.

The accusations echo the class-action suit that hit Royal Bank of Canada earlier last year for allegedly failing to flag suspicious movements in former Montreal financial adviser Earl Jones’s RBC account. The collapse of Jones’s fund cost his investors around $50 million.

But whether victims in both cases will be able to dig into the defendants’ deep pockets remains to be seen. Neither RBC nor the U.S. banks involved in the Madoff affair advised investors to put money in the schemes. Insinuating that the banks must have known of the scams, moreover, does not carry the same weight as saying that they did know, which might be impossible to prove. Investigations into big bank bankruptcies in the U.K., for example, merely found evidence of poor management and excessive risk-taking, which isn’t actionable or illegal.

At the very least, these legal crusades are showing how complicated a process resolving the Madoff affair will be, and a lot of parties who may or may not bear any culpability could get smeared along the way.


Blaming banks for Madoff

  1. Neither of these convicted fraudsters could have mastered the art of deception as well as they did if it were not for their deceitful use of the big banks good name and solid reputation. The banks involved in these respective massive Ponzi schemes had an obligation, and a high level of duty of care to monitor those suspicious transactions that went through their accounts on a daily basis. Shame on the victims for trusting in the reputation of the big banks, but more importantly, shame on the banks for allowing to happen in the first place.

    Joey Davis – Earl Jones Victims Organizing Committee

  2. An all too common way of life today, "Pass the Buck" Being very close to this case, I have spoken to several Bank Managers from other than RBC and all have said that they believe the RBC to be guilty of negligence.. Now , I find that funny, because this goes to show you that there is a " buck" to be passed. Another interesting tidbit is that these same managers have told me that they have changed some of the rules in their banks, mainly because of this Earl Jones affair, that in itself is an admission of wrong doing on the part of the banks.