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.