UniCredit, HSBC Seek to Dismiss Madoff Investor Suit

UniCredit Bank Austria AG and other defendants asked a judge to dismiss a lawsuit by foreign investors in funds that put money with con man Bernard Madoff, saying they were being cast as “scapegoats for Madoff’s intentional criminal acts.”

The investors in January and February sued Herald, Primeo and Thema funds, directors, service providers and parent companies or affiliates, saying they neglected their duty and ignored “red flags” signaling Madoff was running a Ponzi scheme. Defendants include JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), PricewaterhouseCoopers LLP, Bank Medici AG founder Sonja Kohn and Madoff family members.

Denying they had a duty to the investors, the plaintiffs said they’d been “improperly” lumped together based on “manufactured claims” that “have no place in this U.S. court,” according to a U.S. District Court of New York filing yesterday.

The suit is one of many that competes with 1,000 suits filed by the trustee liquidating Madoff’s firm. Irving Picard in December sued HSBC and a dozen funds including Primeo, Herald and Thema for $9 billion, saying they ignored red flags and should have known of the fraud. He is demanding $19 billion from JPMorgan and as much as $59 billion from UniCredit, Kohn and other parties.

HSBC units in Bermuda, Luxembourg and Dublin acted as custodian for 12 funds including Pioneer Investment’s Primeo Select, Bank Medici’s Herald (Lux) and Thema International, as well as Herald USA, Alpha Prime, Lagoon Investment, Senator, Kingate Global, Defender and Global Investments.

Primeo, based in the Cayman Islands, was tied to Bank Medici and Kohn, according to Picard’s suit. Primeo took $145 million, mostly its principal, out of the Madoff firm in the six years before the 2008 bankruptcy, which Picard is seeking to recover, he said in the suit. Its profit was a scant $27,942, according to Picard. The fund is being liquidated.

The trustee said total six-year withdrawals by funds he named in the HSBC suit were $2 billion.

HSBC has asked U.S. District Judge Jed Rakoff in New York to dismiss Picard’s suit, saying it didn’t know of the fraud and lost $1 billion of its own money investing in funds that in turn put money with Madoff.

Madoff is serving a 150-year sentence in federal prison in North Carolina.

The case is In re Herald, 09-cv-00289, U.S. District Court, Southern District of New York (Manhattan).