HSBC-Madoff Trustee Lawsuit – Analyst Blog
HSBC Holdings Plc (HBC) will have to wait for about a month (July end) for the verdict whether the trustee of Bernard L. Madoff Investment Securities LLC can be allowed to proceed with a $9 billion lawsuit accusing the company of having enabled the huge fraud.
In December last year, a lawsuit was filed against HSBC by the trustee of Madoff Securities, Mr. Irving Picard. The company was accused of failure to conduct proper due diligence of Madoff Securities hedge fund, for which it was a custodian and provider of administrative services. It was also alleged that HSBC could not detect the warning signs and failed in its duty toward the funds and its investors. However, the company has denied all charges.
On Thursday, HSBC lawyers had argued that Mr. Picard was wrongly suing the company for damages. They also stated that as a trustee, Mr. Picard’s duty is to investigate the Madoff fraud instead of filing lawsuits against the company. In 2009, Mr. Madoff had pleaded guilty to running a Ponzi scheme and is presently serving a 150-year prison sentence.
HSBC is not the only one to have been sued by the trustee. There are nearly 1,000 lawsuits filed by the trustee in the bankruptcy court in order to recover about $90 billion from various banks and other Madoff investors who profited from the fraud. Major companies among them include JPMorgan Chase & Co. (JPM), which was sued for $6.4 billion and UniCredit SpA, a defendant along with Bank Medici AG and its founder Sonja Kohn, who was sued for $59 billion.
However, earlier this month, HSBC had agreed to settle a lawsuit filed against the company by the investors of Ireland-based Thema International Fund that had invested in Madoff Securities. Under the settlement deal, HSBC would pay $62.5 million to the Thema investors for class-action claims brought against the company on the grounds of its failure to spot the fraud in Mr. Madoff’s Ponzi scheme.
While such charges will dent HSBC’s reputation and financials, we believe that they are a relief for investors who have lost their hard-earned savings in such Ponzi funds.
HSBC currently retains a Zacks # 5 Rank, which translates into a short-term ‘Strong Sell’ rating.
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