Judge eyes racketeering claims in Madoff bank case

Reuters News
Posted: Jun 08, 2011 4:54 PM
Judge eyes racketeering claims in Madoff bank case

By Nick Brown

NEW YORK (Reuters) - A U.S. judge will consider racketeering claims in a massive lawsuit against Italian bank UniCredit seeking money for Bernard Madoff's victims.

The lawsuit is the biggest brought by bankruptcy trustee Irving Picard against defendants that allegedly benefited from Madoff's Ponzi scheme.

Picard is seeking $19.6 billion in damages in the lawsuit, which could be tripled if he prevails and federal racketeering laws are applied. UniCredit has denied the allegations in the lawsuit.

District Judge Jed Rakoff said he would determine whether racketeering claims can be used as part of the trustee's case, according to an order filed in Manhattan federal court on June 6.

The judge had earlier moved the lawsuit out of U.S. bankruptcy court in Manhattan to U.S. district court.

The UniCredit lawsuit, filed in December, accuses the bank, its Bank Austria unit and several other defendants of funneling billions of dollars to Madoff.

Also named as a defendant is Sonja Kohn, the founder and operator of several of the banks. The trustee dubbed her Madoff's "criminal soul mate," according to the lawsuit.

Madoff's fraud was revealed in December 2008. He admitted in a March 2009 guilty plea that he ran a Ponzi scheme, taking money from new clients and using it to pay existing ones instead of investing the money and generating returns as clients had believed. He is serving a 150-year prison sentence.

The trustee has filed more than 1,000 lawsuits to recover about $100 billion from a variety of defendants, including large banks such as JPMorgan Chase & Co and HSBC Holdings Plc.

UniCredit asked to move the lawsuit out of bankruptcy court in February, arguing that it mainly asserts non-bankruptcy claims, such as violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

The bank also said there was a serious risk of duplicative recoveries and inconsistent results and a "virtual certainty of judicial inefficiency."

Rakoff agreed at a May 31 hearing to take on at least a portion of the UniCredit case but did not specify which issues he would consider.

In addition to the RICO claims, the judge will determine whether Picard's common law claims are preempted by federal law and whether the trustee has the legal right to pursue claims against UniCredit.

Picard asserted $19.6 billion in damages, but used RICO to request that damages be tripled. The total damage value sought could be high as about $59 billion.

A spokeswoman for the trustee's legal team had no immediate comment on Wednesday. A representative for UniCredit's lawyers could not immediately be reached.

The case before Rakoff is Irving H. Picard v. Sonja Kohn et al., U.S. District Court, Southern District of New York, No. 11-1181.

The bankruptcy case is In re: Bernard L. Madoff Investment Securities LLC, U.S. Bankruptcy Court, Southern District of New York, No. 08-1789.

(Editing by Martha Graybow and Steve Orlofsky)