The latest losers in the Madoff swindle could be the custodians who serviced his feeder funds. The trustee representing Madoff’s defrauded investors has filed multibillion-dollar lawsuits against HSBC and UBS, saying the banks turned a blind eye to Madoff’s implausible returns – or even conspired along with him – in order to collect enormous sums, including custody fees.
The banks contest the charges. “We regret that the trustee filed this unwarranted complaint and will take all appropriate steps to demonstrate that the allegations are false,” UBS has said in a statement. HSBC is said to be “vigorously” defending itself against the claim.
What’s more, the revenues earned from custodying the Madoff funds would have been a tiny amount, perhaps only a fraction of a percent, of the $6.6 billion (HSBC) and $2.5 billion (UBS) trustee Irving Picard is asking for, according to some reports.
But Picard says the back offices of the banks, in their roles as administrators and custodians for the Madoff feeder funds, were complicit in the conspiracy. For its part, he alleges HSBC was aware of the fraud as long ago as 2001. As proof, he cites faulty Madoff paperwork listing trades that were settled when the markets were closed; investor cash funneled into a money market fund that no longer existed; and other anomalies that should have immediately raised red flags.
The trustee is also suing J.P. Morgan, Madoff’s primary banker, for $6.4 billion, saying it also ignored warning signs of the too-good-to-be-true returns. Other Picard lawsuits name Citigroup, Bank of America Merrill Lynch, Natixis, Fortis, ABN Amro, Nomura and Banco Bilbao Vizcaya Argentaria (BBVA) as defendants on similar claims.