May 25, 2010Madoff claims settled with European bank clients
Banks in Europe take the hit to pay back wealthy customers for losses in Bernard Madoff's investment business
More than 720,000 victims of the fraudster Bernard Madoff have won an estimated $15.5bn (£11bn) back from non-American banks that channelled their money towards the corrupt Wall Street investment manager.
An alliance of victims' lawyers yesterday said that 14 months on from Madoff's conviction, dozens of European banks including Santander and HSBC partial reimbursement, for fear of losing long-standing and often lucrative customers. About 80% of Madoff investors represented by the alliance have struck deals with their banks. The average profile of a victim is a 54-year-old male who invested $35,000 in Madoff's phoney Wall Street fund management business.
Javier Cremades of Spanish law firm Cremades & Calvo-Sotelo, who is co-ordinating the victims' network, said customers were typically getting their original investment without the false profits the jailed financier claimed to have added. "Client confidence is banks' most important asset," he said at a press conference in New York. "They're facing a huge reputational problem at a time when confidence is not particularly abundant."
Generally speaking, banks are not refunding their customers in cash, but are using a variety of forms of credit or convertible paper intended to tie in victims as ongoing clients. Santander, one of the biggest sources of money to Madoff outside the US, has offered its clients a form of convertible paper redeemable in 10 years and has settled 98% of claims.
When asked about settlements in Britain, Cremades named HSBC as one of the banks involved in deals. HSBC, which has taken charges of $1.05bn to cover Madoff-related losses, declined to comment. The British bank revealed in its annual report in March that it was the subject of litigation with "numerous defendants" over the Madoff scandal in jurisdictions including the US, Ireland and Luxembourg.
Cremades said victims' lawyers had been surprised at the willingness of banks to settle: "In Europe, one year later, most of the victims have solved their problems through settlements. It has been easier than we thought."
An exception, however, is Switzerland, where the situation has been complicated by the country's banking privacy laws. Some victims had secret accounts and are unwilling to air their losses in litigation.
Regarded as the biggest financial crime in Wall Street history, Madoff Investment Securities claimed to have $65bn of assets under management. But the financial crisis led to attempts by investors to withdraw money, exposing Madoff's firm as a vast Ponzi scheme. Madoff, who confessed to fiddling clients since the early 1990s, is serving a 150-year sentence in North Carolina.
Within the US, most of Madoff's victims were either direct investors or had channelled money through boutique firms that acted as so-called feeder funds. They are facing a longer, tougher struggle for recompense as a court-appointed trustee, Irving Picard, sorts through claims against the remnants of Madoff's financial empire. European banks will wait in line with US victims to get their own share of any distribution, though they are not likely to get back anything close to the sums that they are reimbursing clients.
"They can't expect to get back much of what they've given," said Gaytri Kaychoo, a lawyer for US victims. "They [European banks] looked at their own situation and rationalised making their own settlements with wealthy, very good clients because they can't afford to lose them."
http://www.guardian.co.uk/business/2010/may/25/european-banks-pay-madoff-losses
