HSBC's Madoff settlement deal is rejected

A Manhattan federal judge rejected HSBC's proposed $62.5 million settlement with investors in an Irish fund that lost money in Bernard Madoff's Ponzi scheme.

In a ruling yesterday, U.S. District Judge Richard Berman said the accord announced June 7 "is not fair, reasonable or adequate - even at this preliminary stage" to investors in Thema International Fund Plc.

HSBC said it had acted as a custodian to the fund, and provided administration and other services. It was sued in January 2009, one month after Madoff's fraud was uncovered.

Berman said the accord had several "obvious deficiencies." Among these were inadequate disclosure of legal costs, and the setting aside of a $10 million "reserve" for legal fees and expenses for investors to pursue claims against non-settling defendants outside the United States.

The judge said he would consider a revised accord, and "generally favors the voluntary settlement of matters before it, including the settlement of purported class actions."

"We are disappointed that the Court did not grant preliminary approval at this time," Frank Bottini, a lawyer for lead plaintiff Neville Seymour Davis, said.

"We are optimistic that we can address the Court's concerns and that the settlement will eventually be approved."

Rob Sherman, an HSBC spokesman, had no immediate comment.

HSBC in June estimated that Thema investors lost about $312 million. It also said various funds it serviced transferred a net $4.3 billion to Madoff's firm during the period it serviced those funds.

Irving Picard, the trustee seeking money for Madoff victims, accused HSBC in a separate lawsuit of ignoring "red flags" about Madoff's fraud.

A different federal judge, Jed Rakoff, in July voided about $6.6 billion of Picard's claims against HSBC, saying the trustee lacked authority to bring them.

Madoff, 73, pleaded guilty to running his Ponzi scheme in March 2009, and is serving a 150-year prison sentence.