A private Swiss bank agreed Monday to pay nearly $500 million to the trustee handling the Bernard Madoff bankruptcy to avoid a lawsuit that would have exposed it to claims for $1 billion or more.
In papers filed in federal bankruptcy court in Manhattan Monday, trustee Irving Picard said that Union Bancaire Privee, UBP S.A. of Geneva and a related company, M-Invest Ltd., of the Cayman Islands, agreed to pay at least $470 million in cash and possibly as much as $500 million, money that will now go toward compensating Madoff's cheated clients.
"The UBP settlement agreement is the largest feeder fund bank cash settlement to date and the first major international bank settlement," Picard said in a prepared statement. "All of the funds recovered through the UBP settlement will go to [Madoff customers]."
With the UBP settlement, Picard has recouped $2 billion in assets to compensate customers who lost money in Madoff's estimated $20-billion Ponzi scheme.
Picard has recently filed a blizzard of clawback lawsuits against private investors and banks for amounts that some estimate could total $30 billion. Legal experts believe many of those cases will settle for lower amounts, all of which will go to the Madoff customer reimbursement fund.
UBP invested in Madoff through M-Invest and other feeder funds, and Picard was prepared to sue the private bank and M-Invest for about $1 billion, an amount representing investments with Madoff, court papers stated. UBP disputed Picard's legal claim and said all withdrawals it made from Madoff's company were made in good faith. Negotiations over a settlement lasted two years.
In a related development Monday, a spokesman for HSBC Holdings Plc, which was sued by Picard for $9 billion late Sunday, said that allegations the bank enabled the Madoff fraud by turning a blind eye to warning signals were "unfounded." HSBC will defend itself vigorously against Picard's lawsuit, said the spokesman.
Last week Picard also sued JPMorgan Chase & Co. for $6.4 billion, charging it played a central role in Madoff's fraud.
Madoff is serving 150 years in federal prison in North Carolina.