June 20, 2013 at 1:37 PM ET
A federal appeals court has blocked a trustee from recovering money for victims of Bernard Madoff's mammoth fraud from major financial institutions.
The 2nd U.S. Circuit Court of Appeals in New York ruled Thursday that Trustee Irving Picard lacked standing to sue on behalf of investors.
Two lower-court judges had rejected Picard's efforts to recover billions of dollars from several dozen financial institutions in the U.S. and abroad. Among the banks he sued were JPMorgan Chase, Britain's HSBC Holdings, Italy's UniCredit SpA, and Switzerland's UBS AG.
Picard was appointed as bankruptcy trustee in 2008 by a U.S. District Court judge and has since been involved Madoff’s former clients’ money. He alleged in lawsuits that banks earned hundreds of millions of dollars in fees to process Madoff's investor money while ignoring obvious warning signs of fraud.
Madoff is serving a 150-year prison sentence. He admitted in 2009 that he cheated thousands of investors out of roughly $20 billion in a multi-decade fraud.
Chief Judge Dennis Jacobs, writing for a unanimous three-judge appeals court panel, said that as trustee, Picard "stands in the shoes" of Madoff's former firm, so he cannot press claims against third parties for aiding a fraud that the firm orchestrated.
Jacobs also rejected Picard's contention that it would be fair to let him pursue claims on behalf of customers because that would make it more likely that they would be made whole, and that those who assisted Madoff's fraud would not reap windfalls.
"No doubt, there are advantages to the course Picard wants to follow. But equity has its limits," Jacobs wrote, adding in a footnote that "it is not obvious why customers cannot bring their own suits" against the banks.
A spokeswoman for Picard had no immediate comment.
The Associated Press and Reuters contributed to this report.
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