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Madoff trustee sues hedge funds in attempt to claw back $870m

Date: Monday, July 20, 2009
Author: Sam Jones, Financial Times

Irving Picard, the trustee charged with recovering money for investors in Bernard Madoff's Ponzi scheme, is suing four offshore hedge funds in an attempt to claw back nearly $870m.

The filings ramp up Mr Picard's efforts to recover assets from investors who withdrew funds from the Ponzi scheme before it collapsed.

A dozen lawsuits have now been filed against hedge funds and individuals in an effort to recover billions in allegedly "fake profits" made from redeemed investments in Mr Madoff's scheme.

Lawyers say such "clawbacks" could become the biggest single source of cash for victims of Mr Madoff's Ponzi scheme, which some believe was as large as $65bn.

Mr Picard has so far recovered only about a $1bn for investors.

The latest lawsuits, all filed in the past week, name the Cayman Islands-based Herald and Primeo funds, as well as Bermuda-based Alpha Prime fund and Thybo Asset Management, a fund of funds based in Monaco.

A unit of HSBC is also named as a co-defendant in the suits. The bank acted as an asset-custodian for all four funds.

Mr Picard is seeking to claw back $578m from the Herald fund, $144.9m from Primeo, $85.8m from Alpha Prime and $62m from Thybo Asset Management.

Between them, the four funds had invested more than $4.5bn with Mr Madoff since 2000.

Primeo has been forced into liquidation.

Mr Picard alleges that all four offshore funds "knew or should have known that Madoff's investment advisory business was predicated on fraud".

The funds should have known that the returns from their investments "were simply not credible" according to the trustee's complaint.

The four funds could not be reached for comment.

"There are no allegations of wrongdoing by HSBC. HSBC is only named as a defendant in order to account for funds presently held with HSBC," the company said last night.

Mr Madoff was arrested in December of last year and pleaded guilty to running the Ponzi scheme that cost investors billions of dollars.

He began serving his 150-year prison term on Tuesday.

Separately, Mr Madoff's former long-time accountant, David Friehling, yesterday pleaded not guilty to fraud charges related to the former broker's Ponzi scheme.

However, he also waived his right to a criminal indictment, an indication that he is working on a deal with US prosecutors to resolve the case against him, according to legal experts.