Securities: More on Madoff

Picard announced the filing of complaints under seal in the United States Bankruptcy Court for the Southern District of New York against seven global banking institutions – Citibank, Natixis, Fortis, ABN AMRO, Banco Bilbao Vizcaya Argentaria, Merrill Lynch, and Nomura.

According to the seven complaints, these banks received transfers of money from BLMIS through numerous Madoff feeder funds at times when they either knew or should have known of Madoff's fraud.

The complaints allege that the banks enabled the Madoff Ponzi scheme by opening a spigot of new money into the Madoff feeder fund network, by creating and offering derivative investment products linked to various Madoff feeder funds, including the Fairfield Greenwich, Kingate and Tremont families of funds. Often, the derivative products were developed in conjunction with the Madoff feeder funds. With the derivative products promising returns based on the performance of the feeder funds, the financial institutions hedged their exposure to the derivative investors by purchasing shares of the feeder funds.

Picard is looking for as much as USD1,000 million from these actions.

"The Citi filing names Citibank, N.A., Citibank North America, Inc. and Citigroup Global Markets Limited (collectively "Citi"). Of the USD425 million sought in the Citi action, USD300 million is connected with a credit facility Citibank made available to a large Madoff feeder fund, Rye Select Broad Market Prime Fund, L.P. ("Prime Fund"); the remaining USD125 million is sought in connection with a swap transaction linked to the performance of another large Madoff feeder fund, Fairfield Sentry Limited," he said in a statement.

But he is anxious to make it plain that there was, in his view, information available - and in the relevant hands - to have warned off anyone considering doing business with Madoff: "Armed with considerable non-public information about Madoff, Citi either knew or should have known that Madoff's investment advisory business was a fake, and that the funds Citi received from these two Madoff feeder funds came from Madoff's fraudulent activities," said Picard. Warning signs to Citi included an email from and a meeting with early Madoff whistleblower, Harry Markopoulos, alerting a Citi managing director to the fact that the Madoff operation was a Ponzi scheme, he says.

But more damning - and frankly of more interest - is the allegation by Picard's partner in the law firm handling the litigation. "Evidence of awareness of the fraud is clear. As Citi became concerned about Madoff's legitimacy, it took steps to back away from Madoff, including refusing to increase the amount of the existing Prime Fund loan and ultimately cancelling the Citibank-Prime Fund lending relationship," said David Sheehan. "However, even as suspicion grew about Madoff, Citi still took monies from Madoff that rightfully belong to BLMIS customers and the bank must return those funds."

That appears to be coming very close to an allegation of money laundering and of failing to make suspicious transaction reports. And the allegations gain strength with comments by another partner in the firm. Thomas Long said "Just months before the Madoff fraud was revealed, CGML redeemed Sentry shares, with specific knowledge and profound concerns about Madoff's very legitimacy. CGML submitted its Sentry redemptions and received millions of dollars when, in fact, it had been advised specifically that Madoff was likely running a massive Ponzi scheme. Prior to submitting the redemptions, CGML had also earned many hundreds of thousands, if not millions, of dollars in fees and charges from the Swiss hedge fund swap."

Amazon.Com USA

Amazon.Co.UK UK

Kindle

You can read Kindle books on your iPhone, iPad, iPod Touch, Mac, PC, Android devices and Blackberry with free reader Apps.

or buy your Kindle device here

Netaxis is targeted, accused of knowing or having information that should have led them to suspect that Madoff was a problem and of supporting the ponzi scheme by recruiting investors.

Other banks named in the actions were

- Fortis Prime Fund Solutions Bank (Ireland) Ltd. ("Fortis") and related entities: The Trustee seeks to recover in excess of USD230 million transferred to Fortis in connection with swap transactions.

- ABN AMRO BANK N.V. ("ABN") and related entities: With this complaint, the Trustee seeks to recover in excess of USD270 million, from this bank's investments in Madoff feeder funds to hedge risk exposure arising from two swap agreements.

- Banco Bilbao Vizcaya Argentaria, S.A. ("BBVA"): This action seeks the return of approximately USD45 million from BBVA, in connection with structured notes issued by BBVA using Madoff feeder funds as underlying assets.

- Nomura Bank International plc ("Nomura"): This action seeks the return of at least USD35 million from Nomura, in connection with structured notes issued by Nomura using Madoff feeder funds as underlying assets.

- Merrill Lynch International & Co. C.V. ("MLI"): The action filed today seeks the return of at least USD16 million, in connection with structured note and warrant offerings made by MLI, and its affiliates, using two Madoff feeder funds as underlying assets.

Then, just three hours later, another round of actions were announced:

This time, action is taken against against Sandra L. Manzke ("Manzke"), members of her family, Maxam Capital Management, LLC ("Maxam Capital") and related Maxam investment funds. The Trustee seeks recoveries totalling approximately USD100 million in connection with the Madoff Ponzi scheme.

Again, the lawyers are pulling no punches: "

According to the complaint, Manzke was a self-proclaimed industry "watchdog," calling for heightened investor protection and due diligence against managers whose main concern was their own personal gain. Yet, Manzke was among Madoff's most valuable enablers, assisting the fraud for almost 15 years through a number of investment advisory and feeder-fund entities.

"Like Bernard Madoff, Manzke used a veneer of industry respectability to lure investors and enrich herself, her family, and select colleagues," said Marc Powers, a partner in the Trustee's law firm. "Neither of the companies she founded – Tremont and Maxam – complied with their own due diligence policies. The Maxam defendants' personal and business relationships with Madoff put them in a unique position to obtain information concerning BLMIS's operations. Yet they failed to conduct adequate investigation, or made no investigation at all, choosing instead to remain willfully ignorant and collect lucrative fees."