MANHATTAN (CN) – A federal judge ripped into Irving Picard, saying the bankruptcy trustee heading compensation for victims of Bernard Madoff does not have standing to sue HSBC for allegedly aiding the giant Ponzi scheme.
U.S. District Judge Jed Rakoff begins his ruling in an indulging tone.
“Though it sometimes seems otherwise, not every litigant has the right to appear in federal court,” Rakoff wrote. “A would-be litigant must first establish ‘standing’ to pursue his or her claims, by demonstrating, among other things, the existence of a ‘case or controversy’ and a personal stake in the outcome of the case.”
Though Picard’s efforts benefit his victims, he nevertheless represents Madoff, the judge said.
“Accordingly, even though a bankruptcy trustee can seek to recover monies on behalf of the debtor’s estate that will ultimately be used to help satisfy creditors’ claims, it is settled law that the federal Bankruptcy Code (TitIe II, United States Code) does not itself confer standing on a bankruptcy trustee to assert claims against third parties on behalf of the estate’s creditors themselves, because the trustee stands in the shoes of the debtor, not the creditors,” the order states.
In addition, the in pari delicto doctrine prevents one wrongdoer from collecting money from another to pay off debts.
To vault these hurdles, Picard offered a “number of convoluted theories, none of which is ultimately persuasive,” Rakoff wrote.
Picard argued the Securities Investor Protection Act (SIPA) gave him power to investigate the fraud, but that such an exercise would prove “academic” if he were restrained from pursuing lawsuits on his findings.
Rakoff scoffed at this argument.
“To say this argument is a stretch would be to give it more credence than it deserves,” the order states. “That Congress would want a SIPA trustee to publicly report to a court, and hence to the public, any fraud the trustee uncovers is hardly an ‘academic’ exercise.”
The information Picard reported to the courts could spur a class action lawsuit from Madoff victims, Reuters recently reported, in an interview with Fordham University School of Law professor Steven Thel.
In the meantime, HSBC is safe from Picard’s suit, which was dismissed on Thursday.