Swiss Heat on Possible Madoff Cronies Swells

MANHATTAN (CN) - The 2nd Circuit broke ground Friday while helping a Swiss magistrate criminally probe a Banco Santander subsidiary and its former director for alleged ties to the biggest Ponzi scheme in U.S. history.

In Switzerland, one of many European jurisdictions where private citizens can bring criminal proceedings, Geneva-based Optimal Investment Services and its former director general have been under fire ever since one of their investors brought criminal charges against them five years ago.

Franck Berlamont, who heads the investment firm Geneva Partners, alleged in 2009 that Optimal and Manuel Echeverria lied about their ties to Bernie Madoff.

A year after a Swiss magistrate took up Berlamont's probe, similar claims appeared in the Southern District of New York with the civil case Rembaum v. Banco Santander S.A.

For the New York case, U.S. District Judge Shira Scheindlin directed the English High Court of Justice to order the examination of Optimal Investment Service's chief risk officer Rajiv Jaitly in London.

After Jaitly's grilling concluded there, Scheindlin dismissed the case on the grounds of inconvenient forum and transferred it to Switzerland two years ago.

Meanwhile, Berlamont went to New York to get his hands on Jaitly's transcript.

The request forced New York federal courts to grapple for the first time with the question of whether a statute governing discovery for foreign proceedings applied to a overseas criminal investigations.

Resolving this question of "first impression," a three-judge panel agreed Friday that it did.

The 14-page opinion notes that Congress amended the discovery statute contested in this case nearly 20 years ago to allow for that outcome.

"The Swiss criminal investigation in the instant case is exactly the type of proceeding that the 1996 amendments to the statute were intended to reach," Judge Jose Cabranes wrote for the court.

Judges John Walker and Susan Carney also sat on the panel.

Lawyers for the parties did not immediately respond to a request for comment.

A state appeals court in Manhattan also ruled on a Madoff-related case this week.

The case involves losses stemming from a financier's entrustment of a man's individual retirement account (IRAs) with Madoff.

As attorney general, now-Gov. Andrew Cuomo had sued the financier, J. Ezra Merkin, and ultimately reached a settlement.

Because Cuomo's announcement of the settlement suggested that small investors who knew of Madoff's involvement would recover less, Joshua Berman opted to forgo participation in the settlement and instead pursued arbitration.

Berman said he chose arbitration based on Merkin's misleading information, but the arbitrators denied his claim in its entirety.

A New York County Supreme Court justice refused then to make Merkin let Berman participate in the Cuomo settlement.

The Appellate Division's First Department affirmed on Dec. 11, finding no fiduciary duty between the parties.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit