NYC Judge Rejects Madoff Trustee's $19 Billion Claim From JPMorgan

A New York City judge has tossed out a $19 billion claim that a trustee seeking money for Bernard Madoff's investors demanded from JPMorgan Chase, which had been the Ponzi schemer's bank.

(November 2, 2011) — A federal judge has thrown out the majority of a $19.9 billion lawsuit against JP Morgan Chase & Co — which had been Bernie Madoff’s main bank for two decades — along with a $2 billion case against UBS AG.

The move comes as a setback for the trustee, Irving Picard, who has spent nearly three years liquidating Bernard L Madoff Investment Securities LLC. US District Court Judge Colleen McMahon in Manhattan stated that Picard had no power to pursue common law claims against the banks, saying such claims properly belong to former Madoff customers, Reuters reported.

“Practically, giving the trustee the power to pursue claims on behalf of creditors would usurp the creditors’ right to determine whether and in what forum to vindicate their legal injuries,” Judge McMahon wrote. Picard concluded that through its connections to funds that fueled the Ponzi scheme, JP Morgan and UBS had both overlooked warning signals about the fraud.

In a statement, JPMorgan said the firm is “pleased that Judge McMahon agreed with our arguments and has dismissed all of the trustee’s common law claims for damages.”

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Since Madoff’s Ponzi scheme collapsed on December 11, 2008, Picard has filed about 1,050 lawsuits on behalf of former Madoff customers, with the JPMorgan lawsuit being his second-largest. In August, Picard filed a lawsuit against Abu Dhabi’s sovereign-wealth fund seeking to recover $300 million. The lawsuit marked the first time Picard targeted a sovereign wealth fund in the scandal.

However, unlike many other lawsuits that Picard has filed in the past year, the claim against the Abu Dhabi Investment Authority (ADIA) did not allege that the sovereign wealth fund’s managers knew or should have known that Madoff was a fraud. Instead, the suit claimed that ADIA invested in Madoff’s massive Ponzi scheme through the Fairfield Sentry hedge funds, withdrawing $300 million in 2005 and 2006. A trustee can seek the return of money withdrawn in the six years before a business collapses, according to US bankruptcy law.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(November 2, 2011) — The California Public Employees’ Retirement System (CalPERS) is looking to put up to $5.7 billion in a multistrategy index fund.

The largest public pension fund in the United States to looking for “low-cost index fund products” for several of its trust funds, including the $902.3 million Supplemental Income 457 Plan, $462.9 million State Peace Officers’ & Firefighters’ Supplemental Plan, and $18.5 million Supplemental Contributions Plan, an RFP on the scheme’s website shows.

Asset classes consist of domestic bonds, domestic large-cap and smidcap equity, global equity and global public real estate.

The efforts by the US public fund to search for a multistrategy index fund manager follows a survey of European institutional investment professionals by the EDHEC-Risk Institute that revealed that conventional cap-weighted and debt-weighted indexes remain popular. The popularity of conventional indexes come despite their shortcomings and the development of alternative indexes, the firm found.

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“In the entire history of indices, country-based capitalisation-weighted indices have proven to be the most popular indices for both equity and bond markets,” the survey noted. “Such indices are often used as a bellwether for the economy, as they are supposed to represent market trends. Nowadays, a growing demand for indices as investment vehicles has led to innovations including new weighting schemes and alternative definitions of sub-segments.” The survey stated: “Indexation continues to play an important role in global asset allocation. Total worldwide assets under internal indexed management rose to $5.994 trillion as of June 30, 2011, a 25% increase over $4.781 trillion as of one year earlier…In view of the growing volumes in assets under management in passive indexing strategies, a great many index providers have emerged worldwide; not only the organisations specialising in the index service but also stock exchanges, as well as investment banks. Each provider has created or is creating a host of indices representing a full complement of asset classes, as well as asset class subsegments.”

The EDHEC-Risk Institute discovered that liquidity, objectivity, and transparency are the most important quality criteria investors have for indices. Meanwhile, respondents suggested that a buy-and-hold property of an index is not of prime importance to respondents, explaining greater attention to new approaches based on dynamic rebalancing. In response to confusion between indexing and “passive investing,” 58% of respondents stated that they do not think that indices should only reflect passive strategies. However, respondents indicated that indices should not be based on alpha (75.2%), “which suggests that instead of generating ‘abnormal’ returns, investors indeed ask for ‘normal returns’ from an index,” the survey concluded.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742