CRARY Credit Agricole SA (PK)

By Andrew Scurria 

The Justice Department is backing efforts to force European banks and other overseas investors to give back roughly $3 billion they received from foreign investment funds that moved money in and out of Bernard Madoff's Ponzi scheme.

The U.S. solicitor general on Friday urged the U.S. Supreme Court to pave the way for continued litigation against these foreign institutions, some of the last remaining targets in the global hunt for stolen cash from Mr. Madoff's $20 billion fraud.

The nation's highest court is considering whether to take up an appeal from banks and other foreign recipients that have been sued by Irving Picard, the trustee who has spent more than a decade digging up money for Mr. Madoff's victims. The dispute concerns Mr. Picard's attempts to reclaim tainted money that passed between foreign institutions before Mr. Madoff's arrest.

Mr. Picard has long insisted that under U.S. bankruptcy law, he can recoup Ponzi scheme proceeds that were distributed from offshore funds in the British Virgin Islands, Cayman Islands and Bermuda. These feeder funds pooled investors' cash, parked most or all of it with Mr. Madoff and collected proceeds from the Ponzi scheme before it was exposed in 2008.

The trustee has recouped more than $13 billion over the past decade, arguing that money withdrawn from Mr. Madoff's phantom investment firm should help repay average investors who lost money in the fraud. As part of his global legal campaign, Mr. Picard sued the feeder funds for the money they collected and followed the cash trail to their underlying investors.

Banks including HSBC Holdings PLC, Crédit Agricole SA and Société Générale SA have said that transfers occurring entirely outside the U.S. were beyond the trustee's reach. A New York appeals court last year brought these transfers within Mr. Picard's grasp, ruling that to declare them off-limits would disadvantage legitimate creditors and encourage fraudsters to stash stolen assets overseas.

The appellate ruling covered roughly $4 billion in foreign transfers, but Mr. Picard subsequently reached a settlement with two British Virgin Islands funds managed by Kingate Management Ltd. that reduced the amount in dispute by $860 million.

The Supreme Court could either take up that decision for review or cement it in place by denying the banks' appeal. If the justices side with Mr. Picard, he would be able to continue suing the banks, laying the groundwork for potential settlements that would bring back more money for victims.

In Friday's court filing, the solicitor general said the lower court was correct in focusing on the initial transfer of funds from Mr. Madoff's New York bank accounts to the offshore funds to justify clawing back the money, even if it was later passed between two foreign firms. The justices sometimes ask for the solicitor general's input on pending cases that could have a significant impact on federal law.

Mr. Madoff is serving a 150-year prison sentence in North Carolina after pleading guilty to running the largest Ponzi scheme in history.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

April 13, 2020 13:00 ET (17:00 GMT)

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