UniCredit Defendants Seek Dismissal of Madoff Trustee's $60 Billion Lawsuit

Bank Austria and several other named defendants (the "Bank Austria Defendants") have filed a motion to dismiss Irving Picard's racketeering lawsuit, joining several other high-profile banking entities in recent weeks who have sought to blunt the aggressive campaign by Picard to recover funds for victims of Bernard Madoff's massive Ponzi scheme.  In several motions filed Monday and Tuesday, the Bank Austria Defendants asked United States District Judge Jed S. Rakoff, who earlier agreed that the lawsuit belonged in federal court rather than bankruptcy court, to dismiss the suits based on the Racketeer Influenced and Corrupt Organizations Act ("RICO"), arguing that Picard's application of RICO is too far-reaching to pass legal muster.

Picard, the court-appointed trustee overseeing the liquidation of Bernard Madoff's now-defunct brokerage, had filed suit against the Bank Austria Defendants in December 2010, seeking damages of $19.6 billion based on Picard's then-estimate of total principal losses by Madoff investors.  Additionally, a successful plaintiff in a RICO suit is entitled to treble damages, which brought the potential total award amount to nearly $60 billion.  

Picard alleges that Sonia Kohn, who controlled Bank Medici, had a relationship with Madoff starting in 1985 in which she steered millions of dollars in investor funds to Madoff's brokerage in return for fees.  Yet, as the Bank Austria Defendants allege, the relationships which form the basis of Picard's claims did not occur until the restructuring of one of the defendant's investments with Madoff following the 2007 acquisition of Bank Austria.  

The Bank Austria Defendants also cite to the recent opinion in MLSMK Investment Co. v. JP Morgan Chase & Co., covered here by Ponzitracker, in which the Second Circuit held that RICO claims brought by a Madoff investor against JP Morgan were barred by the Private Securities Litigation Reform Act ("PSLRA") and thus subject to dismissal.  The Bank Austria Defendants urge Judge Rakoff to adopt this logic, stating, 

"Conduct undertaken to keep a securities fraud Ponzi scheme alive is conduct undertaken in connection with the purchase and sale of securities and is barred by the RICO amendment.  This alone should end the RICO claims in this case."

(internal quotations omitted).  

Finally, the Bank Austria Defendants also raise the issue of the extraterritorial application of Picard's RICO allegations.  The United States Supreme Court recently decided Morrison v. National Australia Bank Ltd. and set forth a test to determine whether Congress intended a statute to have extraterritorial, rather than purely domestic, reach.  Morrison has come to represent a growing inclination of US Courts to abstain from giving extraterritorial reach to a statute without clear Congressional intent.  Moreover, the Second Circuit's recent decision in Norex Petroleum Ltd. v. Access Industries, Inc. interpreted RICO in light of Morrison's newly-espoused test and also concluded that RICO claims could only be enforced domestically.  In light of the feeder funds' status as foreign entities, argue the Bank Austria Defendants, the RICO statute has no extraterritorial reach and thus the claims should be dismissed.

Under federal rules of civil procedure, Picard now has twenty-one days to respond to the motion.

A copy of the original complaint against the Bank Austria Defendants is here.

A copy of the Pioneer Defendant's Motion to Dismiss is here.

A copy of Bank Austria's Motion to Dismiss is here.