HSBC deal with Madoff feeder fund investors rejected

HSBC Holdings Plc (HSBA)’s proposed $62.5 million settlement with investors in an Irish fund that lost their money in Bernard Madoff’s Ponzi scheme was rejected by a US judge.

US District Judge Richard Berman in Manhattan said at a hearing yesterday that he won’t grant tentative approval to the settlement, announced in June, saying it’s “not fair, reasonable or adequate, even at this preliminary stage,” for the investors in Thema International Fund Plc. Thema acted as a so-called feeder-fund steering money to Madoff’s firm.

The investors sued Thema and other defendants, including London-based HSBC, which acted as Thema’s custodian, in January 2009. The plaintiffs are seeking to represent all Thema investors who lost money when Madoff’s scheme was exposed in December 2008. They claim HSBC, Europe’s largest bank, should have known Madoff was a fraud. Among the “obvious deficiencies” Berman identified in denying approval was a provision setting aside $10 million to pay the fees and expenses of the investors’ lawyers in pursuing claims against non-settling defendants outside the US.

Lisa Sodeika, an HSBC spokeswoman, didn’t return a phone message seeking comment yesterday.

Madoff, 73, pleaded guilty in 2009 to orchestrating what has been called the biggest Ponzi scheme in history. He’s in a federal prison in North Carolina, serving a 150-year sentence.

The case is In re Herald, Primeo and Thema Securities Litigation, 09-cv-00289, US District Court, Southern District of New York (Manhattan).