The British bank HSBC $HSBA (-1,46%) has booked a provision of 1.1 billion US dollars for legal proceedings in Luxembourg in connection with Bernard Madoff's multi-billion dollar Ponzi scheme, one of the largest financial fraud cases in US history.
The London-based bank announced that one of its subsidiaries has been sued by Herald Fund SPC for the return of securities and cash in connection with the fraud perpetrated by the investment firm Bernard L. Madoff Investment Securities LLC. On Friday, the Luxembourg Court of Cassation dismissed the subsidiary's appeal against the Herald claim with regard to the return of securities, but accepted it with regard to the return of cash.
Bernard Madoff, former chairman of the Nasdaq Stock Exchange and a fixture on Wall Street for decades, shocked the world in 2008 by admitting that his investment business was a multibillion-dollar Ponzi scheme. He pleaded guilty in 2009 and was sentenced to the longest permissible sentence. Madoff died in 2021.
He had not invested his clients' money, but instead pushed billions of dollars into his company's bank accounts and falsified profit statements year after year. A court-appointed trustee estimated that Madoff misappropriated 17 billion dollars in client funds as part of his fraud.
Various HSBC companies provided custody and administration services to a number of funds whose assets were invested with Madoff's firm. Many HSBC companies have been named as defendants in lawsuits arising from the Madoff fraud.
HSBC announced on Monday that the subsidiary will now file a second appeal with the Luxembourg Court of Appeal. If this second appeal is unsuccessful, HSBC would contest the amounts it is required to pay in subsequent proceedings.
The bank stated that the final financial impact could be significantly different given the pending second appeal and the complexity of determining the amount of restitution.