Presenting a live 90-minute webinar with interactive Q&A Litigation Trustee and Committee Claims Against Insiders, Auditors and Other Third Parties in Asset Sale Cases Addressing Limitations on Recovery Such as In Pari Delicto, Standing and the Insured v. Insured D&O Exclusion THURSDAY, APRIL 26, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Robert J. Keach, Partner, Bernstein Shur, Portland, Maine Michael P. Richman, Partner, Patton Boggs, New York BEFORE PRINTING, PLEASE NOTE: The following PDF documents total 271 pages. Case: 11-5207 Document: 122-1 Page: 1 04/05/2012 572946 95 11-5207-bk United States Court of Appeals for the Second Circuit In Re: BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff - Appellant, (caption continued on inside cover) ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK BRIEF OF THE HSBC DEFENDANTS - APPELLEES CLEARY GOTTLIEB STEEN & HAMILTON LLP Thomas J. Moloney Evan A. Davis David E. Brodsky Marla A. Decker Charles J. Keeley Jason B. Frasco One Liberty Plaza New York, New York 10006 (212) 225-2000 Attorneys for Defendants - Appellees Case: 11-5207 Document: 122-1 Page: 2 04/05/2012 572946 95 – v. – HSBC BANK PLC, HSBC SECURITIES SERVICES (LUXEMBOURG) S.A., HSBC BANK BERMUDA LIMITED, HSBC PRIVATE BANK (SUISSE) S.A., HSBC PRIVATE BANKING HOLDINGS (SUISSE) S.A., HSBC BANK (CAYMAN) LIMITED, HSBC SECURITIES SERVICES (BERMUDA) LIMITED, HSBC BANK USA, N.A., HSBC INSTITUTIONAL TRUST SERVICES (BERMUDA) LIMITED, HSBC SECURITIES SERVICES (IRELAND) LIMITED, HSBC INSTITUTIONAL TRUST SERVICES (IRELAND) LIMITED, HSBC HOLDINGS PLC, HSBC FUND SERVICES (LUXEMBOURG) S.A., Defendants - Appellees. SECURITIES INVESTOR PROTECTION CORPORATION. Intervenor. Case: 11-5207 Document: 122-1 Page: 3 04/05/2012 572946 95 CORPORATE DISCLOSURE STATEMENT The HSBC Defendants - Appellees,i through their undersigned attorneys, submit the following corporate disclosure statement pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure: HSBC Bank plc identifies HSBC Holdings plc as a corporation that directly or indirectly owns 10% or more of any class of HSBC Bank plc’s equity interests. HSBC Securities Services (Luxembourg) S.A. identifies HSBC Bank plc and HSBC Holdings plc as corporations that directly or indirectly own 10% or more of HSBC Securities Services (Luxembourg) S.A.’s equity interests. HSBC Bank Bermuda Limited identifies HSBC Holdings plc, HSBC Finance (Netherlands), HSBC Holdings B.V., HSBC Asia Holdings (UK) Limited, and HSBC Asia Holdings B.V. as corporations that directly or indirectly own 10% or more of any class of HSBC Bank Bermuda Limited’s equity interests. HSBC Private Bank (Suisse) S.A. identifies HSBC Private Banking Holdings (Suisse) S.A., HSBC Europe (Netherlands) B.V., HSBC Europe B.V., i The thirteen HSBC Defendants - Appellees are HSBC Bank plc, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings plc, and HSBC Fund Services (Luxembourg) S.A. Case: 11-5207 Document: 122-1 Page: 4 04/05/2012 572946 95 Griffin International Limited, Midcorp Limited, HSBC Bank plc, and HSBC Holdings plc as corporations that directly or indirectly own 10% or more of any class of HSBC Private Bank (Suisse) S.A.’s equity interests. HSBC Private Banking Holdings (Suisse) S.A. identifies HSBC Holdings plc, HSBC Bank plc, HSBC Europe B.V., Griffin International Limited, Midcorp Limited, and HSBC Europe (Netherlands) B.V. as corporations that directly or indirectly own 10% or more of any class of HSBC Private Banking Holdings (Suisse) S.A.’s equity interests. HSBC Bank (Cayman) Limited identifies HSBC Holdings plc, HSBC Finance (Netherlands), HSBC Holdings B.V., HSBC Asia Holdings (UK) Limited, HSBC Asia Holdings B.V., HSBC Bank Bermuda Limited, and Cayman International Finance Limited as corporations that directly or indirectly own 10% or more of any class of HSBC Bank (Cayman) Limited’s equity interests. HSBC Securities Services (Bermuda) Limited identifies HSBC Holdings plc, HSBC Finance (Netherlands), HSBC Holdings B.V., HSBC Asia Holdings (UK) Limited, HSBC Asia Holdings B.V., and HSBC Bank Bermuda Limited as corporations that directly or indirectly own 10% or more of any class of HSBC Securities Services (Bermuda) Limited’s equity interests. HSBC Bank USA, N.A identifies HSBC USA Inc., HSBC North America Inc., HSBC Investments (North America) Inc., HSBC North America Case: 11-5207 Document: 122-1 Page: 5 04/05/2012 572946 95 Holdings Inc., HSBC Overseas Holdings (UK) Limited, and HSBC Holdings plc as corporations that directly or indirectly own 10% or more of any class of HSBC Bank USA, N.A.’s equity interests. HSBC Institutional Trust Services (Bermuda) Limited identifies HSBC Holdings plc, HSBC Finance (Netherlands), HSBC Holdings B.V., HSBC Asia Holdings (UK) Limited, HSBC Asia Holdings B.V., and HSBC Bank Bermuda Limited as corporations that directly or indirectly own 10% or more of any class of HSBC Institutional Trust Services (Bermuda) Limited’s equity interests. HSBC Securities Services (Ireland) Limited identifies HSBC Holdings plc, HSBC Bank plc, HSBC Europe B.V., HSBC Europe (Netherlands) B.V., and HSBC Securities Services Holdings (Ireland) Limited as corporations that directly or indirectly own 10% or more of any class of HSBC Securities Services (Ireland) Limited’s equity interests. HSBC Institutional Trust Services (Ireland) Limited identifies HSBC Holdings plc, HSBC Bank plc, HSBC Europe B.V., HSBC Europe (Netherlands) B.V., and HSBC Securities Services Holdings (Ireland) Limited as corporations that directly or indirectly own 10% or more of any class of HSBC Institutional Trust Services (Ireland) Limited’s equity interests. Case: 11-5207 Document: 122-1 Page: 6 04/05/2012 572946 95 HSBC Holdings plc, which directly or indirectly owns 10% or more of any class of all other HSBC defendants’ equity interests, identifies HKSCC Nominees Limited as a corporation that directly or indirectly owns 10% or more of any class of HSBC Holdings plc’s equity interests. HKSCC Nominees Limited is the legal owner of securities that are deposited into the Hong Kong Exchanges and Clearing Limited Central Clearing and Settlement System by those securities’ beneficial holders. HSBC Fund Services (Luxembourg) S.A. identifies HSBC Holdings plc, HSBC Bank plc, and HSBC Securities Services (Luxembourg) S.A. as corporations that directly or indirectly own 10% or more of any class of HSBC Fund Services (Luxembourg) S.A.’s equity interests. Case: 11-5207 Document: 122-1 Page: 7 04/05/2012 572946 95 TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................... iv COUNTER-STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ............................................................................................... 1 PRELIMINARY STATEMENT .................................................................... 3 STATEMENT OF THE CASE ....................................................................... 8 STATEMENT OF FACTS ............................................................................. 13 A. The Trustee’s Overreaching Allegations ...................................... 13 B. The Trustee Improperly Seeks To Rely On The Claims Of Feeder Fund Investors ................................................................... 15 C. The SIPA Statutory Scheme ......................................................... 17 SUMMARY OF ARGUMENT ...................................................................... 20 ARGUMENT .................................................................................................. 22 I. The Trustee Lacks Standing To Bring The Common Law Claims ........ 22 A. The In Pari Delicto Doctrine Bars Any Claims By The BLMIS/Madoff Consolidated Estate ............................................ 22 B. Under Caplin, Wagoner And Hirsch, The Trustee Lacks Standing To Bring The Tort Claims Of Injured Investors ............ 25 C. St. Paul Does Not Support The Trustee’s Claims ........................ 28 D. SIPA Does Not Authorize The Trustee To Bring Claims On Behalf Of The “Customer Property Estate” .................................. 31 E. Redington Does Not Authorize The Trustee To Bring His Claims ........................................................................................... 34 1. Redington Is Not Binding ..................................................... 34 i Case: 11-5207 Document: 122-1 Page: 8 04/05/2012 572946 95 Page a. Redington’s Subsequent History Deprived It Of Any Precedential Effect ........................................................ 34 b. The Subsequent Amendment To SIPA’s Priority Distribution Scheme Supersedes Redington’s Subrogation Holding ..................................................... 39 2. Redington Is Not Persuasive Authority ................................ 40 a. Redington Was Wrongly Decided, As Many Judges Have Recognized ........................................................... 40 b. The Trustee Has No Bailee Standing Under The Common Law Or Rule 15c3-3, And Application