By Jonathan Stempel
NEW YORK, Sept 15 (Reuters) - HSBC Holdings Plc onThursday won the dismissal of a lawsuit by former Bernard Madoffcustomers who accused the British bank of fueling his massivePonzi scheme by ignoring red flags and encouraging "feederfunds" to invest with him.
U.S. District Judge Laura Taylor Swain in Manhattan said afederal law governing securities fraud cases prevented theplaintiffs from bringing their class-action claims againstHSBC's U.S. unit. She also said she lacked jurisdiction overclaims against the HSBC parent and non-U.S. affiliates.
Jason Zweig, a lawyer for the customers, declined to commentbecause he was reviewing the decision. HSBC spokesman RobSherman declined to provide immediate comment.
The customers filed the lawsuit in December 2014, after afederal appeals court said the trustee liquidating Bernard L.Madoff Investment Securities LLC lacked standing to sue HSBC,JPMorgan Chase & Co and other banks he accused of aidingMadoff's fraud.
In their complaint, the customers said HSBC sold structuredfinancial products that resulted in hundreds of millions ofdollars flowing to Madoff through feeder funds.
They also said HSBC looked the other way when encounteringsigns of fraud, to help sate its "unquenchable thirst" for fees.
The customers said their accounts with Madoff were not"covered securities," barring them from pursuing their case,because the con man had total discretion over their money.
But the judge said the customers expected Madoff to investtheir cash in covered securities, which are traded nationallyand listed on a regulated national exchange, to achieve the"extraordinary" returns for which he had at the time been known.
"That plaintiffs had no control over which particularinvestment strategy Madoff undertook or specific securities hepurchased does not obviate the fact that plaintiffs wereseeking, directly or indirectly, to purchase coveredsecurities," Swain wrote. "Accordingly, plaintiffs' claims arebarred."
Madoff, 78, pleaded guilty to fraud in March 2009, threemonths after his scheme was uncovered. He is serving a 150-yearprison term. The trustee, Irving Picard, has recouped roughly$11.2 billion for former Madoff customers.
The case is Hill et al v HSBC Bank Plc et al, U.S. DistrictCourt, Southern District of New York, No. 14-09745. (Reporting by Jonathan Stempel in New York; Editing by RichardChang)
HSBC Holdings (HSBA)