(Bloomberg) A Citigroup Inc. unit and PricewaterhouseCoopers LLP must face claims they played a part in costing investors more than $1 billion in Bernard Madoff’s massive Ponzi scheme, an appeals court ruled.
Investors in the Kingate Global and Euro funds, which fed money into Madoff’s firm, sued an offshore subsidiary of the New York-based bank and the accounting company for their roles in administering and auditing the funds. Several other entities must also face claims in the suit revived Thursday by a federal appeals court in Manhattan.
The court rejected a judge’s 2011 finding that the claims were barred by a federal law that limits investors’ ability to sue under investor-friendly state laws.
The 1998 law doesn’t apply to all the claims in the case, the appeals court said, instructing the lower court to revisit the lawsuit and dismiss only those covered by the law.
David Barrett of Boies, Schiller & Flexner LLP, a lawyer for the Kingate investors, said he believes most of the claims in the case will survive under the ruling. The suit seeks to represent more than 1,000 investors, he said.
“We look forward to moving ahead with the case,” Barrett said in a phone interview.
Other Arguments
The defendants have raised several arguments against the claims that still haven’t been addressed, including jurisdiction over foreign defendants and the investors’ eligibility to sue.
Kingate Global funneled more than $963 million to Madoff’s investment advisory business from 1994 to 2008, while Kingate Euro invested more than $767 million starting in 2000, according to the ruling.
By the time the fraud collapsed in December 2008, the two funds believed they had a total of more than $3 billion in stocks and options held by Madoff’s firm.
Danielle Romero-Apsilos, a spokeswoman for Citigroup’s Institutional Clients Group, declined to comment on the ruling. Sandy Litvack, a lawyer for PricewaterhouseCoopers, didn’t return a call seeking comment.
Under the 1998 Securities Litigation Uniform Standards Act, or SLUSA, investor fraud claims filed under state laws can be blocked by federal statute. The law has been invoked repeatedly by defendants seeking to avoid liability in such cases.
In reaching its decision, the Manhattan appeals court noted the complexity of the statute.
“SLUSA’s broad, general terms are in some respects ambiguous, so that it is not always easy to understand whether SLUSA applies,” the court said.
The case is In re Kingate Management, 11-1397, U.S. Court of Appeals for the Second Circuit (Manhattan).
