Mayer Brown wins CHF42 million case at Supreme Court for Lloyd’s market after Madoff fraud
10 February 2014
London - Leading global law firm Mayer Brown, working with Swiss law firms, Python & Peter in Geneva and Prager Dreifuss in Zurich, has won a significant case at the Swiss Federal Court, successfully defending five Lloyd’s syndicates against a CHF42 million claim by Genevalor, Benbassat & Cie in respect of loses suffered by three funds as a result of Ponzi Scheme perpetrated by Bernard L Madoff.
The three funds, Hermes International Fund Ltd, Thema Fund Ltd and Thema International Fund plc had all invested with Madoff’s company, BLMIS, claiming to have assets worth approximately US$2 billion invested.
Genèvalor’s claim on behalf of the funds was made under an Investment Management Insurance Policy issued by the five Lloyd’s syndicates. The Lloyd’s syndicates had denied Genèvalor’s claim and terminated Genèvalor’s policy, alleging that the nature of the funds’ arrangements with BLMIS and Madoff revealed that Genèvalor had made misrepresentations when completing the proposal form.
There were a number of issues in the action including Genèvalor’s challenge to the validity of the termination and whether the funds’ losses were covered under the Crime section of the policy. However, the decisive points for both the Geneva Court of Appeal and for the Swiss Federal Court related to Genèvalor’s failure to properly allege and prove the funds’ losses.
The Federal Court upheld the Geneva Court of Appeal’s finding that Net Asset Value statements were not a reliable measure of the funds’ investments, nor of the amounts they had lost. They held that Genèvalor should have been in a position to provide documents showing the amounts actually invested with BLMIS and that Genèvalor had not done enough to show that the funds were, in any event, “net losers”.
Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting he directed the biggest Ponzi scheme in history. At the time of his arrest, his account statements reflected 4,900 accounts with $65 billion in fictitious balances.
Angus Duncan, Litigation-Insurance partner at Mayer Brown, said: "This judgment was a significant case because it demonstrates that funds cannot seek to rely upon NAV statements to prove their loss. Ultimately, the information contained in the NAV statements is based upon information from BLMIS/Madoff and therefore represents only fictional information designed to perpetuate the Ponzi scheme."
The Mayer Brown team was led by Litigation-Insurance partner Angus Duncan and included senior associate Claire Lewis (both London) and associate Jason Kirschner (New York). Mayer Brown worked with Swiss law firms, Python & Peter (Dominique Henchoz) and Prager Dreifuss (Christoph Graber), to successfully defend QBE Syndicate 1886, Talbot Syndicate 1183, Chaucer Syndicate 1084, Novae Syndicates 2007 and Newline Syndicate 1218.