Circuit Rebuffs Investors in Madoff Feeder Funds

In a group of cases stemming from Bernard Madoff's Ponzi scheme, the U.S. Court of Appeals for the Second Circuit ruled Monday that investors in foreign feeder funds can't sue the banks that allegedly facilitated the fraud in U.S. courts. In a 17-page opinion, the Second Circuit held that the investors' claims against JPMorgan Chase & Co. and the Bank of New York Mellon Corporation were precluded under the Securities Litigation Uniform Standards Act of 1998. That law, known as SLUSA, was enacted to prevent plaintiffs from bypassing stringent federal securities laws by bringing state law claims.

The investors sued JPMorgan, Bank of New York Mellon, and other banks that provided banking services for Madoff Securities, asserting claims under New York state law that the banks had aided and abetted fraud. The defendants moved to dismiss under SLUSA, which prohibits state law claims alleging misrepresentations in connection with the purchase or sale of certain "covered securities." In November 2011, Southern District Judge Richard Berman (See profile) dismissed the case under SLUSA.