Citi in the Hot Seat Over Madoff Loans

Bernie Madoff mugshot
US Department of Justice
Bernie Madoff mugshot

A lawsuit seeking to recover money for Madoff victims seems to raise questions about what Citigroup knew about Madoff's illegal activities—and about their potential liabilities.

Irving Picard, the for Madoff's victims, claims Citi "knew or should have known of possible fraud," particularly after it terminated a $300 million loan to a Madoff feeder fund called Select Broad Market Prime Fund.

Citi terminated the loan to Prime Fund after Citi's due diligence work uncovered a "risk of fraud" —further obscured by a "lack of transparency." (In fact, the fund had so little transparency that their trading activity could only investigated through claims made by a third party firm, called Tremont Partners.)

This comes to us from an article in today's Wall Street journal by Randall Smith and Matthias Rieker.

The article further reveals that "Citi accepted repayment of a $300 million loan" after the credit lines were pulled back—and that "Mr. Picard is seeking the return of those funds, plus $130 million from other transactions, saying Citi ignored 'red flags' about Mr. Madoff's reported trading results."

So Picard is attempting to recover a total of $430 million from Citi on behalf of Madoff's victims.


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