TWO IRISH-LISTED investment companies, which gave sums of more than $1.1 billion (€847 million) and €170 million destined for alleged $50 billion fraudster Bernard Madoff and his company to invest in the Irish arm of banking giant HSBC to administer, have initiated Commercial Court proceedings in a bid to get the money back.

The holding funds in which the money is held have been frozen.

HSBC Securities Services (Ireland) Ltd and HSBC Institutional Trust Services (Ireland) Ltd, Grand Canal Square, Dublin, have not returned the money so far – apparently out of concerns related to possible Madoff-linked litigation against it and others in the US, including potential “claw-back” claims by the US receiver of Madoff’s estate under US bankruptcy laws, Mr Justice Peter Kelly was told.

Donal O’Donnell SC, for the plaintiff companies, said his clients did not accept the HSBC companies were entitled to adopt such a stance. He argued the case is governed by Irish law and the US receiver could not properly exercise jurisdiction relating to any such payments.

The judge heard HSBC had told the plaintiff companies that information with regard to the assets of the funds “may not be reliable” given the alleged Madoff fraud.

The judge said he believed this was the first litigation here deriving from the “infamous” Madoff bankruptcy and he listed for hearing on Tuesday next applications by the companies to prevent their money being dissipated or removed outside the Irish jurisdiction without leave of the court.

The companies also want orders directing the HSBC companies to pay all invoices addressed to the plaintiffs. They say they are exposed to claims from investors which, unless the funds held by HSBC are protected, they have no way of defending. They also say HSBC has effectively frozen their ability to pay expenses, including lawyers’ fees, and their continuing existence is “imperilled”.

Mr O’Donnell, for Thema International Fund plc, Fitzwilton House, Wilton Place, Dublin, and AA (Alternative Advantage) plc, said there was correspondence between the sides and some €7 million was returned by HSBC from a transit account to his clients.

His side believed that, if it was possible to return some money, it was possible to return all, and they were concerned HSBC had to date refused to give undertakings not to dissipate the money or remove them outside this jurisdiction.

It might yet be possible to reach an interim arrangement concerning the monies, he added.

Both plaintiff companies are structured as “umbrella funds” which means investors in them can choose to invest in one or more sub-funds. Thema’s directors are Gerald Brady, Daniel Morrissey, David Smith, Alberto Benbasst and Stephane Benbasst.

Thema operates one sub-fund, the Thema fund, which was said to have had assets of $1.1 billion on November 28th last, most in Bernard Madoff Investment Securities LLC (BMIS). Its administrator is HSBC Securities, referred to as HSBC Administrator, while its trustee and custodian is HSBC Institutional, referred to as HSBC Custodian.

AA, whose directors are Michael Kirby, Brian Wilkinson and Adrian Waters, operates the Landmark Investment Ireland Fund, the Tulkan Fund and other sub-funds. It suspended dealings in those funds when the Madoff collapse emerged. AA claims the HSBC defendants must return €107 million relating to the Landmark Fund and other sub-funds.

In an affidavit, Thema director Gerald Brady said it was not clear when the company will have sufficient information to either lift the suspension imposed in mid-December or wind up the Thema fund.

He said HSBC had written to Thema on December 22nd last stating it was reviewing the legal status of the request to return the subscriber funds, particularly in light of bankruptcy proceedings pending in the US courts relating to Mr Madoff.

Mr Brady, Birch Hollow, Upper Kilmacud Road, Dundrum, Dublin, said he was one of two Irish directors of Thema. He said it was common practice then for directors/secretaries of service providers to a company to act as directors of a company to meet its Irish residency requirements and, for a period of time, he was a director of Thema and of Management International Dublin Ltd, now known as HSBC Administrator, and also of another company, now HSBC Custodian.