NEW YORK, Aug 30 (Reuters) – A U.S. appeals court said the trustee liquidating Bernard Madoff’s firm can pursue a $343.1 million clawback lawsuit against Citigroup Inc (C.N), a decision that could help the late swindler’s customers recover close to the estimated $17.5 billion they lost in his Ponzi scheme.

The 2nd U.S. Circuit Court of Appeals in Manhattan ruled on Monday that lower court judges incorrectly required the trustee Irving Picard to prove Citigroup lacked good faith by being “willfully blind” to “red flags” suggesting a high probability of fraud.

It said the correct standard was whether the New York-based bank knew “suspicious facts” about Madoff that would have caused a reasonable person to follow up.

Seanna Brown, a lawyer representing Picard, in a statement called the decision an “important victory” for Madoff victims that could help the trustee recover $3.75 billion, on top of nearly $14.5 billion he has already recovered.

Brown said the…

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