NEW YORK (Reuters) – A federal appeals court on Monday said Citigroup Inc must face a $343.1 million clawback lawsuit by the trustee liquidating Bernard Madoff’s former firm, who accused the bank of turning a blind eye to the late swindler’s Ponzi scheme.
The 2nd U.S. Circuit Court of Appeals in Manhattan said 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.
The $343.1 million represented money that Citigroup received between 2005 and 2008 from a Madoff “feeder fund,” Rye Select Broad Market Prime Fund LP, that had borrowed from the bank to invest with Bernard L. Madoff Investment Securities LLC.
Picard said Citigroup accepted that money despite…