The publicity surrounding the Madoff scandal is set to increase. With the Serious Fraud Office investigation now underway in the UK, it is increasingly likely that UK investors will seek to recover their losses from financial institutions affected by the fraud. Many have issued claims already.

Are you likely to face a claim? Here are just five of the topics that you should already be considering...

Pre-action disclosure applications

These are applications for disclosure before proceedings have started. They allow applicants to find out quickly whether or not they have a valid claim against you. Purely tactical applications, such as fishing for material to support a claim, will be refused. The less specific the application, the less likely it is to succeed.

Tip: Query whether you would be obliged to disclose the documents if an investor makes a claim against you. If not, it is unlikely a pre-action application will succeed. You are advised to resist.

Letters of request

The international scale of the litigation that has ensued from the Madoff scandal means that you may receive a Letter of Request from a foreign court compelling you to release confidential documents or to attend an oral examination to answer questions about your role in the investments.

Tip: There are many ways to oppose them. For more information read Wragge & Co's alert on letters of request.

Document preservation

As soon as litigation is contemplated or is reasonably in prospect, it is essential that you preserve all relevant documents and stop all electronic routine document destruction.

Tip: In order to ensure that any document destruction policy is suspended, you may need to send a note to all your employees who are likely to hold relevant data informing them of their duties to cease destruction and preserve documents and data.

Note: Destroying or overwriting documents including electronic data has the potential to incur sanctions from the court in the same way as if paper-based evidence was destroyed.

Legal privilege

You are entitled to withhold from inspection documents which attract legal professional privilege. The two principal heads of legal professional privilege:

(1) Legal advice privilege covers communications between a client and his lawyer for the purpose of giving and receiving legal advice.

Note: for corporate clients, there may be an issue as to who 'the client' is for the purposes of legal advice privilege. In Three Rivers D C v Bank of England (No 5) [2003] EWCA Civ 474, the court found that only those employees or officers specifically designated as the client/lawyer contact in a particular matter are regarded as the client, and only their communications will be protected by privilege.

Tip: Check who in your organisation instructs your lawyers.

(2) Litigation privilege covers communications between a client and his lawyer, or between either of them and a third party, where the dominant purpose of that communication is the conduct of litigation, provided that litigation is either in progress or in reasonable prospect at the time.

Note: Sometimes there is an issue as to when litigation is in reasonable prospect.


How should you handle employees who were directly involved in making investments with Madoff? Are you supporting, investigating or considering dismissing these employees? What are the pitfalls?

Tip: Think about the evidence you are likely to face.