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Judge Orders Temporary Halt to Liquidation of BCCI Assets

August 3, 1991

NEW YORK (AP) _ A judge ordered a temporary freeze on U.S. assets of the Bank of Credit and Commerce International after the company liquidating the assets said American depositors and creditors may unfairly grab large amounts.

On taking the action Friday, U.S. Bankruptcy Court Judge James Garrity also scheduled a hearing for next Friday to decide whether to order a preliminary injunction. In the meantime, government agencies will be restrained from liquidating BCCI assets in the United States.

British officials have given the bank’s holding company in that country until December to work out a plan to distribute the bank’s assets worldwide.

Lawyers for the company appointed to oversee the liquidation of the bank’s assets want a similar arrangement in the United States.

In announcing his ruling, Garrity called it ″a unique case, adding, ″It is one of, if not the largest, bank fraud in the world for all time.″

″The court does not want in any way to deter the applicants from being able to maximize the return and do it in an orderly fashion,″ he said.

But he also said he didn’t want the assets dissipated piecemeal.

The Bank of England appointed the accounting firm Touche Ross to liquidate BCCI’s assets as regulators try to pay off creditors following the July 5 seizure of the bank.

Allegations against the bank include fraud, drug-money laundering, holding accounts for terrorists such as Abu Nidal, brokering illegal arms deals for Iran and Iraq and bribing politicians.

The Federal Reserve, the New York State Banking Department and the U.S. attorney’s office were represented at the hearing. Also present were lawyers for Luxembourg, England and the Cayman Islands.

The bank regulators said they wanted to ensure the court wouldn’t interfere with their actions against BCCI.

″Obviously, we have an interest that our enforcement proceedings go forward,″ said Rich Ashton, a Fed lawyer in Washington.

″It would inhibit our enforcement action,″ said Sal Morabito, special deputy superintendent of the state Banking Department. Morabito said state regulators already seized a BCCI office in New York.

He speculated that the Touche Ross effort to freeze BCCI assets here, if successful, would conflict with the state’s liquidation proceedings.

Touche Ross is seeking an order preventing the filing of new lawsuits or regulatory orders against BCCI Holdings (Luxembourg) SA, which is the holding company for BCCI banks in Britain and other countries worldwide.

Since the seizure of BCCI, at least one lawsuit has been filed to sort out the competing claims against BCCI’s assets.

A unit of BankAmerica Corp. of San Francisco last week asked a federal court in New York to sort out ownership of $177.4 million in BCCI-related funds frozen in BankAmerica accounts.

The Bank of England spearheaded the freeze of $20 billion of BCCI assets in a crackdown on July 5 that paralyzed BCCI’s 69 branches around the world. BCCI has an estimated 1.25 million depositors.

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