Madoff trustee sues JPMorgan for $6.4 billion

NEW YORK Thu Dec 2, 2010 5:41pm EST

Pedestrians walk past J.P. Morgan Chase & Co. headquarters in New York, late January 14, 2004. REUTERS/Peter Morgan

Pedestrians walk past J.P. Morgan Chase & Co. headquarters in New York, late January 14, 2004.

Credit: Reuters/Peter Morgan

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NEW YORK (Reuters) - The trustee seeking money for defrauded former clients of Bernard Madoff said he filed a $6.4 billion lawsuit accusing JPMorgan Chase & Co of aiding the imprisoned Ponzi schemer's fraud as his main banker.

The lawsuit is the second largest that trustee Irving Picard has filed against former Madoff clients or others he believes assisted in the estimated $65 billion Ponzi scheme.

JPMorgan, the No. 2 U.S. bank, was for more than 20 years the main banker for Bernard L. Madoff Investment Securities LLC, which the trustee is liquidating following its December 11, 2008 collapse. Picard must file "clawback" lawsuits to recover money lost in the fraud by the two-year anniversary of the Madoff firm's demise.

"JPMorgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff," said David Sheehan, a lawyer representing the trustee.

"While many financial institutions enabled Madoff's fraud, JPMorgan was at the very center of that fraud, and thoroughly complicit in it," Sheehan said.

JPMorgan said it will defend against Picard's lawsuit.

"Any suggestion that JPMorgan supported Madoff's fraud is utterly baseless and demonstrably false," spokesman Brian Marchiony said in a statement. "Contrary to the trustee's allegations, JPMorgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff."

The lawsuit, filed in U.S. Bankruptcy Court in Manhattan, seeks to recover nearly $1 billion in fees and profits, plus $5.4 billion in damages.

HUNDREDS OF LAWSUITS

Picard has filed hundreds of lawsuits, including more than 500 this week, to recover well in excess of $25 billion for Madoff investors.

The biggest case remains the $7.2 billion lawsuit against the estate of former Madoff client Jeffry Picower, who died in 2009.

JPMorgan's name surfaced soon after Madoff's fraud was revealed. Madoff admitted during his March 2009 guilty plea that the essence of his scheme was to deposit client money into a Chase account, rather than invest it and generate steady returns as clients had believed.

When clients wanted their money, "I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds," he told the court.

Madoff, 72, is serving a 150-year sentence in a North Carolina federal prison.

The trustee filed his complaint under seal, and said he intends to make it public as soon as possible. A spokesman declined to provide a copy or to provide further comment.

UBS, LEE ALSO DEFENDANTS

Among the other defendants in Picard's lawsuits are the Swiss bank UBS AG, an affiliate of private equity executive Thomas H. Lee, "feeder funds" that sent client money to Madoff, and Madoff relatives including his wife, Ruth.

Picard has said he has recovered $1.5 billion for Madoff victims through September 30.

Both Picard and Sheehan are partners at Baker & Hostetler LLP, a law firm in New York.

JPMorgan shares rose $1.05, or 2.8 percent, t0 $39.20 in afternoon trading on the New York Stock Exchange.

The case is Picard v. JPMorgan Chase & Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-04932.

(Reporting by Jonathan Stempel; Additional reporting by Martha Graybow, editing by Gerald E. McCormick, Dave Zimmerman)

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Comments (1)
hsvkitty wrote:
The banks were complicit in that they knew there anomalies and yet turned a blind eye for all those years.

The banks are required to look for anomalies and report fraud, theft and money laundering. They didn’t and so should be found liable.

Dec 03, 2010 6:30pm EST  --  Report as abuse
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