JPMorgan wins dismissal of Madoff investors' U.S. lawsuit

NEW YORK (Reuters) - JPMorgan Chase & Co JPM.N on Wednesday won dismissal of a lawsuit brought by former customers of Bernard Madoff who blamed the U.S. bank for playing an active role in his Ponzi scheme and ignoring red flags of his fraud.

People walk by the JP Morgan & Chase Co. building in New York in an October 24, 2013 file photo. REUTERS/Eric Thayer/Files

U.S. District Judge John Koeltl in Manhattan said the plaintiffs failed to show that JPMorgan had specific control over Madoff’s fraud.

He also said the allegations suggested at most that JPMorgan and its employees “were negligent, not fraudulent” in dealing with Madoff, a major client for two decades prior to his December 2008 arrest.

Koeltl also dismissed several state law claims, saying they were preempted by federal law.

Helen Chaitman, a lawyer representing the plaintiffs, did not immediately respond to a request for comment.

JPMorgan spokesman Brian Marchiony said the New York-based bank is pleased with the decision.

The lawsuit was brought on behalf of an estimated 2,500 “net winners” who withdrew more money from their accounts at Bernard L. Madoff Investment Securities LLC than they invested.

They sought to hold JPMorgan liable for failing to end its relationship with Madoff although it knew or should have known his business was a fraud, and failing to report suspicious activity to the U.S. Securities and Exchange Commission.

Many net winners say Irving Picard, a court-appointed trustee liquidating Madoff’s firm, undervalued their claims and have filed lawsuits to hold other individuals and companies that dealt with Madoff liable for their alleged losses.

The JPMorgan lawsuit began in March 2014, after the bank agreed to pay $2.6 billion to settle other Madoff litigation, and in a deferred prosecution agreement with the U.S. government acknowledged responsibility for failing to stop Madoff.

Madoff, 78, is serving a 150-year prison term.

The case is Friedman et al v. JPMorgan Chase & Co et al, U.S. District Court, Southern District of New York, No. 15-05899.

Reporting by Jonathan Stempel in New York; Editing by Will Dunham and Steve Orlofsky