JPMorgan Chase & Co
Irving Picard, a court-appointed trustee seeking to recover money for former Madoff clients, made the accusation in his complaint against the second-largest U.S. bank, an edited version of which was made public on Thursday.
While numerous financial institutions enabled Madoff's fraud, JPMorgan Chase was at the very center of that fraud, and thoroughly complicit in it, the complaint filed with the U.S. bankruptcy court in Manhattan said.
The complaint shows for the first time how Picard believes JPMorgan put its own interests in preserving a decades-long relationship with Madoff ahead of trying to stop his long-suspected fraud, which was revealed on December 11, 2008.
For whatever it's worth, I am sitting at lunch with (a bank employee) who just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a (P)onzi scheme, the complaint quotes from a June 15, 2007 email by an investment bank risk officer.
JPMORGAN CALLS TRUSTEE CLAIMS UNFOUNDED
The complaint also quoted a JPMorgan employee who had in February 2006 urged that JPMorgan assess quality and detail of reports from Madoff's firm, noting potential significant penalties if statements proved fraudulent or inaccurate.
Jennifer Zuccarelli, a JPMorgan spokeswoman, in an emailed statement said the New York-based bank will defend against Picard's unfounded claims.
JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff, she said.
Madoff's firm was not an important or significant customer in the context of JPMorgan's commercial banking business, and the revenues earned from Madoff's bank account were modest and entirely consistent with conventional market rates and fees.
The trustee makes no attempt to substantiate or support his unfounded claim that JPMorgan earned extraordinary sums from the Madoff account, and that claim is demonstrably false, she added.
Picard originally filed his complaint under seal. The edited version leaves out the names of various employees believed to have been suspicious of Madoff's activities.
JPMorgan was the principal banker for Madoff's firm, Bernard L. Madoff Investment Securities LLC, for more than 20 years. Picard has been liquidating the firm since Madoff's estimated $65 billion Ponzi scheme was uncovered.
The bank's top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme, yet the bank appears to have been concerned only with protecting its own investments in Madoff feeder funds, Deborah Renner, one of Picard's lawyers, said in a statement.
Renner said the bank had a palpable concern that Madoff was a fraud for years, but waited until October 2008, just two months before Madoff's firm collapsed, before reporting its concern to British government officials.
Picard and Renner are partners at law firm Baker & Hostetler LLP.
Regulators including the U.S. Securities and Exchange Commission have also been faulted by investors and politicians for missing red flags about Madoff's misconduct, which surfaced in the midst of a global financial crisis.
JPMorgan Chief Executive Jamie Dimon last week complained at the World Economic Forum in Davos, Switzerland about persistent criticism of banks' activities, calling it unproductive and unfair.
Picard has recovered roughly $10 billion from various parties to repay former Madoff clients.
He has filed more than $50 billion of lawsuits against various individuals and businesses, including HSBC Holdings Plc
Picard is seeking to recover from JPMorgan nearly $1 billion in fees and profits, plus $5.4 billion in damages.
Madoff admitted in 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 returns as clients had believed. The 72-year-old is now serving a 150-year sentence in a North Carolina federal prison.
JPMorgan shares closed up 1 cent at $45.46 in Thursday 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 in New York; Editing by Phil Berlowitz)