JPMorgan Chase & Co., the second- largest U.S. bank by assets, won dismissal of a lawsuit by a victim of Bernard L. Madoff's Ponzi scheme, claiming the bank knowingly participated in the fraud.
U.S. District Judge Barbara S. Jones in New York threw out the suit filed by MLSMK Investments Co., which said the New York-based bank in September 2008 investigated Madoff, determined he was a fraud and liquidated its $250 million investment in a Madoff-linked fund.
“While it might have been possible for defendants to determine that Madoff was committing fraud from the ‘red flags' that plaintiff points out, plaintiff alleges no facts to demonstrate that defendants actually did make such a discovery,” Jones wrote in an opinion released today.
MLSMK, a Palm Beach, Florida, partnership, claimed it lost $12.8 million to Madoff from October to December 2008, the month he was arrested and charged in history's biggest Ponzi scheme. The case alleged civil racketeering, negligence and bad faith.
“We thought we laid out enough of a factual basis, at the pleading stage, to show that Chase knew at least by September 2008 that Madoff was committing fraud, but continued providing services that enabled him to continue the fraud,” said Howard Kleinhendler, a lawyer for MLSMK.
Kleinhendler said his client is considering an appeal.
The suit, filed in April 2009, claimed MLSMK deposited the $12.8 million in Madoff's Chase account, expecting that the money would be used to buy and sell securities for its benefit. Madoff never invested the money and instead stole it.
MLSMK claimed that in 2008, when most investors in stocks were losing money, JPMorgan became suspicious of Madoff's consistently high returns. JPMorgan employees met with Madoff and did their own investigation of Bernard L. Madoff Investment Services LLC, MLSMK said.
JPMorgan “unequivocally concluded that Madoff's reported returns were false and illegitimate” and “quietly liquidated” its $250 million position in a Madoff-linked fund, MLSMK said. JPMorgan then decided to “partner with him in the fleecing of his victims,” the firm claimed.
JPMorgan helped Madoff perpetuate his fraud by continuing to provide banking services and trade with Madoff's market- making business after learning of the fraud, MLSMK claimed.
Madoff, 72, pleaded guilty to fraud and other crimes on March 12, 2009, and is serving a 150-year prison term.