Trustee demands $19B in damages from Madoff-'enabling' JPMorgan

Revised lawsuit ups previous $5.4B in damages and $1B in transfers

Jun 27, 2011 @ 10:33 am

Irving Picard, the trustee liquidating Bernard Madoff's firm, said he filed a revised lawsuit today against JPMorgan Chase & Co., demanding a minimum of $19 billion in damages.

Picard had sought $5.4 billion in damages previously in addition to $1 billion in transfers and claims. The filing couldn't immediately be confirmed in court records.

JPMorgan “was an active enabler of the Madoff Ponzi scheme,” said Picard's lawyer David Sheehan, in a statement. JPMorgan “not only should have known that a fraud was being perpetrated, they did know,” he said.

Picard, who has filed 1,000 suits claiming $90 billion for Madoff investors, first sued JPMorgan in bankruptcy court in December, alleging it ignored signs of fraud as billions of dollars flowed from Madoff's account at the bank to investors. JPMorgan was Madoff's primary banker.

The lawsuit sought $1 billion in fees and transfers, and $5.4 billion in damages, alleging that JPMorgan defrauded federal regulators and violated banking law.

JPMorgan's bankers “could see that money customers deposited into BLMIS's main account was not used to buy or sell securities,” said Deborah Renner, another of Picard's lawyers, referring to Bernard L. Madoff Investment Securities LLC. “They could see that it was merely transferred to other customers, in patterns serving no legitimate business purpose. They could see that Madoff's regulatory filings were materially inconsistent with BLMIS's actual finances. Yet, as alleged, they allowed the fraud to continue.”

Dismissal Sought

JPMorgan spokesman Joseph Evangelisti has said the bank complied fully with all laws and regulations.

JPMorgan, the second-biggest U.S. bank, had asked U.S. District Judge Colleen McMahon in New York to dismiss Picard's suit. It was amended in April to add names of JPMorgan bankers who discussed the possibility Madoff was running a Ponzi scheme. JPMorgan said Picard was misusing the law to sue for damages, and “never alleges facts showing that anyone at JPMorgan knew that Madoff was a crook.”

McMahon took the case away from U.S. Bankruptcy Judge Burton Lifland in May, after JPMorgan argued that Picard was hired to liquidate the Madoff firm and has no legal right to mount a class action and claim damages for the Ponzi scheme's investors. When Picard defended his right to sue, McMahon said he “misses the point.”

McMahon Deadline

Picard wrote to McMahon on June 14, saying he would amend the suit. “Why must I wait until June 24 for a new complaint?” McMahon wrote at the bottom of the letter, filed in court. “I will OK this schedule but will not add ONE day to it in the future.”

Picard faces other challenges in Manhattan district court. Judge Jed Rakoff said yesterday he will rule by the end of July on HSBC Holdings Plc's request to dismiss the trustee's $9 billion lawsuit against the London-based lender and so-called feeder funds. Rakoff also is scrutinizing Picard's suit against Italy's UniCredit SpA, a defendant with Bank Medici AG and founder Sonja Kohn in a $59 billion case.

The trustee said in April he had recovered $7.6 billion for investors, or about 44 percent of an estimated $17 billion in principal lost in the Ponzi scheme since Madoff's 2008 arrest. Most of that isn't available for distribution, he has said. Picard and his law firm, Baker & Hostetler LLP, have charged more than $175 million in fees.

Madoff, 73, is serving a 150-year sentence in a North Carolina federal prison.

--Bloomberg News--


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