JP Morgan ‘aided and abetted’ Madoff fraud for years, trustee claims

JPMorgan Chase & Co. suspected that Bernard Madoff was perpetrating a fraud while seeking only to protect its own investments, said the trustee liquidating the convicted conman’s financial advisory business.

JPMorgan had a “decades-long role” as Madoff’s primary banker “aiding and abetting” the fraud, according to a statement today by trustee Irving Picard. The lawsuit, filed last year, seeks to recover almost $1 billion in profits and $5.4 billion in damages.

The complaint includes internal e-mails at the bank and details supporting allegations that New York-based JPMorgan “knew or should have known” that Bernard L. Madoff Investment Securities LLC, or BLMIS, was likely engaging in fraud, Picard said.

Madoff, 72, pleaded guilty in March 2009 to charges that his wealth-management business was a massive Ponzi scheme, after being arrested in December 2008. He is serving a 150-year sentence at a federal prison in North Carolina.

“Incredibly, 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 BLMIS feeder funds,” said Deborah Renner, an attorney for Picard, in a statement.

“As we allege in the complaint, JPMC had a palpable concern that Madoff was a fraud for years, but it was not until October 2008 that it reported Madoff to government officials,” Renner said. “Even then, JPMC executives did not restrict the BLMIS bank account, even though it was being used to launder money from the Ponzi scheme.”

JPMorgan “ignored its anti-money laundering obligations and repeatedly allowed suspicious transactions for high dollar amounts to occur in the BLMIS account,” David Sheehan, another lawyer for Picard, said in the statement.

“The complaint further alleges that, as the BLMIS banker, JPMC had financial reports in its possession that clearly evidenced fraud,” Sheehan said. “The same reports led a prominent fund manager to conclude that fraudulent activity was highly likely.”

All funds recovered by Picard will be distributed to Madoff customers who have valid claims, the trustee said. The complaint was initially filed under seal on Dec. 2 in U.S. Bankruptcy Court in Manhattan.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, said the bank will fight the lawsuit.

“JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff,” Zuccarelli said in an e-mailed statement. She called the suit “meritless.”

The amended complaint filed today includes this excerpt from a purported e-mail from a JPMorgan employee in June 2007: “For whatever it’s worth, I am sitting at lunch with (JPMC employee, name redacted) 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 Ponzi scheme.”
–Bloomberg News–