JPMorgan Chase & Co should pay a minimum of $19 billion in damages for its role in Bernard Madoff’s fraud, Irving Picard, the trustee liquidating the con man’s firm, said in a revised lawsuit.
The sum represents Picard’s latest estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008, according to the complaint filed yesterday in federal court in Manhattan. JPMorgan, Madoff’s primary banker, could have stopped the fraud if it had passed on its suspicions to regulators, he said in his suit.
Picard previously sought $5.4 billion in damages, plus $1 billion in transfers and fees from the second-biggest US bank.
JPMorgan “was an active enabler of the Madoff Ponzi scheme,” Picard’s lawyer, David Sheehan, said 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. He alleges the bank ignored signs of fraud as billions of dollars flowed from Madoff’s account at the bank to investors, and didn’t pass on its knowledge that the broker- dealer was underreporting cash and bank loans, and neglecting to disclose assets and liabilities.
‘LEGITIMATE BUSINESS PURPOSE’
In a 2005 report, the Madoff firm should have reported $100 million in securities and only reported $72.2 million. JPMorgan would have known because the $100 million was collateral for a loan it made to the firm, according to the complaint. JPMorgan also “knew” that money flowing through the Madoff account “could not have been linked to a legitimate business purpose, and this fact should have been flagged by both JPMC personnel and its automated monitoring system,” Picard wrote.
JPMorgan 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.
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“They could see that it was merely transferred to other customers, in patterns serving no legitimate business purpose,” she said. “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.”
‘CONTRARY’ TO ALLEGATIONS
“Contrary to the trustee’s allegations, JPMorgan did not know about, or in any way become a party to the fraud orchestrated by Bernard Madoff,” Tasha Pelio, a spokeswoman for the bank, said in an e-mailed comment.
Picard’s latest complaint is “meritless and is based on distortions of both the relevant facts and the governing law,” she said. “At all times, JPMorgan complied fully with all laws and regulations governing bank accounts.”
JPMorgan had asked US District Judge Colleen McMahon in New York to dismiss Picard’s suit, 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 US 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. She said she will decide if the trustee is entitled to sue the bank for damages.
In his complaint, Picard said Madoff investors Norman Levy and Carl Shapiro moved money through Madoff’s account at JPMorgan in irregular transactions that should have been red flags warning of possible fraud. According to Picard, Levy transferred more than $83 billion in and out of Madoff’s main JPMorgan Chase account from 1998 to 2001.
‘Actual Knowledge’
Asking McMahon to dismiss Picard’s suit, JPMorgan said the trustee hadn’t alleged facts showing anyone at the bank suspected fraud based on money flows in Madoff’s account, and hadn’t shown the bank had “actual knowledge” of the fraud, or aided it. To show JPMorgan was “complicit” in Madoff’s crimes, Picard would need “particularized facts,” the bank said.
“Suspicions of wrongdoing are not enough” to hold the bank liable for someone else’s fraud, JPMorgan said.
When Picard defended his right to sue, McMahon said he “misses the point.”
‘ONE DAY’
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 (HSBA)’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 (UCG), a defendant with Bank Medici AG and founder Sonja Kohn in a $59 billion case.