J.P. Morgan Chase knew of Madoff fraud scheme, suit alleges
NEW YORK - J.P. Morgan Chase executives stood by silently as their client Bernard Madoff ran his epic Ponzi scheme, hoping to protect the bank's investments and continue doing business with him, a newly released $6.4 billion lawsuit alleges.
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 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 says.
The complaint shows for the first time how Picard thinks J.P. Morgan put its interests in preserving a decades-long relationship with Madoff ahead of trying to stop his long-suspected fraud, which was revealed Dec. 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, e-mail by an investment bank risk officer.
The complaint also quotes a J.P. Morgan employee who had urged in February 2006 that the bank "assess quality and detail" of reports from Madoff's firm, noting potential "significant" penalties if statements proved "fraudulent or inaccurate."
Jennifer Zuccarelli, a J.P. Morgan spokeswoman, wrote in an e-mail that the New York-based bank will defend itself against Picard's accusations.
"JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff," she wrote. "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 employees thought to have been suspicious of Madoff's activities.
J.P. Morgan was the principal banker for Madoff's firm, Bernard L. Madoff Investment Securities, 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 attorneys, said in a statement.