JPMorgan Chase in $50 bn fraud

Picard also claims the concerns of bank employees were ignored and irregularities in Madoff’s accounts were overlooked.

“While numerous financial institutions enabled Madoff’s fraud,JPMorgan Chase was at the very centre of that fraud and thoroughly complicit in it,” the complaint filed with the US bankruptcy court in Manhattan said.

The lawsuit unsealed today further alleged that the bank did not pay attention to billions of dollars passing through Madoff Investment Securities’ main JPMorgan account or to discrepancies in the account balance and unreported obligations,including a USD 95 million loan.

“They had,legally,an obligation to make an inquiry,and they didn’t. You are literally seeing millions of dollars going in and out on a daily basis and not one phone call is being made,” Picard’s attorney,David Sheehan,is quoted as saying in a Wall Street Journal report.

Picard’s lawyers said JPMorgan and its affiliates were “willfully blind” to the “numerous red flags surrounding Madoff.”

JPMorgan had a “decades-long role” as Madoff’s primary banker,”aiding and abetting” the fraud,they added.

The bank allowed Madoff to move billions of dollars of investors’ cash in and out of his JPMorgan Chase bank accounts right up to the day of his arrest in December,2008.

However,by then,the bank had withdrawn all but USD 35 million out of the USD 276 million it had invested in Madoff-linked hedge funds,the litigation added.

The lawsuit alleges that the bank reported its suspicions on Madoff to British authorities only in late-October,2008,less than two months before he surrendered and the fraud was exposed.

The 115-page lawsuit seeks the return of USD 1 billion dollars in JPMorgan’s profits and fees and USD 5.4 billion in damages.

The complaint cites a June 15,2007,email by an investment bank risk officer saying,”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 Ponzi scheme.”

Another bank official expressed amazement that the bank and hedge fund executives that were funneling money to Madoff had asked so few questions about his strategy and that some seemed afraid to confront him.

“It’s almost a cult (Madoff) seems to have fostered,” the official wrote.

Picard’s attorney said,”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 (Bernard L Madoff Investment Securities LLC) feeder funds.

The lawsuit cited internal emails and also includes information about the bank’s efforts,starting in 2006,to make money by offering products tied to Madoff through investment funds that fed money to him.

The complaint includes details supporting allegations that JPMorgan “knew,or should have known” that BLMIS was engaging in fraud,Picard said.

Reacting to the lawsuit,JPMorgan said in a statement that the lawsuit “is meritless and is based on distortions of both the relevant facts and the governing law.”

The bank said it “did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff” and that Madoff’s firm “was not an important or significant customer” in the scheme of its overall commercial banking business.

“JPMorgan intends to defend itself vigorously against the unfounded claims brought by the trustee,” the bank said.

Madoff,72,pleaded guilty in March,2009,to the multi-billion dollar fraud and is serving a 150-year sentence in a North Carolina federal prison.