The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 41.0°F | A Few Clouds
Article Tools

The trustee who is tracking down assets for the victims of Bernard L. Madoff’s Ponzi scheme sued JPMorgan Chase for $6.4 billion on Thursday, contending that the bank bears some responsibility for the losses of victims because it continued to serve as Madoff’s primary banker despite growing evidence that he was running an enormous fraud.

“Madoff would not have been able to commit this massive Ponzi scheme without this bank,” David J. Sheehan, a lawyer for the trustee, Irving H. Picard, said in a statement after the case was filed in U.S. District Court in Manhattan.

The complaint was filed under seal to conform with a confidentiality agreement the bank negotiated with the trustee when it first began responding to his document requests.

According to Sheehan, the lawsuit contends that JPMorgan ignored “clear, documented suspicions” about Madoff.

Moreover, he said, the bank should have spotted highly suspicious cash movements through Madoff’s accounts and recognized them as hallmarks of a Ponzi scheme.

In a statement on Thursday, JPMorgan called the trustee’s claims “irresponsible and overreaching” and said it had no advance knowledge that anything was amiss.

The trustee’s complaint “blatantly distorts both the facts and the law in an attempt to grab headlines,” the bank said in the statement. “Contrary to the trustee’s allegations, JPMorgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff.”

The bank intends to “defend itself vigorously against the meritless and unfounded claims” in the lawsuit, the statement concluded.

For nearly two years, Picard has used his subpoena power to obtain internal bank documents and conduct depositions with bank employees, and the lawsuit will reflect his conclusions from that research. But with the complaint filed under seal, the trustee’s specific accusations are not yet public.

There may be clues, however, to the case’s main themes in excerpts of internal bank documents that were leaked to the French media after the bank submitted them last summer to a magistrate in France who is investigating the Madoff scandal.

According to an exclusive account in L’Express on July 10, the bank provided a computer disk with more than 500 pages of documents to the magistrate. L’Express published what it identified as excerpts of those documents that showed that some bank executives had expressed concern about Madoff several years before his fraud unraveled in December 2008.

In assessing a large European feeder fund, a document identified as an internal bank report from 2008 noted the fund’s total reliance on Madoff to confirm what its assets were worth from day to day. With “no real way to confirm those valuations, fraud presents a material risk,” the report said.

But Madoff’s personal wealth and his status over several decades as a respected leader in a regulated industry were also cited in the report as “factors making fraud unlikely.”

The excerpted documents also included what was described as a confidential report the bank made to British authorities in October 2008, after the bank had withdrawn nearly $250 million of its own money from the Fairfield Sentry fund, the largest of the Madoff feeder funds.

The report said the bank was concerned that Madoff’s investment performance was “so consistently and significantly ahead of its peers” that it appeared “too good to be true — meaning that it probably is.”

The report also asserted that a Swiss investment manager had made “thinly veiled” threats to a bank employee after learning that one of the bank’s Madoff-linked investments could lose value. In the report, the bank complained that the Swiss banker had insisted that the price of the investment must not fall and made references to “Colombian interests who will not be happy” with the bank’s actions.

A spokeswoman for the bank could not immediately comment on the authenticity of these excerpts, but there is no sign that L’Express ever published a retraction of its article.

The trustee’s lawsuit against JPMorgan Chase is the second-largest claim he has filed in the Madoff liquidation so far, after a $7.2 billion claim against the estate of Jeffry M. Picower, one of Madoff’s longtime investors.