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Madoff victims sue JPMorgan, yet again

The trustee seeking money for Bernard Madoff's victims is now seeking $19 billion from JPMorgan Chase & Co, tripling the amount he hopes to recover from what was once the main bank of the imprisoned Ponzi schemer.

business Updated: Jun 25, 2011 12:44 IST

The trustee seeking money for Bernard Madoff's victims is now seeking $19 billion from JPMorgan Chase & Co, tripling the amount he hopes to recover from what was once the main bank of the imprisoned Ponzi schemer.

The amended complaint by the trustee Irving Picard adds new charges and was filed three days after the second largest US bank agreed to pay $153.6 million to settle US Securities and Exchange Commission fraud charges.

Picard had previously sought to recover $6.4 billion from JPMorgan, including $1 billion representing fraudulent transfers and claims, and $5.4 billion of damages.

"JPMorgan Chase chose to enable Madoff's fraud, not just through the various ways it participated in its activity, but by helping to cover Madoff's naked theft with the imprimatur of a globally recognized financial institution," the 155 page amended complaint said.

The amended complaint also includes a demand that the case be heard before a jury.

Tasha Pelio, a JPMorgan spokeswoman, repeated in an email the bank's earlier statement that Picard's lawsuit is meritless and distorts the facts and law. "JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff," she added.

Picard has filed roughly 1,050 lawsuits seeking more than $100 billion for former Madoff investors. In his original complaint made public in February, he accused JPMorgan of being "thoroughly complicit" in Madoff's fraud and ignoring red flags.

New allegations

The amended complaint adds new allegations from former employees of another financial services company that in 1997 the company investigated suspicious, nearly daily transfers of $1 million to $10 million between Madoff's account there and his account at Chase.

According to the amended complaint, that company questioned Madoff's employees about the back-and-forth transfers. Having failed to be satisfied about them, they closed Madoff's account, it said. This suspicious activity should have been "as apparent to JPMorgan Chase as it was to the other financial institution," Picard said.

"JPMorgan Chase's bankers literally watched the fraud unfold before their very eyes," Deborah Renner, a lawyer representing Picard, said in a statement.

In a regulatory filing last month discussing its overall litigation exposure, JPMorgan estimated that as of March 31 it might have to pay out as much as $4.5 billion more than it had set aside for that purpose. It also said it was a defendant in more than 10,000 legal proceedings.

Other cases

Picard's case against JPMorgan is being overseen by US district judge Colleen McMahon. It is one of three high-profile lawsuits filed by Picard that have been moved to federal district court, where juries can hear cases, from bankruptcy court, where the trustee had originally sued.

US district judge Jed Rakoff is reviewing some issues in Picard's $9 billion case against HSBC Holdings Plc. Rakoff is also considering whether the trustee can invoke racketeering law in a $58.8 billion lawsuit against Italy's UniCredit SpA, Austria's Bank Medici AG and its founder Sonja Kohn, and other defendants.

JPMorgan has until August 1 to respond to the amended complaint, Picard said.

Madoff, 73, was arrested on December 11, 2008, and after pleading guilty is serving a 150 year prison sentence.

JPMorgan shares fell 19 cents in after hours trading, after closing Friday's session down 58 cents at $39.49.

Picard disclosed the amended complaint after US markets closed.

The cases are Picard v. JPMorgan Chase & Co et al, US Bankruptcy Court, Southern District of New York, No. 10-ap-04932; and Picard v. JPMorgan Chase & Co et al, US District Court, Southern District of New York, No. 11-00913.