In a continuing legal offensive, the trustee in the Bernard Madoff bankruptcy case Thursday sued JPMorgan Chase Bank NA for $6.4 billion, alleging that the financial institution played a central role in enabling the giant Ponzi scheme in part by ignoring decades of suspicious and inexplicable trading activity.
The complaint was filed under seal in federal bankruptcy court in Manhattan because the bank deemed all of its own information in the document as confidential, trustee Irving Picard said in a statement.
However, Picard made clear he would ask the court to unseal the materials, adding that while JPMorgan Chase "may want to hide the full extent of its significant role in the Madoff fraud from the public, we intend to move to have the complaint made public as soon as possible."
In a statement Thursday, JPMorgan Chase said Picard's action was an "attempt to grab headlines" and the complaint "blatantly distorts both the facts and law."
"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 said.
The suit against the bank, which seeks the recovery of $1 billion in fees and profits and an additional $5.4 billion in damages, dwarfs the suit that Picard filed last week against UBS AG, the giant Switzerland-based financial services company, for more than $2 billion. Picard claimed UBS turned a blind eye to Madoff's fraud. The bank has denied wrongdoing.
Picard has filed about 400 clawback lawsuits involving large financial institutions and individual Madoff investors, including several from Manhattan and Long Island, seeking the return of fake profits taken from various accounts. About 800 lawsuits are expected to be filed by a Dec. 10 deadline, said legal sources familiar with the case.
David Sheehan, counsel for Picard, said in a statement that "JPMorgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff."
JPMorgan Chase "was [Madoff's] primary banker for more than 20 years, and was responsible for knowing the business of its customers - in this case, a very large customer," said Sheehan, who is with the law firm Baker Hostetler. "Madoff would not have been able to commit this massive Ponzi scheme without this bank."
Deborah Renner, another attorney for Baker Hostetler, said in a statement that JPMorgan Chase admitted in the months before Madoff's firm went bust in December 2008 that his investment returns were too good to be true, especially in a down market. The bank looked the other way, she said.
Disputing Picard's characterization of its actions, JPMorgan Chase said it fully complied with the laws and regulations governing customer accounts. It termed Picard's complaint irresponsible and overreaching.
Picard has so far recovered about $1.5 billion for investors. Madoff is serving a 150-year prison term in North Carolina.