New York, NYThe largest example of stock broker fraud in US history—if not the world—is back in the news with the announcement December 2 of a $6.4 billion lawsuit against JPMorgan Chase by trustee Irving H. Picard, in his continuing quest to recover funds for clients bilked by Bernard Madoff's massive Ponzi scheme. There will likely be a flurry of lawsuits filed in the next two weeks prior to the expiration of the statute of limitations, which runs out December 15.
The lawsuit was filed under seal in US District Court in Manhattan. However, lawyers have been speaking about the lawsuit, together with documents pertaining to an ongoing investigation that were leaked to a newspaper in France.
The allegation is that Madoff—the master manipulator of a massive stock fraud—would never have been able to undertake what turned out to be a huge Ponzi scheme without the involvement of JPMorgan Chase.
The lawsuit, summarized on the evening of December 2 in The New York Times, contends that JPMorgan ignored "clear, documented suspicions" about Madoff and his activities.
It was noted that Picard has been undertaking his investigation for two years, and has obtained internal bank documents as well as depositions with employees of JPMorgan Chase. However, clues as to the underpinnings of Picard's lawsuit may be found in documents leaked to the media reportedly submitted by JPMorgan Chase to a French magistrate investigating the Madoff scandal in France.
In July, L'Express published excerpts of what it described as 500 pages of documents provided by the bank to the magistrate in France relating to the massive stockbroker fraud case.
Some of the documents are alleged to demonstrate that some bank executives had expressed concern with regard to the Madoff account several years before the fraud was exposed two years ago this month. It was noted by an internal bank report, when assessing a large European feeder fund, that the fund relied totally on Madoff himself to confirm the value of assets from day to day.
With "no real way to confirm those valuations, fraud presents a material risk," the report states. There was also concern allegedly expressed, according to the excerpts published by L'Express, in October 2008, after JPMorgan Chase withdrew nearly $250 million worth of its own funds from Fairfield Sentry, the largest of Madoff's feeder funds. JP Morgan Chase allegedly expressed concern that the investment performance of Bernard Madoff was "so consistently and significantly ahead of its peers" that it appeared "too good to be true—meaning that it probably is."
In a statement December 2, JPMorgan Chase reacted to the filing of the stockbroker investment fraud lawsuit by denying the allegations, noting it had no prior concerns about the Madoff account. The bank called the allegations "irresponsible and overreaching," and noted that in its view the allegation "blatantly distorts both the facts and the law in an attempt to grab headlines. Contrary to the trustee's allegations, JPMorgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff."
JPMorgan Chase said it would "defend itself vigorously against the meritless and unfounded claims" in the stockbroker fraud lawsuit.
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