JPMorgan, Citigroup Say Madoff Trustee Breaks Agreement on Trade Secrets

JPMorgan Chase & Co. (JPM), sued for $6.4 billion by the trustee for Bernard L. Madoff’s firm, said the trustee has no right to “abrogate” a yearlong agreement to protect trade secrets by revising his rules for handling confidential information.

The trustee, Irving H. Picard, seeking $100 billion for investors in Madoff’s Ponzi scheme in lawsuits, has asked a judge for more freedom to use information demanded for his investigations. JPMorgan’s objection is one of at least eight filed yesterday by banks and investment managers including UBS AG (UBSN), Citigroup Inc. (C) and HSBC Holdings Plc. (HSBA)

JPMorgan, based in New York, said it gave Picard documents 22 times in the past 15 months, relying on his agreement not to share the information with competitors or other parties.

“The proposed order would permit the trustee to disclose JPMorgan’s confidential and proprietary information to any party or its agent in any one of the more than one thousand adversary proceedings that have been commenced by the trustee,” the second-biggest U.S. bank said in a filing in U.S. Bankruptcy Court in New York. “The trustee is not entitled to abrogate confidentiality arrangements that have been relied upon by JPMorgan and other parties.”

If Picard has his way, the bank’s anti-money-laundering policies, risk-assessment methods and internal reviews might be shared with every major financial institution in New York and thousands of other parties, it said.

‘Fatally Flawed’

Citigroup called Picard’s proposal “fatally flawed.” Thousands of pages of documents it delivered to Picard since receiving his July 2009 subpoena might be passed around, including pages identifying “potential and actual transactions” contemplated by Citigroup, the New York-based bank said in a court filing.

The documents were delivered under a confidentiality agreement with Picard that he is seeking to undo, it said.

Amanda Remus, a spokeswoman for Picard, declined to comment.

Picard’s Feb. 1 proposal would allow him to share a bank’s trade secrets with more than 4,000 parties, UBS calculated in court papers. Names and account numbers of Madoff customers, amounts of withdrawals, redemptions, transfers and transferees would lose their protection, UBS said in its filing.

Ignoring Red Flags

The trustee is demanding more than $18 billion from banks, accusing them of aiding Madoff’s fraud by ignoring red flags that should have prompted them to investigate.

The banks have denied wrongdoing. Fees earned from dealing with Madoff or feeder funds were minor for a big bank, giving no motive to be willfully blind, JPMorgan said in its rebuttal of the trustee’s allegations.

The bank is seeking a jury trial in a different court.

Picard’s lawsuits against banks are in a “gray area” of the law, bankruptcy lawyer Harvey Miller told Bloomberg Television in December.

“It’s not clear a financial institution has fiduciary duties to investigate fraud and go out and report it,” he said.

A court hearing on Picard’s so-called litigation protective order is set for March 16.

The JPMorgan case is Picard v. JPMorgan Chase & Co., 10-ap-4932, U.S. Bankruptcy Court, Southern District of New York Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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