Madoff Trustee's Filing Alleges JPMorgan ‘Thoroughly Complicit’ in Fraud

The trustee liquidating con man Bernard L. Madoff’s former investment firm filed a revised complaint that disclosed new details of his $6.4 billion lawsuit against JPMorgan Chase & Co. (JPM)

The document, a new version of the complaint filed by trustee Irving Picard on Dec. 2 in Manhattan, adds information redacted from the original, including the names of almost two dozen JPMorgan Chase employees and Madoff investors Norman Levy and Carl Shapiro.

Today’s filing follows a ruling by U.S. Bankruptcy Judge Burton Lifland on April 12 ordering that the names be made public. Lifland allowed other information to remain private to protect trade secrets and confidential research.

“For whatever it’s worth, I am sitting at lunch with Matt Zames who just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme,” John Hogan, the bank’s chief risk officer, according to Picard, is quoted as saying on June 15, 2007, a year and a half before Madoff was arrested.

Zames is head of interest rate trading, global foreign exchange, public finance, global mortgages and global fixed income for JPMorgan Chase, according to the complaint.

The unsealing was requested by the New York Times Co., WNBC-TV, NBC News and CNBC.

JPMorgan Employees

The complaint names 23 current and former JPMorgan employees in connection with allegations the bank should have known about the Madoff fraud. They include, in addition to Hogan and Zames, Carlos Hernandez, head of global equities, Brian Sankey, JPMorgan Chase’s chief credit officer, and Michael Cembalest, chief investment officer at J.P. Morgan Global Wealth Management, according to Picard. No individuals are named as defendants in the suit.

“JPMorgan complied fully with all applicable laws and regulations in the banking services we provided to Madoff’s firm,” said Joseph Evangelisti, a spokesman for the bank. “Madoff’s assertion that his account activity should have alerted us to his fraud is baseless and ignores his repeated and concerted efforts to conceal his fraud.”

Evangelisti said JPMorgan Chase employees weren’t aware of the fraud and the bank is confident it has good defenses to Picard’s claims.

Surrogate Father

In February, Bloomberg News identified Levy, a New York real estate broker described as a “surrogate father” to Madoff, as “Customer 1,” as he was called in the original complaint. According to Picard, Levy transferred more than $83 billion in and out of Madoff’s main JPMorgan Chase account from 1998 to 2001.

Picard also identified allegedly irregular transactions by Madoff friend and investor Carl Shapiro, which Picard claims should have served as “red flags” alerting JPMorgan Chase to the fraud.

Picard is suing 1,000 banks, individuals, feeder funds and others he claims profited from Madoff’s fraud. So far he’s recovered about $10 billion for Madoff creditors. In the complaint he claimed JPMorgan Chase turned a blind eye, even though there were numerous indications that he was carrying on a fraud.

Feeder Funds

In the complaint, Picard claims Hogan told the story about his conversation with Zames when JPMorgan Chase’s Hedge Fund Underwriting Committee met to consider a proposal to invest additional money in Madoff feeder funds.

Later, after Madoff’s arrest in December 2008, Sankey referred to the agenda for the June 2007 Hedge Fund Underwriting Committee meeting, saying: “Perhaps best this never sees the light of day again!!” Picard claimed.

Madoff, 72, is serving a 150-year sentence in a North Carolina federal prison after admitting he directed the biggest Ponzi scheme in history. Madoff was arrested and his firm, New York-based Bernard L. Madoff Investment Securities LLC, forced into bankruptcy when news of the fraud became public in December 2008.

At the time of his arrest, Madoff’s account statements reflected 4,900 accounts with $65 billion in nonexistent balances. Investors lost about $20 billion in principal.

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 reporters on this story: Bob Van Voris in U.S. District Court in Manhattan at rvanvoris@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.