Bernard Madoff victims who withdrew more money from the con man’s firm than they invested -- and were slated for no recovery -- asked to be excluded from JPMorgan Chase & Co. (JPM)’s $543 million settlement of lawsuits over the fraud so they can sue the bank on their own.
A group of 193 investors said in a filing yesterday in U.S. Bankruptcy Court in Manhattan that the accord between JPMorgan and Irving Picard, the trustee liquidating Madoff’s defunct company, doesn’t cover “net winners.” They asked for court permission to not be part of the settlement.
The group’s lawyer, Helen Davis Chaitman of Becker & Poliakoff LLP in New York, said she intends to file a new lawsuit on behalf of these and other victims who say they were harmed in Madoff’s $17 billion Ponzi scheme, even though they didn’t lose their principal.
The existing settlement is “inherently unfair,” Chaitman said in the filing.
The Ponzi scheme’s net winners have been fighting for their rights almost since Madoff’s 2008 arrest. Their argument is that they are entitled to rely on the brokerage statements received from the con man’s firm and should be compensated accordingly.
Critics, ranging from trustee Picard and appeals court judges to investigators, say that Madoff clients received fictitious statements incorporating profits from trades that never happened, and those who lost money should be compensated first.
As a measure, Madoff customers’ assets were originally estimated at $65 billion, including profits -- almost four times as much as Picard’s current calculation of the $17 billion invested and lost when the Ponzi scheme collapsed.
Those who profited from the Ponzi scheme -- though without getting all the money reflected on their brokerage statements -- also have battled for their right to sue investors who allegedly knew about the fraud. Picard and the courts have mostly opposed them.
Mark Kornblau, a JPMorgan spokesman, declined to comment on the group’s position on the settlement.
JPMorgan, the largest U.S. bank by assets, is seeking to move on from allegations it helped prolong Madoff’s fraud by ignoring warning signs and reaping profit from the con man’s business. The bank agreed Jan. 7 to pay $1.7 billion to the U.S. to resolve criminal allegations and $350 million in a case by the Office of the Comptroller of the Currency.
The bank simultaneously agreed to pay Picard $325 million to settle his civil lawsuit on behalf of thousands of victims, and another $218 million to resolve two related class-action lawsuits that were filed with Picard’s assistance.
A hearing on the proposed accord is scheduled for Feb. 4.
Chaitman said in yesterday’s filing that victims who invested with Madoff for years, and believed the trading in their accounts was real, are entitled to some of their fake profit because Madoff deprived them of legitimate investment opportunities.
Picard has estimated there are about 2,500 net winners who want to recover some or all of the fake profit they saw on their customer account statements. “Net losers” withdrew less money from Madoff’s firm than they put in.
In the class-action lawsuits, JPMorgan is accused of aiding and abetting embezzlement, breach of fiduciary duty, unjust enrichment and gross negligence in relation to Madoff’s fraud.
The parallel efforts by the trustee and federal investigators have resulted in a total recovery for victims of almost $14 billion, or 82 percent of the lost principal. Picard has distributed about $4.9 billion to victims, with billions more held in reserve until legal issues are resolved.
Chaitman and Picard’s spokeswoman, Amanda Remus, both declined to comment.
Madoff, 75, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. Others including his brother Peter Madoff, who is serving a 10-year term, have pleaded guilty.
Five members of Madoff’s inner circle, who worked for the con man for decades, are on trial in Manhattan federal court on charges of helping perpetuate the fraud to get rich. The five have pleaded not guilty.
The liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-bk-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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