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JPMorgan Shouldn’t ‘Escape’ $6.4 Billion Suit, Picard Says

Trustee Irving Picard
Irving Picard, the trustee liquidating Bernard L. Madoff's investment firm. Photographer: Ramin Talaie/Bloomberg

JPMorgan Chase & Co. shouldn’t “escape” a $6.4 billion lawsuit in bankruptcy court by switching the case to district court, the trustee liquidating Bernard Madoff’s collapsed firm said.

“The issue of JPMC’s misconduct belongs before the bankruptcy court as the court most versed in the nuances of the Ponzi scheme and the roles of other, related wrongdoers in that scheme,” Irving Picard, the trustee, said in a filing yesterday in U.S. District Court in Manhattan. “JPMC seeks refuge in this court to escape the scrutiny of the bankruptcy court.”

Picard sued JPMorgan in December, claiming the bank aided Madoff’s fraud. Denying wrongdoing, New York-based JPMorgan said it had a right to a jury trial in the district court. Picard’s suit raised “unsettled questions” of law beyond the expertise of a bankruptcy court, the bank said.

JPMorgan “no doubt hopes to distance itself both from the thousands of victims of that scheme and from other alleged wrongdoers,” Picard said in the filing. “Yet there is no escaping the fact that JPMC was at the very center of Madoff’s Ponzi scheme. It was the debtor’s primary banker for over two decades and touched virtually every cent that flowed through the Ponzi scheme.”

Joseph Evangelisti, a JPMorgan spokesman, declined to comment.

‘Backdoor’ Suit

JPMorgan accused Picard of fighting a “backdoor” class action suit and said a bankruptcy trustee generally can’t sue third parties on behalf of creditors. Calling the argument “frivolous,” Picard disagreed.

According to Picard, JPMorgan’s case can be resolved in bankruptcy court by a “simple application” of law and doesn’t require the judge to “engage in significant interpretation” of commercial banking and other law, as JPMorgan said.

“It wouldn’t be shocking if JPMorgan managed to get the case moved,” said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky. “Congress has said district courts should hear cases that involve unsettled questions of non-bankruptcy law.”

Picard said his probe of JPMorgan isn’t done. He lost “precious time” in his investigation when JPMorgan “unilaterally decided to revise the trustee’s definition of JPMC to include only 11 employees and confine the search for responsive documents to those 11 employees,” he said in the filing.

The suit against JPMorgan is one of more than 1,000 adversary cases Picard is pursuing or trying to settle. “Judicial efficiency” would be served by keeping it before U.S. Bankruptcy Judge Burton Lifland, who is handling many other Madoff cases, Picard said.

Madoff, 72, pleaded guilty to orchestrating the biggest Ponzi scheme in history. He’s serving a 150-year sentence in federal prison in North Carolina.

The case is Picard v. JPMorgan Chase & Co., 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).

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