The Madoff Trustee made public its allegations that banking giant JP Morgan Chase had clear warning signs that Bernie Madoff was running a Ponzi scheme.
The want the bank to pay more than $ 6 billion to Madoff investors who lost money.
"Incredibly, the banks top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme, yet the bank appears to have been concerned only with protecting its own investments," said Deborah Renner, an attorney for the Trustee.
JPMorgan Chase was Madoff's lead bank for more than 20 years and allegedly made $500 million in fees and profits. The Trustee alleges this was "off the backs" of Madoff investors.
The lawsuit alleges the bank's "due diligence revealed the liklihood of fraud at BLMIS, but JPMC was not concerned with the devastating effect of fraud on investors," the complaints said.
Read the court document
The Trustee also alleges the bank ignored anti-money laundering duties as money flowed in and out of Madoff-related accounts without any actual trades taking place.
" A spokeswoman for JPMorgan Chases denied any wrongdoing. "The complaint publicly released today by the trustee for the Madoff estate is meritless and is based on distortions of both the relevant facts and the governing law. Contrary to the trustee’s allegations, JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff," the statement said.
The complaint comes public as the Trustee and the Bankruptcy Court have come under increased scrutiny about why so many documents linked to the biggest fraud in history were being kept from public view. WNBC and the New York Times have begun filing motions to unseal records with the court after Judge Bernard Lifland and the Trustee denied reporters' initial request for the documents and offered little explanation as to why they were being kept secret.
The Trustee on Thursday claimed it was lawyers for the bank, not the Trustee, who requested sealing back on December.
"From the start, we have maintained the Trustee's complaint should be made public," claimed another Trustee lawyer David Sheehan.
Back in December, Sheehan himself had asked the Court to reject requests for access by the news media unless and until the press filed their own formal legal motions.
In the complaint released Thursday, the Trustee alleges JPMorgan had warning signs and red flags about a Ponzi scheme that included: Madoff was not being transparent; the auditor was a small, unknown firm, feeder funds could not reconcile their numbers with third parties; and speculation was growing Madoff was involved in a Ponzi scheme.
They said JPMorgan even filed a suspicious activity report in Britain in 2008 that read in part Madoff's performance "... is so consitently and significantly ahead of its peers year-on-year, even in the prevailing market conditions, at to appear to good to be true - meaning it probably is. "
The bankers went on to complain about a lack of transparency.
in February 2006, JPMorgan bankers were also raising quesitons about Madoff and Chase related feeder funds like the Fairfield Greewich Group.
One internal email shows how from April through September 2002 "the S&P index is down 30%, cash yielded 1% and the (Madoff linked) Fund was able to generate over 6% returns."
No paperwork, just verbal explanations of the success were offered, the complaint said. Another JP Morgan employee emailed on June 15, 2007 "there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme ...I think we owe it to ourselves to investigate further."
The Trustee alleges JPMorgan stuck with Madoff because "the potential upside reward for investing through Madoff was simply too good to pass up even if there was a fraud." The complaint also alleges is conducting due diligence about Madoff, JPMorgan employees reached out to a Swiss firm Aurelia Finance where references to "Colombian friends" and "Colombian drug money" were allegedly referenced.
The Chase bank spokeswoman disputed those claims. "Madoff’s firm was not an important or significant customer in the context of JPMorgan’s commercial banking business, and the revenues earned from Madoff’s bank account were modest and entirely consistent with conventional market rates and fees.
The Trustee makes no attempt to substantiate or support his unfounded claim that JPMorgan earned extraordinary sums from the Madoff account, and that claim is demonstrably false." The Trustee also alleges JPMorgan Chase quietly pulled its money out of Madoff feeder funds as there was increasing evidence of a massive fraud. And after Madoff announced to the FBI he was a fraud, a JPMorgan Chase employee wrote in an email,"Despite suspecting it was dodgy I am still shocked to see this happen so suddenly. I guess its true that when the tide goes out you see who is swimming naked."
The unsealing of this complaint comes amid efforts by WNBC and The New York Times to unseal a separate complaint filed by the Trustee about the New York Mets owners and their alleged connections to Madoff.
After at first trying to delay reporters' efforts to gain access to the records, lawyers for the Madoff Trustee said they now support the public release of the documents. Lawyers for the Mets have complained about leaks in the case. Judge Burton Lifland has yet to decide on the media's request for access.