Bloomberg News

JPMorgan Seeks Dismissal of $6.4 Billion Madoff Trustee Suit

June 04, 2011

June 4 (Bloomberg) -- JPMorgan Chase & Co. sought to dismiss a $6.4 billion lawsuit by the trustee liquidating Bernard Madoff’s firm, saying he doesn’t have the right to sue the bank on behalf of the con man’s investors.

Trustee Irving Picard sued JPMorgan in U.S. Bankruptcy court in Manhattan in December, alleging it ignored signs of fraud as billions of dollars flowed from Madoff’s account at the bank to investors. JPMorgan was Madoff’s primary banker. The lawsuit seeks $1 billion in fees and transfers, and $5.4 billion in damages, alleging that JPMorgan defrauded federal regulators and violated banking law.

JPMorgan, the second-biggest U.S. bank, asked in a filing yesterday that a U.S. District Court judge to dismiss the suit. The trustee’s “complaint never alleges facts showing that anyone at JPMorgan knew that Madoff was a crook,” the bank said in the filing.

Picard was hired to liquidate Madoff’s firm and doesn’t have the legal right to sue on behalf of investors in the $17 billion Ponzi scheme, New York-based JPMorgan said.

Amanda Remus, a Picard spokeswoman, didn’t immediately return a call to her office after regular business hours.

The bank’s case is one of at least three that has been moved from bankruptcy court to district court, in a challenge to Picard’s authority. U.S. District Judge Colleen McMahon in New York in May took JPMorgan’s case from U.S. Bankruptcy Judge Burton Lifland, saying she would determine whether Picard had standing to sue the bank and decide other questions of federal non-bankruptcy law.

HSBC, UniCredit

District Court Judge Jed Rakoff said he would review some issues in Picard’s $9 billion suit against HSBC Holdings Plc and feeder funds, as well as laws used by the trustee to sue Italian bank UniCredit SpA, named in a $59 billion suit against Bank Medici AG, its founder Sonja Kohn and other defendants.

Picard has filed more than 1,000 suits seeking $90 billion for Madoff investors. Lifland has approved fees of almost $180 million for the trustee and his firm, Baker & Hostetler LLP, since the Ponzi scheme operator’s 2008 arrest, according to court filings.

Taking the HSBC case temporarily, Rakoff agreed with the U.K. bank that Picard’s lawsuit raised issues beyond the jurisdiction of bankruptcy court. He said he would decide whether Picard can bring common-law claims such as unjust enrichment and can sue on behalf of customers, since his job is to liquidate the Madoff firm.

Picard, who said in court this week that he was getting a “percentage” of his firm’s fees from the Madoff case, fought to keep his cases in bankruptcy court. JPMorgan “no doubt hopes to distance itself both from the thousands of victims of that scheme and from other alleged wrongdoers” by going to district court, Picard said in a March filing.

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

--Editors: John Pickering, Peter Blumberg

To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net; Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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