Bloomberg News

Madoff Trustee Defends $19 Billion Suit Against JPMorgan

September 02, 2011

(Updates with Rakoff ruling in second paragraph.)

Sept. 2 (Bloomberg) -- The liquidator of Bernard Madoff’s firm defended a $19 billion lawsuit against JPMorgan Chase & Co., saying he was empowered by law to sue the bank on behalf of innocent creditors of the Ponzi scheme operator.

The second-biggest U.S. bank asked a judge last month to dismiss trustee Irving Picard’s suit, citing U.S. District Judge Jed Rakoff’s July ruling that he can’t sue on behalf of Madoff customers, using common-law claims against parties who failed to detect the fraud. Picard, who appealed the ruling, said bankruptcy law gives him the powers necessary to bring his suit.

“The bankruptcy code allows the trustee to stand in the shoes of a judgment creditor and assert common-law claims against JPMC,” he said in a court filing yesterday. JPMorgan, as Madoff’s primary banker, was central to the fraud and “complicit” in it, he said.

Picard, in his fight with Rakoff and JPMorgan, is defending his right to demand most of the $100 billion he is seeking from banks and Madoff investors. Rakoff tossed almost $9 billion in damages Picard sought from HSBC Holdings Plc and feeder funds, leaving $2 billion in bankruptcy claims. If forced to give up common-law claims against JPMorgan, Picard would lose his right to seek $19 billion and be left to pursue $1 billion in bankruptcy and other claims.

‘Back Door’ Suit

JPMorgan, which accuses the trustee of mounting a “back door” class-action suit on behalf of Madoff clients, said last month that Picard’s suit never shows how JPMorgan was complicit in Madoff’s crimes.

“The trustee never alleges facts showing that anyone at JPMorgan had actual knowledge of Madoff’s crimes,” it said, asking Judge Colleen McMahon, who is handling the case, to toss it out.

In yesterday’s filing, Picard said bankruptcy law gives him power to bring a case similar to a class, or group, action. Standing in the “shoes” of an innocent creditor, he can “allege harm to all creditors,” he said. “The trustee is the proper person to assert the claim.”

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

--Editors: Glenn Holdcraft, Anthony Aarons

To contact the reporter on this story: Linda Sandler in New York at

To contact the editor responsible for this story: John Pickering at

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