(Updates with Picard’s response in fourth paragraph.)
Sept. 19 (Bloomberg) -- The liquidator of Bernard L. Madoff’s firm is “clearly wrong” in demanding $19 billion in damages from JPMorgan Chase & Co. on behalf of creditors of the Ponzi scheme operator, the bank said.
It has been “settled law” since the 1970s that a bankruptcy trustee cannot assert claims belonging to creditors, JPMorgan said in a Sept. 16 filing in U.S. District Court in Manhattan. Trustee Irving H. Picard defended his lawsuit against the second-biggest U.S. bank earlier this month, saying he was empowered by law to sue JPMorgan on behalf of the con man’s innocent creditors.
Picard’s “argument is so clearly wrong that the trustee did not even make it to Judge Rakoff,” the bank said, citing Judge Jed S. Rakoff’s July ruling in an HSBC Holdings Plc case that Picard can’t sue on behalf of Madoff customers using common-law claims against parties who failed to detect the fraud.
“The trustee and his counsel remain confident in our position,” Amanda Remus, a Picard spokeswoman, said today in an e-mail.
JPMorgan is trying to persuade U.S. District Judge Colleen McMahon to dismiss Picard’s damage claims, along with about $1 billion of bankruptcy and other claims. Picard is fighting for the right to demand most of the $100 billion he is seeking from banks and Madoff investors, after Rakoff tossed almost $9 billion in damages sought from HSBC and feeder funds.
In an amended suit, Picard alleged that New York-based JPMorgan, Madoff’s primary banker, “did know” about the fraud and could have stopped it by notifying regulators. In the June suit, he more than tripled his demand for damages, making it equal to his estimate of all principal lost by all Madoff investors by the time the Ponzi scheme collapsed in 2008.
“Aggressive” plaintiffs often blame banks for a depositor’s bad deeds, according to JPMorgan. Picard, though, can’t identify any JPMorgan employee who conspired with Madoff or discovered his scheme, even after “extensive” interviews with bank employees, according to its filing.
“There is a massive gap between the trustee’s blustering accusations and the facts that he has actually alleged to support them,” JPMorgan said. “The trustee’s damages claims demand the absurd inference that JPMorgan deliberately joined with Bernard Madoff in a doomed-to-fail Ponzi scheme so that it could earn conventional banking fees,” which were small for the bank, it said.
The case is Picard v. JPMorgan Chase & Co., 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Stephen Farr, Andrew Dunn
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