Hagens Berman LLP: Investors Accuse JP Morgan of Complicity on Madoff Ponzi Scheme

SEATTLE, Nov. 7, 2011 /PRNewswire/ -- Two former Bernard L. Madoff investors today filed a proposed class-action lawsuit against JP Morgan Chase & Co. (NYSE: JPM) claiming the banking giant was complicit in aiding Madoff in orchestrating the Ponzi scheme that robbed investors of more than $65 billion.

The suit, filed in U.S. District Court for the Southern District of New York, comes after a similar suit filed by the trustee appointed to represent Maddoff's victims was dismissed. The court ruled that the case filed by Irving Picard lacked standing, holding those claims belonged exclusively by the victims of Madoff's fraud.

Among the allegations leveled in the complaint, investors charge that JP Morgan operated as Bernard L. Madoff Investment Securities LLC's (BLMIS) primary banker for more than 20 years, and were faced with many indications that the fund was nothing more than a Ponzi scheme.

"JP Morgan was, in effect, the banking back-office for the Madoff Ponzi scheme, shuffling piles of money from one account to another at Madoff's request," said Steve Berman, managing partner of Hagens Berman Sobol Shapiro and the attorney representing the plaintiffs. "Had JP Morgan done even a perfunctory job of due-diligence and fulfilled its duty to report Madoff's illegalities, it would have saved investors millions of dollars."

The complaint details that since 1986, all the money BLMIS collected from unwitting investors passed through JP Morgan in an account known as the 703 Account, where BLMIS co-mingled funds from investors.

The suit contends that JP Morgan should have known that BLMIS's activities were grossly inconsistent with those of an investment firm through a number of signs of impropriety.

According to Berman, JP Morgan had many opportunities to question the legitimacy of BLMIS.

"Nearly every day, a Madoff employee would physically hand-deliver a paper check drawn on other Madoff accounts into the JP Morgan account," Berman said.  According to the complaint, the very next day Madoff's staff would send out a flurry of wire-transfers equaling the deposit. "It doesn't take a forensic accountant to know that sort of behavior deserves a closer look."

JP Morgan, for example, was required to review a filing submitted by BLMIS to the SEC known as the Financial and Operational Combined Uniform Single Reports or FOCUS. That report, the suit states, contained glaring irregularities that JP Morgan should have reported to the SEC, including factual omissions and errors, such as failing to report any commission revenue.

"We intend to prove that JP Morgan's decision to sit mute while Madoff continued to perpetrate his fraud was based on simple greed; JP Morgan profited handsomely from its role in the Madoff scheme," Berman added.

Beginning in 2006 JP Morgan sold structured investment products related to BLMIS feeder funds to its clients, profiting on those transactions as well. In the course of structuring those products, JP Morgan performed due-diligence on BLMIS and became suspicious that the BLMIS was a fraud but did not report its findings, the suit alleges, but did redeem $145 million from BLMIS and $276 million from BLMIS feeder funds in 2008.

The suit has been filed on behalf of Stephen and Leyla Hill, investors who incurred losses in BLMIS. It claims JP Morgan had knowing participation in a breach of trust, aided and abetted fraud, aided and abetted a breach of fiduciary duty, aided and abetted conversion and received unjust enrichment. The suit seeks damages for the plaintiffs.

The complaint notes that at least one other banking institution closed BLMIS accounts after the Madoff staff could not supply satisfactory explanation for suspicious account activity.

Investors who incurred losses in BLMIS are encouraged to contact the firm at (206) 623-7292. More information about the case can be found at www.hbsslaw.com/JPMorganMadoff.

About Hagens Berman

Seattle-based Hagens Berman Sobol Shapiro LLP represents investors, workers, whistleblowers and consumers in complex litigation. The firm has offices in Boston, Chicago, Colorado Springs, Los Angeles, Minneapolis, New York, Phoenix, San Francisco and Washington, D.C. More about the law firm and its successes can be found at www.hbsslaw.com. Visit the firm's securities blog at www.meaningfuldisclosure.com.

Media Contact: Mark Firmani, Firmani + Associates Inc., 206.443.9357 or [email protected].

SOURCE Hagens Berman LLP