JP Morgan fires back in $6.4 billion Madoff lawsuit

NEW YORK — JPMorgan Chase & Co accused the trustee seeking $6.4 billion for victims of Bernard Madoff's Ponzi scheme of doing an end run around the law in pursuing his case, and said it has a right to a jury trial. The second-largest US bank said court-appointed trustee Irving Picard is exceeding his authority by suing in bankruptcy court, where a judge rather than a jury would decide the case. It said the case should be moved to federal district court. "The trustee's massive damages action against JPMorgan bears no resemblance to a typical lawsuit commenced by a bankruptcy trustee," JPMorgan said in a court filing late Tuesday. "In substance, the trustee is trying to pursue an enormous back-door class action," it said. A ruling in the case could affect many of the lawsuits that Picard has filed to recover money from companies and individuals he believes benefited from Madoff's estimated $65 billion Ponzi scheme, which was uncovered in December 2008. Picard has filed lawsuits seeking more than $50 billion. Defendants include the owners of the New York Mets baseball team, from whom he seeks as much as $1 billion, and other banks such as HSBC Holdings Plc and UBS AG. JPMorgan, which is based in New York, has said it did not know about or assist in Madoff's fraud. A spokesman for Picard did not immediately respond to a request for a comment on Wednesday. Picard so far has recovered about $10 billion for former Madoff clients. The trustee is a partner at Baker & Hostetler LLP. JPMorgan's court filing was submitted by John Savarese, a partner at Wachtell Lipton Rosen & Katz. Many open issues, JP Morgan says In bankruptcy court papers unsealed on Feb. 3, Picard accused JPMorgan of having significant doubts about Madoff but silently acquiescing in his fraud, hoping to preserve its own investments and a more than 20-year business relationship. He said these doubts were known to top bank officials, including a risk officer who said 18 months before the fraud was uncovered that there was a "well-known cloud" over Madoff. In Tuesday's filing, JPMorgan told US Bankruptcy Judge Burton Lifland, who oversees the Madoff proceedings, that the case belongs in federal district court. It said the case requires a "significant interpretation" of federal banking law, including the Bank Secrecy Act and USA Patriot Act, and a determination of whether Picard has standing to sue, requiring an assessment of federal securities law. "The trustee's claims raise fundamental questions, of great importance to the banking industry as a whole, as to whether banks such as JPMorgan have liability to private plaintiffs for fraud conducted by their customers," JPMorgan said. "These issues fall outside the province of the bankruptcy court." Madoff, 72, pleaded guilty in March 2009 and is now serving a 150-year sentence in a North Carolina federal prison. — Reuters