Trustee’s Claims

The trustee liquidating Madoff’s firm, Irving H. Picard, sued JPMorgan in December 2010, accusing the bank of aiding Madoff’s fraud. The lawsuit, eventually demanding $19 billion, the largest of Picard’s claims, has since been dismissed. Picard has appealed the ruling.

JPMorgan “had financial reports in its possession that clearly evidenced fraud,” David J. Sheehan, lead counsel for Picard and a partner at Baker & Hostetler LLP, said in a February 2011 statement. JPMorgan was the Madoff firm’s “primary banker for more than two decades,” Sheehan said.

JPMorgan benefited from Madoff accounts while it “helped perpetuate Madoff’s fraud by ignoring the red flags, and continuing to structure products and collect fees for their own enrichment,” according to the trustee’ lawsuit.

The bank would have made $398 million in pretax profit from Madoff deposits from 1986 to 2008, conservatively assuming no reinvestment gain, according to a 2011 study by Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette. The firm declined to comment on the study at the time.

Withdrawing Investments

The trustee’s claim also accused the bank of withdrawing $276 million in its own investments in Madoff-related feeder funds about three weeks before Madoff’s Dec. 11, 2008, arrest. JPMorgan described the withdrawals as part of “an across-the- board review of its exposure to hedge funds,” according to its court filings.

In responding to Picard’s suit, the bank issued a statement in 2011 saying it “did not know about or in any way become a party to the fraud” and called it an “unfounded claim” that JPMorgan earned substantial fees from Madoff’s account. JPMorgan also objected in court when the trustee sought more freedom to use confidential Madoff documents provided by the bank.

The OCC is also investigating the trading losses in the bank’s chief investment office and is preparing an enforcement action, according to a person briefed on the situation who asked not to be named because the matter isn’t public. The cease-and- desist order would require the bank to fix internal risk controls, the person said.

FERC Dispute