(Bloomberg News) Citigroup Inc.'s Citibank ignored warning signs of Bernard L. Madoff's Ponzi scheme, and a bank executive knew the con man's stated trading strategy couldn't generate the reported returns, the trustee liquidating Madoff's firm said in a lawsuit.
The unidentified Citibank executive, who was responsible for making recommendations to clients on derivatives, "concluded" by June 2007 that returns reported by a Madoff feeder fund, Fairfield Sentry Ltd., couldn't have come from the strategy, trustee Irving Picard said in a complaint unsealed yesterday. The executive reached his conclusion after meeting with analyst Harry Markopolis, a whistleblower who also alerted regulators to the fraud, Picard said in the complaint.
Later, the Citibank official communicated with Markopolis orally and in writing, specifically discussing the fraud before the Ponzi scheme was exposed in December 2008, Picard alleged.
Picard laid out in the complaint details of a lawsuit he filed under seal in December against Citigroup and other banks. He is demanding $425 million from Citigroup.
"Citi will vigorously defend against these claims by the trustee as they are entirely without merit and completely false," spokeswoman Danielle Romero-Apsilos said today in an e- mail.
At the time of his arrest, Madoff's statements reflected 4,900 accounts with $65 billion in nonexistent balances. Investors lost about $20 billion in principal.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, and the Citigroup case is Picard v. Citibank, 10-05345, U.S. Bankruptcy Court, Southern District of New York (Manhattan).