Investor sues Madoff's bank

By Diana B. Henriques
New York Times / April 25, 2009
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NEW YORK - Victims of Bernard L. Madoff's Ponzi scheme have accused his banker, JPMorgan Chase, of aiding his crime by maintaining his checking accounts and trading with his brokerage firm long after the bank itself realized that its prized customer was running a vast fraud.

The accusation was made in a suit filed late Thursday in federal court in Manhattan by lawyers representing one of the latecomers to Madoff's scheme, a Florida partnership that deposited $12.8 million with him between October and early December.

A spokesman for the bank denied the accusation. "The allegations in this lawsuit are false and misguided, and we look forward to swift vindication in court," said Brian Marchiony, after the bank's legal staff reviewed the complaint.

Madoff was arrested on Dec. 11 and pleaded guilty on March 12 to securities fraud, perjury, and money-laundering. He is in jail awaiting sentencing.

In admitting his crime, Madoff acknowledged in court that he had moved hundreds of millions of dollars through his checking accounts to give the illusion of active investing, when in fact he purchased no securities at all for his thousands of clients.

But according to the new lawsuit, the average balance in his checking accounts at JPMorgan Chase ran into the billions of dollars between 2006 and the middle of 2008, as nervous customers moved money from seemingly riskier investments into Madoff's hands.

Those enormous account balances should have attracted the bank's attention, the complaint said. "Chase Bank permitted all funds from putative investors to be commingled in a single account and permitted Madoff to withdraw the funds as he saw fit, without limitation," it continued.

Then, in September 2008, the cash balance "began to drop precipitously," sometimes hovering near zero until Madoff could transfer fresh funds in from his London affiliate, according to the lawsuit. "In November 2008, the balance dropped close to zero several times," the complaint said, as "$300 million was deposited by victims to the Chase account and Madoff withdrew $320 million."

That violent ebb and flow of cash should have raised alarms at the bank, said Howard Kleinhendler of Wachtel & Masyr, the law firm representing the plaintiffs, a partnership called MLSMK Investments Co., based in Palm Beach, Fla.

In January, the bank acknowledged that it began withdrawing $250 million of its own money from one of Madoff's largest feeder funds last September.

In response to questions, it said only that the action followed a review of the funds by the bank's due diligence staff.