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JPMorgan Chase accuses Madoff trustee of skirting the law

JP Morgan says trustee Irving Picard, who is suing to recover $6.4 billion for victims of the massive Ponzi scheme, exceeded his authority by filing the case in Bankruptcy Court, where a judge rather than a jury would rule on it.

February 09, 2011|Reuters

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 U.S. 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 instead belongs in district court because it involves "significant" banking and securities law issues.

"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.

Kevin McCue, a spokesman for Picard, did not respond to a request for comment Wednesday.

A ruling in the case could affect other 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.

"JPMorgan has a good claim if laws other than bankruptcy laws are shown to be central," said Jean Braucher, resident scholar at the American Bankruptcy Institute. "In a major action such as this, which could be independent of the trustee winding up Madoff's brokerage house, a district court could decide to take the case anyway."

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 and UBS.

JPMorgan was the main banker for Madoff's firm, Bernard L. Madoff Investment Securities, for more than 20 years. It has said it did not know about or assist in Madoff's fraud.

"The crux of this lawsuit is that JPMorgan breached its duties as Madoff's banker, and hinges on what a bank's duties are when there are red flags about a customer," said Philip Bentley, a partner at Kramer Levin Naftalis & Frankel.

"The lawsuit is very different from most of Picard's lawsuits, which seek to claw back money from Madoff investors rather than seek damages for aiding and abetting a fraud," added Bentley, who represents some of these former investors.

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