NYC Judge Rejects Madoff Trustee's $19 Billion Claim From JPMorgan

(November 2, 2011) — A federal judge has thrown out the majority of a $19.9 billion lawsuit against JP Morgan Chase & Co — which had been Bernie Madoff’s main bank for two decades — along with a $2 billion case against UBS AG.

The move comes as a setback for the trustee, Irving Picard, who has spent nearly three years liquidating Bernard L Madoff Investment Securities LLC. US District Court Judge Colleen McMahon in Manhattan stated that Picard had no power to pursue common law claims against the banks, saying such claims properly belong to former Madoff customers, Reuters reported.

“Practically, giving the trustee the power to pursue claims on behalf of creditors would usurp the creditors’ right to determine whether and in what forum to vindicate their legal injuries,” Judge McMahon wrote. Picard concluded that through its connections to funds that fueled the Ponzi scheme, JP Morgan and UBS had both overlooked warning signals about the fraud.

In a statement, JPMorgan said the firm is “pleased that Judge McMahon agreed with our arguments and has dismissed all of the trustee’s common law claims for damages.”

Since Madoff’s Ponzi scheme collapsed on December 11, 2008, Picard has filed about 1,050 lawsuits on behalf of former Madoff customers, with the JPMorgan lawsuit being his second-largest. In August, Picard filed a lawsuit against Abu Dhabi’s sovereign-wealth fund seeking to recover $300 million. The lawsuit marked the first time Picard targeted a sovereign wealth fund in the scandal.

However, unlike many other lawsuits that Picard has filed in the past year, the claim against the Abu Dhabi Investment Authority (ADIA) did not allege that the sovereign wealth fund’s managers knew or should have known that Madoff was a fraud. Instead, the suit claimed that ADIA invested in Madoff’s massive Ponzi scheme through the Fairfield Sentry hedge funds, withdrawing $300 million in 2005 and 2006. A trustee can seek the return of money withdrawn in the six years before a business collapses, according to US bankruptcy law.