JP Morgan's Reputation at Stake in Lawsuit
The Wall Street Journal reported that the lawsuit filed by Irving Picard, the trustee of the Madoff bankruptcy, in December 2010 had been unsealed revealing allegations that JP Morgan Chase & Company ignored speculation that Bernard Madoff was running a Ponzi scheme. In particular, it is alleged that while the bank had concerns about the legitimacy of Madoff’s returns, it sought to make money by offering financial products (BLMIS feeder funds) tied to his scheme. The $6.4 billion suit focuses on the concerns that various JP Morgan employees raised concerns about Madoff’s credibility but they were ignored. David Sheehan, one of the lawyers working for Picard, said that the Bernard L, Madoff Investment Securities LLC, or BLMIS, account was being used to launder money from the Ponzi scheme and that “JP Morgan ignored its anti-money laundering obligations and repeatedly allowed suspicious transactions for high dollar amounts to occur.” In the amended complaint, it is alleged that there is a “smoking gun” email from a JP Morgan employee dated in June 2007 which says, “Fro whatever it is worth, I am sitting at lunch with (JPMC employee, name redacted) who just told me that there is a well known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
One of the nation’s largest banks, JP Morgan has added $2.8 billion in litigations reserves over the past two quarters combined as it faces lawsuits from investors over mortgage backed securities (MBS).