By Agency Reporter

Friday, 11 Feb 2011

JPMorgan Chase & Company accused the trustee seeking $6.4bn for victims of Bernard Madoff’s Ponzi scheme of doing an end run around the law in pursuing his case, and said it had a right to a jury trial.

Reuters reported on Thursday that the second-largest United States bank said court-appointed trustee Irving Picard was exceeding his authority by suing in bankruptcy court, where a judge rather than a jury would decide the case.

It said the case instead belonged 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 a comment on Wednesday.

A ruling in the case could affect some other lawsuits that Picard has filed to recover money from companies and individuals he believes benefited from Madoff’s estimated $65bn 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 Mr. 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,” she added.

Picard has filed lawsuits seeking more than $50bn. Defendants include the owners of the New York Mets baseball team, from whom he seeks as much as $1bn, and other banks such as HSBC Holdings Plc and UBS AG.

JPMorgan was the main banker for Madoff’s firm, Bernard L. Madoff Investment Securities LLC, 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 LLP.

“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.

Picard so far has recovered about $10bn for former Madoff clients. The trustee is a partner at Baker & Hostetler LLP. JPMorgan’s court filing was submitted by John Savarese, a partner at Wachtell Lipton Rosen & Katz.

Source: Punch