Trustee: JPMorgan Turned Blind Eye to Epic Madoff Fraud

JPMorgan Chase (NYSE:JPM) was "at the very center" of the massive $65 billion Madoff Ponzi scheme that defrauded countless investors, the trustee seeking to recover money from the fraud alleged in court documents unsealed this week.

According to the 115-page lawsuit filed by Irving Picard, JPMorgan ignored or waved off warning signs that Bernard Madoff's operation was a farce even as it called his remarkably consistent returns "too good to be true."

JPMorgan, which was the principal banker for Madoff's firm for more than 20 years, strongly disagreed with the accusations, calling it "meritless" and saying it is "based on distortions of both the relevant facts and the governing law."

The Madoff trustee made the $6.4 billion lawsuit public on Thursday. Picard is seeking the return of almost $1 billion in profits and fees and $5.4 billion in damages.

"While numerous financial institutions enabled Madoff's fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it," the suit said.

The Madoff trustee alleges JPMorgan profited from the Ponzi scheme by selling structured products related to Madoff feeder funds to its clients.

"Its due diligence revealed the likelihood of fraud at" Madoff's firm, but JPMorgan "was not concerned with the devastating effect of fraud on investors," the lawsuit says.

According to the lawsuit, JPMorgan did not report its suspicions until October 2008, two months before Madoff surrendered to authorities.

In one June 2007 email, a JPMorgan bank risk officer said a colleague told him "there is a well-known cloud over the head of Madoff and this his returns are speculated to be a part of a (P)onzi scheme."

Another JPMorgan employee attempted to persuade the bank in February 2006 to "assess quality and detail" of statements from Madoff because it could face "significant" penalties if they were found to be "fraudulent or inaccurate."

Yet a JPMorgan spokesperson said the bank "did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff."