A lawsuit filed today charges that two long-time officials of JPMorgan Chase & Co and its prior companies noted irregularities in the business of Bernie Madoff and confronted him about them repeatedly, but failed to take action. The plaintiffs claim that the executives at the bank had “direct knowledge” of the Ponzi scheme being run by Madoff. Today’s lawsuit comes just 1 1/2 months after the company paid $2.6 billion in order to settle prior lawsuits filed by the trustee in charge of liquidating Madoff’s company, the U.S. government, and shareholders in relation to their failure to take action to stop Madoff’s Ponzi Scheme.
The settlement previously agreed to by JPMorgan, the nation’s largest bank, included a “deferred prosecution agreement” (DPA) in which the bank agreed to resolve criminal charges resulting from the bank not taking responsibility for its failure to stop Madoff’s scheme. The DPA did not include senior management at the bank, nor did it reveal how those executives knew of Madoff’s crime and knew that it should be shut down.
Chief Executive Jamie Dimon as well as 12 other former and current bank officials are named as plaintiffs in the lawsuit filed in Manhattan’s federal court and is partially based on statements given by Madoff, 78, during interviews he gave from and at the Butner, North Carolina, federal prison. According to the suit, the statements given by Bernie Madoff suggest that executives at JPMorgan knew of Madoff’s Ponzi scheme for 20 years, but ignored the issue instead of closing Madoff’s account and forfeiting the profits it brought to the bank.
The lawsuit names two senior officials who are alleged to have contronted Madoff several times regarding concerns they had regarding discrepancies in his filed reports, on which Bernie Madoff now admits that he lied. Those executives are Walter Shipley, former chief executive of Chemical Bank and Chase Manhattan Bank, and Robert Lipp, who was formerly a JPMorgan senior official. According to the suit, required reports produced by Madoff regarding a former client of both JPMorgan and Madoff led Lipp and Shipley to believe that the client’s money had not been invested. Over a series of lunches over twenty years, Lipp, Shipley, and their client met with Madoff in order to pass along the concerns that came up every quarter by bank managers and the chief risk officer of JPMorgan. In the suit, Madoff is quoted as saying that the concerns were usually raised “as an afterthought” towards the end of the lunch and that no action was taken against his Ponzi scheme, even though the bank’s senior executives knew about it, for fear of losing the client’s business.
The shareholders on whose behalf the suit was filed are the Central Laborer’s Pension Fund and the Steamfitters Local 449 Pension Fund. The lawsuit is asking for unspecified damages and an overhaul of bank regulations to prevent this sort of Ponzi scheme from occurring again.
JPMorgan had no statement on the latest lawsuit in a string of several filed against bank executives that implicate JPMorgan for its failure to stop Madoff’s Ponzi scheme after they knew it was happening. Madoff’s crime became public in Dec. 2008, and after he pleaded guilty to committing fraud in Mar. 2009, he was sentenced to 150 years in prison. He attributes his coming forward with this new information to a desire based on guilt to help his victims recoup some of their losses. It is estimated that those who invested with Bernie Madoff lost a total of $17.3 billion.
By Jennifer Pfalz