A senior JPMorgan Chase risk officer was warned Bernard Madoff was suspected of running a Ponzi scheme nearly 18 months before the broker was charged with a $19.6bn fraud, according to a newly unsealed court filing.
The allegation is part of a $6.4bn lawsuit filed against the US bank by Irving Picard, the trustee charged with recovering money for Madoff's victims, the Financial Times reports.
The lawsuit seeks to recover $1bn in fees and profits that JPMorgan took as the primary banker to Madoff's business and by structuring Madoff-related derivatives, plus $5.4bn in damages.
The 114-page complaint unsealed on Thursday was originally filed secretly at JPMorgan's request.
It was one of nearly 60 lawsuits the trustee filed late last year seeking more than $40bn from dozens of banks, hedge funds and individuals he claims profited from Madoff's fraud.
Picard alleges that JPMorgan ignored billions of dollars in suspicious transfers in Mr Madoff's bank business account and repeatedly failed to follow up on concerns raised by employees involved in Madoff structured products, the Financial Times reports.
JPMorgan argues Picard's complaint "is meritless and is based on distortions of both the relevant facts and the governing law".
"Contrary to the trustee's allegations, JPMorgan did not know about or in any way become a party to the fraud," it said.
Picard's complaint quotes from several e-mails in which JPMorgan employees raised questions.
"It doesn't look pretty," wrote one about the Aurelia hedge fund's arrangements, and another alllegedly complained "Mr. Madoff will not allow us to conduct any due diligence on him."
JPMorgan began pulling its own money out of Madoff-related products in 2008, after the acquisition of Bear Stearns prompted a new look at hedge fund exposure. It reported the broker to the UK Serious Organised Crime Agency in October 2008, saying Madoff's returns "appear too good to be true."
Madoff turned himself in to authorities in December 2008 and is serving a 150-year fraud sentence.
What made financial headlines over the weekend?
Q2 net sales dropped almost 50%
‘Important to have an anchor’
Lack of innovation for solutions