Source: The Associated Press

The bank used most by Bernard Madoff was “wilfully blind”and “thoroughly complicit” in the disgraced financier’s epic fraud, lawyers working for a court-appointed trustee alleged Thursday.

J.P. Morgan Chase responded by accusing trustee Irving Picard of “blatantly distorting” the bank’s role.

Picard is in the midst of a nearly two-year quest to recover funds for Madoff’s victims with a flurry of lawsuits against financial institutions and brokers. The latest suit, filed in federal bankruptcy court in Manhattan, seeks US$6.4 billion from J.P. Morgan and its affiliates.

The suit alleges that as Madoff’s primary bank for 20 years, J.P. Morgan had to know that the unwavering double-digit returns Madoff reported to wealthy investors were too good to be true. The trustee cited bank documents showing questionable transactions by Madoff as evidence it was in on the scheme.

The bank “was wilfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” said David J. Sheehan, an attorney working for Picard. “While many financial institutions enabled Madoff’s fraud, JPMC was at the very centre of that fraud, and thoroughly complicit in it. … Madoff would not have been able to commit this massive Ponzi scheme without this bank.”

In a statement, J.P. Morgan denied having any suspicions about Madoff. It said it followed all commercial banking regulations in its dealings with him.

“The complaint filed today by the trustee for the Madoff estate blatantly distorts both the facts and the law in an attempt to grab headlines,”the statement said. “Any suggestion that J.P. Morgan supported Madoff’s fraud is utterly baseless and demonstrably false.”

J.P. Morgan also challenged allegations that it profited from the fraud by using its foreign affiliates to invest in offshore funds that traded with Madoff.

“Those affiliates,” it said, “invested significantly more than they ever redeemed.”

Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting that he ran his scheme for at least two decades, using his secretive investment advisory service to cheat thousands of individuals, charities, celebrities and institutional investors. Losses are estimated at around US$20 billion, making it the biggest investment fraud in U.S. history.

Last month, the trustee filed a similar suit seeking to recover US$2 billion from UBS AG. The bank called the allegations “completely unfounded.”

In the suit against J.P. Morgan, the trustee seeks US$5.4 billion in damages and US$1 billion in fees and profits.