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JPMorgan Dodges Further Liability in Ponzi Scheme

(CN) — Investors defrauded by Bernie Madoff waited too long to sue JPMorgan Chase for failing to notice suspicious activity in Madoff's accounts for two decades, the 11th Circuit ruled.

From 1986 until Bernard Madoff was arrested on Dec. 11, 2008, virtually all the money in his giant Ponzi scheme flowed through accounts at JPMorgan Chase.

Madoff was sentenced to 150 years in federal prison for his role in the conspiracy that defrauded thousands of investors of billions of dollars.

When the Ponzi scheme collapsed, Madoff Securities had more than 4,000 client accounts and claimed to have a combined balance of $65 billion, though only $300 million actually remained.

JPMorgan Chase entered into a deferred prosecution agreement in 2014, agreeing to pay $1.7 billion in cash for its role in the conspiracy.

The bank paid the trustee of Madoff Investment Securities $325 million to settle bankruptcy claims, and $218 to settle claims from investors who lost funds when the Ponzi scheme fell apart.

Investors then sought to hold JPMorgan, its Chief Risk Officer John Hogan, and Client Relationship Manager Richard Cassa liable for ignoring red flags and suspicious bank activity in Madoff's accounts.

But a federal judge dismissed the securities claims as untimely and found that investors' Racketeer Influenced and Corrupt Organizations (RICO) claims were barred.

The 11th Circuit affirmed Wednesday.

"Appellants' right to bring the Section 20(a) claim expired, at the latest, on December 11, 2013, five years after Madoff was arrested and BLMIS [Bernard L. Madoff Investment Securities] was closed," U.S. District Judge Roger Titus said, sitting by designation from the District of Maryland. "They did not file their claim until March 28, 2014. Accordingly, their claims are time-barred and were properly dismissed."

Further, the Private Securities Litigation Reform Act bars plaintiffs from filing a RICO claim when the underlying conduct is actionable as securities fraud.

"A plaintiff may not dodge this bar by pleading other offenses as predicate acts in a civil RICO action if the claim is based on conduct that would have been actionable as securities fraud," Titus said.


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