JPMorgan’s $218M Madoff Scheme Class Action Settlement Gets Preliminary OK

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A New York federal judge has preliminarily approved a $218 million class action settlement that will resolve claims by investors who lost millions of dollars from Bernard Madoff’s infamous scandal.

This class action settlement is part of a package of deals that are designed to repay the victims of Madoff’s Ponzi scheme. Under the terms of the class action settlement, JPMorgan will pay $218 million to settle the class action lawsuit, $325 million to settle a Security Investor Protection Act Trustee’s avoidance action and $1.7 billion in civil forfeiture as part of a deal made with a U.S. attorney in New York, for a total of $2.6 billion in settlements.

Class Members of the class action settlement include all former customers of Bernard L. Madoff Investment Securities LLC (BLMIS) with net losses, including those who did not file claims in the Securities Investor Protection Act proceeding.

Investors Paul Shapiro, Stephen Hill and Leyla Hill initially filed the class action lawsuits that alleged JPMorgan was complicit in Madoff’s Ponzi scheme because it continually overlooked evidence that money was transferred between Madoff and his investors rather than his investments. Initially, the plaintiffs wanted JPMorgan Chase & CO. to pay $19 billion, arguing the bank should be held partially responsible because it allowed the deceit to continue for such a long period of time.

“While numerous financial institutions enabled Madoff’s fraud, JPMC (JPMorgan) was at the very center of that fraud and thoroughly complicit in it.” The Hills’ class action lawsuit said. “JPMC could not perform even cursory due diligence on Madoff or BLMIS without bumping up against evidence of Madoff’s fraud. JPMC had before it the very nuts and bolts of the Ponzi scheme: the money customers deposited into BLMIS’ main account was not used to buy or sell securities, but instead was merely transferred to other customers in patterns that could serve no legitimate business purpose.”

The class action lawsuit further alleged that “JPMC chose to enable Madoff’s fraud, not just through the various ways it participated in his activity, but by helping to cover Madoff’s naked theft with the imprimatur of a globally recognized financial institution.”

U.S. District Judge Colleen McMahon determined that the proposed class action settlement was “fair, reasonable and adequate.”

A final approval hearing for the class action settlement has been scheduled for March 7, 2014.

This class action settlement is just the latest agreement by JPMorgan. In December, the bank agreed to pay more than $22 million to settle a force-placed insurance class action lawsuit. In 2012, JPMorgan agreed to pay $110 million to settle a class action lawsuit that accused the bank of charging improper overdraft fees.

The class is represented by Andrew J. Entwistle of Entwistle & Capucci LLP and Reed Kathrein of Hagens Berman Sobol Shapiro LLP.

The JPMorgan Madoff Class Action Lawsuit is Shapiro, et al. v. JPMorgan Chase & Co., et al., Case No. 2:11-cv-08331, in the U.S. District Court for the Southern District of New York.