New Madoff case alleges JP Morgan role; money used for sex, drugs

Oct 21, 2009, 17:36 GMT

New York - A new civil case against Bernard Madoff, the convicted Wall Street fraudster, charges that two major US banks abetted him in his 65-billion-dollar Ponzi scheme and that the stolen money was used for drugs and wild parties.

A California law firm, Cotchett Pitre & McCarthy, filed the case in New York state Supreme Court on behalf of an investor, Rye Select Broad Market Prime Fund, which was financially burnt by the affair, Bloomberg financial news service reported Wednesday.

Investors are seeking damages from JP Morgan Chase & Co, Bank of New York Mellon Corp and other firms, including the auditing firm KPMG of London.

Madoff, 71, was arrested in December 2008 and pleaded guilty in March to running a pyramid scheme, under which his firm paid huge returns to old investors by collecting money from new ones. He is serving a prison sentence of 150 years at a federal prison in Butner, North Carolina.

The new court filing updates a previous case filed on behalf of investors who put money in a fund managed by Tremont Partners Inc. It is one of many claims working their way through the courts as Madoff's US and global victims trying to reclaim losses and damages.

'This fraud was not accomplished in isolation,' according to the complaint. The size and scope of the fraud necessitated the cooperation and assistance of many individuals and institutions who either knowingly or with willful blindness participated in the fraud.'

JP Morgan, a custodian of Madoff's accounts, indirectly encouraged investments with Madoff by selling Madoff-linked structured notes to investors, the complaint charges. Bank of New York allegedly acted as administrator of so-called feeder funds to Madoff and failed to carry out its duties to independently determine the value of his funds.

The London auditing firm KPMG failed to raise 'red flags that investors' money was used by Madoff as his personal piggy bank,' the complaint alleges, thus keeping alive the myth that securities were actually being traded, the California law firm said in its statement about the suit.

Details of Madoff's alleged use of ill-gotten money for cocaine and sex were contained in the legal complaint.

A culture of sexual deviance existed in the office,' according to the complaint. Employees described it as a wild, fast-talking, drug- using office culture.'

Attorney Joseph Cotchett visited Madoff in prison to prepare for the case. The court complaint offers details of Madoff's life in jail, drawing contrasts to his life before conviction in various luxury villas and apartments around the world.

'Madoff now shares a cell with a 21-year old inmate convicted of drug crimes. Madoff sleeps in the lower bunk and he eats pizza cooked by an inmate convicted of child molestation,' the lawyer writes in the court document. 'He now spends time with former Colombo crime family boss Carmine Persico and Jonathan Pollard, who was convicted of spying for Israel.'

Madoff's attorney, Ira Sorkin, refused to comment on the newest case, other than saying 'he should have filed them with People magazine instead of the court.'