Citigroup Inc. tried to pass its exposure to Bernard Madoff to other banks just months before his epic fraud was revealed, the Madoff trustee said in a lawsuit accusing a second major U.S. bank of unsavory dealings with the financier.
Trustee Irving Picard said red flags about Bernard L. Madoff Investment Securities LLC were apparent to Citi as early as 2005, according to court papers unsealed Monday. The lawsuit seeks $425 million from the bank.
Madoff was arrested in December 2008 after admitting he ran a decades-long, multibillion-dollar swindle, considered the biggest investment fraud in history.
Picard also has sued JPMorgan Chase & Co., Madoff’s primary banker, for $6.4 billion, alleging the bank turned a blind eye as Madoff ran a Ponzi scheme.
Portions of both suits were edited to conceal the names of bank personnel and others. The suit against Citi was filed on Dec. 8 in U.S. Bankruptcy Court in New York.
It cited one e-mail by a Citigroup Global Markets Ltd. trader in September 2008 reaching out to another bank, which was unidentified.
“We’re needing to terminate our Madoff trade. Do you have appetite for that risk over there?” the e-mail said.
According to the court document, the other bank responded, “don’t think so, madoff is not very popular here either.”
Citi said in a statement Tuesday that the allegations in the suit were false and it would “vigorously defend against these claims.”
Madoff, now 72, pleaded guilty in March 2009 to criminal charges of running a Ponzi scheme of as much as $50 billion. He is serving a 150-year prison sentence.
A Ponzi scheme is one in which early investors are paid with the money of new clients with no actual trading taking place.
Picard is also suing the owners of the New York Mets professional baseball team over their ties to Madoff. They deny knowing about the fraud. The club plays at Citi Field, which is not a target of the litigation.
“By no later than June 2007, and likely several years earlier, Citi had knowledge of the possibility of Madoff’s Ponzi scheme,” Picard’s complaint said.
The complaint said Citi could have noticed red flags as early as 2005. It cited a $300 million loan transaction that year for Prime Fund, part of Tremont Capital Management Inc., a so-called feeder fund for Madoff.
It said Citigroup personnel had an opportunity to meet and befriend Harry Markopolos, a financial analyst who later became famous because his warnings to regulators about Madoff were ignored.
So far, Picard and his team of lawyers have recovered about $10 billion. The trustee estimates that investors lost principal totaling about $20 billion.
Picard and his team have sued hundreds of individuals, banks and funds around the world that he asserts benefited improperly from the epic fraud.
The case is Irving Picard, trustee for the liquidation of Bernard L. Madoff Investment Securities LLC v Citibank and Citigroup Global Markets Limited, U.S. Bankruptcy Court for the Southern District of New York, No. 10-05345.
