The trustee for jailed fraudster Bernard Madoff has claimed in a lawsuit that Citigroup ignored warning signs of the multi-billion dollar Ponzi scheme, it was reported on Tuesday night.
Irving Picard believes red flags about Bernard L Madoff Investment Securities LLC were apparent to Citi as early as 2005. The lawsuit seeks $425 million from the bank.
The trustee has also accused a Citibank executive of knowing that the Madoff’s trading strategy couldn’t generate the promised returns.
The unidentified banker, who was responsible for making recommendations to clients on derivatives, “concluded” by June 2007 that returns reported by a Madoff feeder fund, Fairfield Sentry, couldn’t have come from the strategy, it is claimed.
The lawsuit cited one email by the 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 email 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 on Tuesday that the allegations in the lawsuit were false and it would “vigorously defend against these claims”.
Mr Picard also has sued JPMorgan Chase & Co, Madoff’s primary banker, for $6.4bn, alleging the bank turned a blind eye as Madoff orchestrated his fraud.
JPMorgan has said it will defend itself, calling Mr Picard’s claims unfounded and saying it was not part of Madoff’s fraud.
Madoff is serving a 150-year prison sentence in Butner, North Carolina, after pleading guilty to orchestrating the biggest Ponzi scheme in US history. At the time of his arrest, Madoff’s statements reflected 4,900 accounts with $65bn in non-existent balances.
Investors lost about $20bn in principal. So far, Mr Picard and his team of lawyers have recovered about $10bn.
Meanwhile, financier Allen Stanford has been moved to the same prison in Butner where Madoff is serving his sentence. Stanford is awaiting trial on charges that he ran a $7bn Ponzi scheme. He has pleaded not guilty to the charges.