Shapiro v. JPMorgan Chase & Co.
| Decision Date | 24 March 2014 |
| Docket Number | No. 11 Civ. 7961 (CM),No. 11 Civ. 8331 (CM) (MHD),11 Civ. 8331 (CM) (MHD),11 Civ. 7961 (CM) |
| Court | U.S. District Court — Southern District of New York |
| Parties | PAUL SHAPIRO, on behalf of himself as an individual, and on behalf of all others similarly situated, Plaintiff, v. JPMORGAN CHASE & CO., JPMORGAN CHASE BANK, N.A., J.P. MORGAN SECURITIES LLC, and J.P. MORGAN SECURITIES, LTD., Defendants. STEPHEN and LEYLA HILL, on behalf of themselves as individuals, and on behalf of all others similarly situated, Plaintiffs, v. JPMORGAN CHASE & CO., JPMORGAN CHASE BANK, N.A., J.P. MORGAN SECURITIES LLC, and J.P. MORGAN SECURITIES, LTD., Defendants. |
AMENDED MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS'
MOTIONS FOR FINAL CLASS ACTION SETTLEMENT APPROVAL AND
ATTORNEYS' FEES
On January 10, 2014, this Court preliminarily approved a settlement agreement1 between plaintiffs Paul Shapiro, Stephen Hill and Leyla Hill, individually, and on behalf of a putative class (the "Plaintiffs"), Intervenor Irving H. Picard, Trustee of the SIP A liquidation of Bernard L.Madoff Investment Securities LLC ("BLMIS") and the estate of Bernard L. Madoff (the "SIPA Trustee") and defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd. (collectively, "JPMorgan").2 The settlement of this class action is an integral piece of a global resolution of Madoff-related litigation against JPMorgan involving three simultaneous, separately negotiated settlements totaling $2,243,000,000 consisting of: (i) this class action settlement in the amount of $218 million (the "Settlement"); (ii) the SIPA Trustee's Avoidance Action settlement in the amount of $325 million;3 and (iii) a civil forfeiture in the amount of $1.7 billion in connection with a resolution of U.S. government claims against JPMorgan concerning Madoff-related matters. The entire $2,243,000,000 will flow to victims of Madoff s Ponzi scheme.
Since the Preliminary Approval Order, Plaintiffs have provided direct notice of the Settlement to what is reasonably believed to be every member of the settlement class, and published notice in accordance with the Preliminary Approval Order. As further described herein, the notices were also available on numerous websites. The deadline by which settlement class members may opt-out of the class or object to the settlement was Friday, February 28, 2014; there was only one objection—though a group of former Madoff "investors" who are not encompassed within the definition of the preliminarily certified Settlement Class filed a notice of intent to "opt out" of a settlement to which they are not parties.
For all of the reasons set forth in the Plaintiffs' Memorandum of Law in Support of Motion for Preliminary Approval of Settlement with Defendants [Docket No. 50] ("Preliminary Approval Memorandum"), and as further discussed herein, the court finds that the Settlement easily meets the standards for final approval in this Circuit and merits the approval of this Court.
Subject to the Court's final approval, Plaintiffs have agreed to settle their claims against JPMorgan in exchange for a $218 million cash payment. JPMorgan has also agreed to make a separate payment, in addition to the settlement amount, of up to $ 18 million for attorneys' fees and expenses to Co-Lead Counsel in connection with the Settlement.
The proposed Settlement, which will resolve all of the Plaintiffs' claims against JPMorgan arising from JPMorgan's conduct as one of Bernard L. Madoff's primary banks, provides a significant benefit to the Settlement Class. The Settlement provides substantial and immediate benefits to the Settlement Class, providing millions of dollars to injured Class members, while avoiding the need for extensive, complex and uncertain litigation against one of the largest banks in the world, represented by highly sophisticated and experienced counsel.
Co-Lead Counsel, who have extensive experience in prosecuting complex class actions, strongly believe the Settlement is in the best interests of the Class, an opinion which is entitled to "great weight."4 Further, on February 5, 2014, Bankruptcy Judge Bernstein, who is overseeing the SIPA Liquidation of BLMIS, on motion of the SIPA Trustee, approved and authorized theSettlement pursuant to Rules 2002 and 9019 of the Federal Rules of Bankruptcy Procedure.3 Judge Bernstein's intimate familiarity with the Madoff matter causes this court to view his conclusions with particular deference.
In the Class Complaint, the Class Plaintiffs alleged that JPMorgan played a central role in the Ponzi scheme perpetrated by Bernard L. Madoff and BLMIS. The Class Plaintiffs allege that JPMorgan had actual knowledge of the scheme, was in a position to stop it, but did nothing. From approximately 1986 on, Madoff's primary account through which most, if not all, of the funds of BLMIS flowed, was a depository account at JPMorgan referred to as the "703 Account."6 By 2006, and between 2006 and 2008, the 703 Account had billions of dollars in cash deposits.7 Every customer opening an account with Madoff received an account number, and was instructed to either wire funds or send funds to the 703 Account.8 As the financial markets began a sharp decline in 2008, the balance in the 703 Account began to drop precipitously and dropped to nearly zero on several occasions.9 Although the 703 Account was the primary account used by BLMIS, Class Plaintiffs allege that none of the money in the 703 Account was ever used to purchase a single security - a fact that should have been obvious to JPMorgan.10 Instead, the funds in theaccount merely flowed back and forth between Madoff customers in furtherance of the Ponzi scheme.11
In this regard, Class Plaintiffs' investigations focused on, among other transactions, numerous round trip transactions involving Madoff friend and insider Norman Levy, internal documents that commented on these questionable transactions very early in the relevant period, and the fees received by JPMorgan in connection with Madoff, including those related to the 703 Account.
In addition to the knowledge that Class Plaintiffs allege JPMorgan had by virtue of the 703 Account, Class Plaintiffs allege that JPMorgan acquired knowledge of the Ponzi scheme in connection with transactions in which JPMorgan was involved during the relevant time period. For example, in 2005 and 2006, JPMorgan was involved in various lending activities with Madoff. In 2006 and 2007, JPMorgan began considering the structuring and issuing of certain financial products that would be based on feeder funds tied to Madoff.12 In connection with those transactions, JPMorgan performed due diligence on the feeder funds, and since these funds were invested with Madoff, attempted unsuccessfully to perform due diligence on BLMIS itself.
We now know that, in the process of conducting due diligence, JPMorgan even spoke directly to Madoff, and Madoff stated he would not permit due diligence on his operations.13 In addition, JPMorgan's due diligence raised questions about BLMIS' auditor, noting, among other things, that the auditor was not registered with the Public Company Accounting Oversight Board, or subject to peer reviews from the American Institute of Certified Public Accountants.14 Finally, the feeder funds themselves often did not permit access to the agreements they had with Madoff,preventing JPMorgan from understanding the relationship between such funds and Madoff.15 Internally, at JPMorgan, during the due diligence with regard to these investments, certain JPMorgan employees unsuccessfully attempted to recreate Madoff results, and raised various other concerns at Underwriting Committee Meetings and in various other contexts and "health checks," with one employee even going so far as to state that there "is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme."16 Notwithstanding these obvious red flags, JPMorgan allowed the scheme to continue without any reporting to U.S. authorities, despite the fact that it filed a SAR report in the UK, and, despite its AML obligations, failed to follow up and take appropriate action in connection with warnings from other banks related to Madoff. and failed to follow through on internal "alerts" or to otherwise heed "triggers" that related to the 703 Account and other Madoff-related activities.
Despite the above and without any reporting to U.S. regulators, JPMorgan redeemed over a quarter billion dollars of its own interests in BMIS feeder funds--managing to redeem all but $80 million in Madoff-related investments before Madoff s December 2008 arrest. BLMIS customers, on the other hand, lost their investment capital of approximately $19 billion.
As is now well documented, in December 2008, it was revealed that Madoff and BLMIS, perpetrated the largest Ponzi scheme in history. Shortly following this revelation, the Securities Investor Corporation ("S1PC") filed an application in the United States District Court for the Southern District of New York under § 78eee (a)(3) of the Securities Investor Protection Act of 1970 ("SIPA") alleging, inter alia, that BLMIS was not able to meet its obligations to securities customers as they came due and, accordingly, its customers needed the protections afforded bySIPA.17 On December 15, 2008, the District Court granted the SIPC application and entered an order under SIPA, which, in pertinent part, appointed Irving H. Picard as Trustee for the liquidation of the business of BLMIS under the SIPA, and removed the case to the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") under section 78eee(b)(4) of SIPA, where it is currently pending as SIPC v. BLMIS, No. 08-01789 (BRL) (the "SIPA proceeding"). Bernard Madoff's Chapter 7 case was...
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