Case 2:14-cv-00184-JES-CM Document 7 Filed 06/20/14 Page 1 of 108 PageID 227 UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA FORT MYERS DIVISION DAVID ABEL; DONALD A. BENJAMIN; JOEL Case No.: 2:14-cv-184-FtM-29CM BUSEL REVOCABLE TRUST; SANDRA BUSEL REVOCABLE TRUST; FRANK & CAROL DIFAZIO AS TIC; RUSSELL DUSEK; MELVIN H. AND LEONA GALE JOINT REVOCABLE LIVING TRUST U/A/D 1/4/94; EDYNE GORDON AS EXECUTRIX OF THE ESTATE OF ALLEN GORDON; JEROME GOODMAN; BEN HELLER; WARREN M. HELLER; NORMA HILL; JABA ASSOCIATES, LP; CAROL KAMENSTEIN; DAVID KAMENSTEIN; PETER KAMENSTEIN; SLOAN KAMENSTEIN; TRACY KAMENSTEIN; EUGENE KISSINGER TRUST U/A/D 12/6/99; FREDERICK and SUSAN KONIGSBERG JTWROS; MARLENE KRAUSS; MARTIN LIFTON; PALMER FAMILY TRUST; PEERSTATE EQUITY FUND, LP; MARSHA PESHKIN; RAR ENTREPRENEURIAL FUND LTD.; JUDITH RECHLER; JOAN ROMAN; ROBERT ROMAN; SAGE ASSOCIATES; JEFFREY SHANKMAN; LORI SIROTKIN; STONY BROOK FOUNDATION; SYLVAN ASSOCIATES LIMITED PARTNERSHIP; WILENITZ TRUST U/ART FOURTH O/W/O ISRAEL WILENITZ; ROBERT YAFFE; YESOD TRUST, Plaintiffs, v. JPMORGAN CHASE & CO.; JPMORGAN CHASE BANK, N.A.; J.P. MORGAN SECURITIES LLC; J.P. MORGAN SECURITIES, LTD.; JOHN HOGAN; and RICHARD CASSA, Defendants. / FIRST AMENDED COMPLAINT & DEMAND FOR JURY TRIAL {N0048911 7 } Case 2:14-cv-00184-JES-CM Document 7 Filed 06/20/14 Page 2 of 108 PageID 228 TABLE OF CONTENTS Page NATURE OF ACTION ...................................................................................................................2 PARTIES .........................................................................................................................................5 Plaintiffs ...............................................................................................................................5 Defendants ...........................................................................................................................7 JURISDICTION AND VENUE ....................................................................................................11 PROCEDURAL HISTORY...........................................................................................................11 ALLEGATIONS COMMON TO ALL CLAIMS .........................................................................15 The Business of Madoff and of BLMIS ............................................................................15 JPMC’s Legal Obligations .................................................................................................21 JPMC’s Corporate Culture of Thievery .............................................................................22 The Defendants’ Active Complicity in the Illegal Activity of Norman Levy and Madoff................................................................................................................26 Defendants’ Knowledge that BLMIS Filed False FOCUS Reports ..................................31 A. The Undisclosed $100 Million Loan .........................................................31 B. The False Financial Information in the FOCUS Reports...........................34 Chase Abandoned its Credit Policies to Accommodate BLMIS .......................................37 JPMC Eagerly Became Madoff’s Co-Conspirator ............................................................39 JPMC Knew the FOCUS Reports Were False. ..................................................................43 BLMIS’ Relationship with Bear Stearns ...........................................................................46 JPMC’s Knowledge that Madoff was a Fiduciary .............................................................47 JPMC’s Criminal Enterprise ..............................................................................................48 BLMIS Feeder Funds and Other Players ...........................................................................52 JPMC’s Structured Products and Note Program ................................................................53 Disturbing Questions About Madoff .................................................................................57 {N0048911 7 } i Case 2:14-cv-00184-JES-CM Document 7 Filed 06/20/14 Page 3 of 108 PageID 229 The Proposed $1 Billion Investment in BLMIS Products .................................................60 The Investment Bank Ignored Clear Evidence of a Scam .................................................63 JPMC Quietly Removes All of Its Assets from the BLMIS Feeder Funds .......................70 JPMC’s Active Complicity in Madoff’s and BLMIS’ Crimes ..........................................72 JMPC’s History of Tolerating Fraudulent Conduct ...........................................................74 JPMC’s Ignored Madoff’s Dishonesty when Structuring Feeder Fund Investments ........................................................................................................................75 JPMC’s Admitted Knowledge That Madoff Was a Thief .................................................76 History Revisited ...............................................................................................................79 CLAIMS FOR RELIEF .................................................................................................................82 COUNT ONE: VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT.............................................................................................................82 BLMIS’ Primary Violations of Section 10(b) .......................................................82 Defendants Are Section 20(a) Control Persons .....................................................84 COUNT TWO: VIOLATION OF FLORIDA SECURITIES & INVESTOR PROTECTION ACT (“FSIPA”) ...................................................................87 COUNT THREE: AIDING AND ABETTING EMBEZZLEMENT ...............................88 COUNT FOUR: AIDING AND ABETTING BREACH OF FIDUCIARY DUTY ................................................................................................................................90 COUNT FIVE: UNJUST ENRICHMENT .......................................................................92 COUNT SIX: BREACH OF FIDUCIARY DUTY ..........................................................94 COUNT SEVEN: COMMERCIAL BAD FAITH ...........................................................95 COUNT EIGHT: GROSS NEGLIGENCE ......................................................................95 COUNT NINE: FEDERAL RICO....................................................................................96 COUNT TEN: FLORIDA RICO ACT ...........................................................................100 PRAYER FOR RELIEF ..............................................................................................................104 JURY DEMAND .........................................................................................................................105 {N0048911 7 } ii Case 2:14-cv-00184-JES-CM Document 7 Filed 06/20/14 Page 4 of 108 PageID 230 Plaintiffs David Abel, Donald A. Benjamin, Joel Busel Revocable Trust, Sandra Busel Revocable Trust, Frank & Carol DiFazio as TIC, Russell Dusek, Melvin H. and Leona Gale Joint Revocable Living Trust U/A/D 1/4/94, Edyne Gordon as Executrix of the Estate of Allen Gordon, Jerome Goodman, Ben Heller, Warren M. Heller, Norma Hill, JABA Associates, LP, Carol Kamenstein, David Kamenstein, Peter Kamenstein, Sloan Kamenstein, Tracy Kamenstein, Eugene Kissinger Trust U/A/D 12/6/99, Frederick and Susan Konigsberg JTWROS, Marlene Krauss, Martin Lifton, Palmer Family Trust, Peerstate Equity Fund, LP, Marsha Peshkin, RAR Entrepreneurial Fund Ltd., Judith Rechler, Joan Roman, Robert Roman, Sage Associates, Jeffrey Shankman, Lori Sirotkin, Stony Brook Foundation, Sylvan Associates Limited Partnership, Wilenitz Trust U/Art Fourth o/w/o Israel Wilenitz, Robert Yaffe, and Yesod Trust (collectively “Plaintiffs”) file this complaint against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd., John Hogan, and Richard Cassa (collectively, “JPMC” or “Defendants”). Plaintiffs’ factual allegations are based upon (a) the January 6, 2014 Deferred Prosecution Agreement between the United States of America and the Defendants (Ex. A hereto); (b) the January 6, 2014 Criminal Information against the Defendants (Ex. B hereto); (c) the January 6, 2014 Statement of Facts admitted by the Defendants (Ex. C hereto); (d) the facts set forth in the Amended Complaint (Unredacted) in Picard v. JPMorgan Chase & Co., filed in Case No. 1:11-cv-00913 (CM) (MHO), following the investigation by Irving H. Picard, Trustee (the “Trustee”), of the relationship between the Defendants and Bernard L. Madoff and his company, Bernard L. Madoff Investment Securities LLC (“BLMIS”); (e) the investigation made by the attorneys for the plaintiffs and the facts set forth in the consolidated amended complaint in Hill v. JPMorgan Chase & Co., 11 Civ. 7961 (CM) and Shapiro v. JPMorgan Chase & Co., 11 {N0048911 7 } 1 Case 2:14-cv-00184-JES-CM Document 7 Filed 06/20/14 Page 5 of 108 PageID 231 Civ. 8331 (CM) (the “Consolidated Class Action”); (f) upon Plaintiffs’ personal knowledge of their dealings with Madoff, BLMIS, and Defendants; and (g) upon the Defendants’ filings with the Securities and Exchange Commission (“SEC”). All of the facts contained in the aforesaid exhibits are incorporated herein as part of Plaintiffs’ factual allegations. NATURE OF ACTION 1. This is an action by customers