The holders of more than two dozen retirement accounts have sued the Westport National Bank in Connecticut over its role in handling their investments in Bernard L. Madoff’s long-running Ponzi scheme.
The lawsuit, filed on Wednesday in Connecticut Superior Court in Stamford, seeks to recover $60 million that the retirement plans lost when the Madoff fraud collapsed in December, as well as millions of dollars in fees that the bank charged customers who maintained the accounts.
The focus of the lawsuit is the custodian agreement that the bank required each account holder to sign before it accepted any money to be invested with Mr. Madoff.
The agreement, a copy of which was filed as an exhibit in the case, states that the customer “has not relied on the bank in choosing” the Madoff firm.
But it also indicates that the bank would take custody of whatever investments Mr. Madoff made on the customers’ behalf. For example, the agreement specifically requires the bank to adequately document the customers’ ownership of investments made with the Madoff firm “and held by the bank as custodian.”
In fact, there was nothing for the bank to hold since Mr. Madoff never purchased any securities for his investors, according to the bankruptcy trustee liquidating the Madoff estate. Instead, he used most of the cash he received from investors to cover dividends and redemptions paid to other investors.