Madoff Investors Sue KPMG and Major Banks

NEW YORK/LOS ANGELES (Reuters) - Some investors defrauded by epic swindler Bernard Madoff on Tuesday added accounting firm KPMG , JPMorgan Chase and Bank of New York Mellon to a civil lawsuit in a New York court, lawyer Joseph Cotchett said.

The lawyer, who also named Oppenheimer Acquisition Corp, Massachusetts Mutual Life Insurance , Tremont funds founder Sandra Manzke and former Tremont Chief Executive Robert Schulman in the amended lawsuit, said the complaint was based on his law firm's prison interview with Madoff in July, months of investigation and interviews with former employees.

Cotchett said "KPMG never blew the whistle on fraudulent conduct" at Madoff's British firm, Madoff Securities International Ltd, which the accounting firm audited.

The accounting firm also allegedly failed to catch "red flags" while auditing the feeder funds, including Tremont, that poured billions of dollars into Madoff's operations, the lawsuit read.

"The complaint alleges Bernard Madoff's fraud was not accomplished in isolation," the law firm said in a statement.

It "alleges JP Morgan and the Bank of New York as well as powerhouse accounting firm KPMG LLP and their international counterparts, KPMG UK and KPMG International, were primary players necessary to accomplish the fraud."

"JPMorgan Chase, the complaint alleges, helped Madoff launder money between the United States and London -- almost $6 billion of investors' money," said Cotchett, whose law firm Cotchett, Pitre and McCarthy is based in Burlingame, California.

The bank turned a blind eye to billions of dollars in transfers between Madoff's U.S. and U.K. accounts, which were engineered to make it appear that Madoff was able to sustain double-digit returns as the U.S. economy soured by trading in Europe, according to the complaint.

The lawsuit accuses JP Morgan and Bank of New York Mellon, administrator of the Rye Select Broad Market Prime Funds in which the plaintiffs invested, of failing to file Suspicious Activity Reports regarding suspicious money transfers between New York and London.