Having had Bernard L. Madoff as a client may prove to be very costly for J.P. Morgan Chase as victims seek deep pockets for restitution.

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How much did Bernard Madoff's bankers know about his fraud?

Madoff's disclosure Thursday that he had deposited billions of dollars of his investors' money into a bank account instead of buying securities seems certain to focus attention on the bank, J.P. Morgan Chase.

The charges Madoff pleaded guilty to include money laundering. In the statement he read during his guilty plea in federal court in Manhattan, Madoff said he didn't invest clients' money in securities, as he had promised. "Instead, those funds were deposited in a bank account at Chase Manhattan Bank," he said. Chase Manhattan now is part of J.P. Morgan Chase.

Madoff acknowledged transferring money deposited in the Chase account to accounts operated by a Madoff-owned firm in London, and then transferring the money back again to the U.S., partly to make it appear falsely that he was executing trades in European markets, as he had claimed to federal regulators. In fact, Madoff admitted, he made no trades at all with investors' funds.

It's against the law for a bank to accept funds that it knows, or has reason to believe, were derived from fraud. It's obliged to report suspicions of fraud to authorities. So far there has been no indication that Chase is the subject of any investigation or suspected of any wrongdoing. But based on Madoff's disclosure in court, investors' lawyers, desperate to find deep pockets to sue, almost certainly will begin making inquiries—and some say they have already.

Howard Kleinhendler, a lawyer whose firm represents about a dozen Madoff investors, said his firm already has been looking into the Chase account. He said any successful lawsuit would hinge on showing that someone at the bank had knowledge of the fraud, or that activity in the account was so unusual that the bank should have filed suspicious activity reports required by banking regulations. "We've certainly been looking into that issue," he told Condé Nast Portfolio.

Madoff's use of the account, though, raises several questions Chase may be pressed to answer, especially if, as Madoff seemed to imply, at least at times it held billions of dollars.

For example, did it seem odd to Chase bankers that someone running an investment fund was allowing large amounts of cash to sit for significant periods? Did the bank ever ask about the purpose of the account and the source of funds? Who were Madoff's bankers at Chase, and what sort of relationship did he have with them?

Chase spokesman Joe Evangelisti declined to comment. Chase has said it froze all Madoff accounts just after his arrest, when the Securities and Exchange Commission obtained a court order freezing all of his assets.

Madoff said he used some of the money deposited into the account to pay off earlier customers who wanted to withdraw funds he supposedly had invested for them. Some too went to helping pay the overhead of his New York firm, which included a wholesale securities trading operation Madoff says was entirely legitimate.

Aside from any possible liability by the bank, the account records themselves may show major additional clues to where the money went, such as how it may have been converted to Madoff's personal use or to people close to him. Irving Picard, the court-appointed trustee overseeing the effort to recoup investors' money, didn't immediately respond to a request for comment.