Top JPM execs warned of Madoff scheme

Written by Biloxi

On Thursday, a 114-page complaint filed by Irving Picard, the trustee charged with recovering money for Mr Madoff’s victims, was unsealed that accused  JPMorgan Chase of "ignoring billions of dollars in suspicious transfers in Mr. Madoff’s bank business account and repeatedly failed to follow up on concerns raised by employees involved in Mr. Madoff structured products." The complaint was originally filed secretly at JPMorgan’s request. This lawsuit is one of 60 lawsuits filed by Mr. Picard that is seeking more than $40 billions from dozens of banks, hedge funds and individuals that he claims profited from Mr Madoff’s fraud. Mr. Picard seeks to recover $1billion in fees and profits that JPMorgan Chase reaped as the primary banker to Mr. Madoff’s business and $5.4billion in damages by structuring Madoff-related derivatives. JPMorgan Chase was Mr. Madoff’s primary bank for more than 20 years, and Chase also sold structured products related to the hedge funds that sent money to the Mr. Madoff's scheme. JPMorgan Chase denied Mr. Picard's allegation and said that JPMorgan Chase played no role into Mr. Madoff's Ponzi scheme and fraud. However, Mr Picard’s complaint quotes from several emails in which JPMorgan Chase employees raised questions of Mr. Madoff running a possible Ponzi scheme.

In an email, JPMorgan Chase risk officer allegedly wrote that he had been told by another JPM employee “that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a [P]onzi scheme-he said if we google the guy we can see the articles for ourselves....I think we owe it to ourselves to investigate further.” The conversation with JPMorgan Chase risk officer and JPM employee allegedly occurred in June 2007 when JPMorgan Chase was considering backing more Madoff-related structured products. And here is more from the NY Times:

Even before that, a top private banking executive had been consistently steering clients away from investments linked to Mr. Madoff because his “Oz-like signals” were “too difficult to ignore.” And the first Chase risk analyst to look at a Madoff feeder fund, in February 2006, reported to his superiors that its returns did not make sense because it did far better than the securities that were supposedly in its portfolio.

Despite those suspicions and many more, the bank allowed Mr. Madoff to move billions of dollars of investors’ cash in and out of his Chase bank accounts right until the day of his arrest in December 2008 — although by then, the bank had withdrawn all but $35 million of the $276 million it had invested in Madoff-linked hedge funds, according to the litigation.

This is very damaging for JPMorgan Chase as the bank did not warn the authorities of their suspicion of Mr. Madoff's financial activity, chosed to ignore and allowed Mr. Madoff's to move investors' cash in and out of the bank without any questions. It sounds more like aiding and abetting Mr. Madoff by JPMorgan Chase.

Mr. Picard is pushing for more information from JPMorgan Chase so that the public can learn the full role of the bank and their possible connection in Mr. Madoff's Ponzi scheme.

Picard Amended Complaint