Documents Show Chase Doubted Madoff But Did Business With Him Anyway

Newly released documents reveal that executives at JPMorgan Chase were aware of the possible Ponzi-ness of Bernie Madoff’s investment business more than 18 months before it was revealed to be a mammoth scam.

From the NY Times:

On June 15, 2007, an obviously high-level risk management officer for Chase’s investment bank sent a lunchtime e-mail to colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a ponzi scheme.”

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.

During the months leading up to the collapse of the Ponzi scheme, Chase had even removed all but 13% of the $276 million it had invested in hedge funds linked to Madoff.

And yet, the bank did nothing to end their business relationship with Big Bernie, allowing him to move billions of dollars of investors’ cash in and out of his Chase bank accounts.

These documents were filed in court as part of the lawsuit filed by Irving Picard, the trustee for Madoff’s victims. Picard’s lawyer has previously stated that Madoff “would not have been able to commit this massive Ponzi scheme without this bank,” in reference to JPMorgan Chase’s involvement.

Another lawyer for the trustee had this to say about the revelations in the documents:

Incredibly, the bank’s top executives were warned in blunt terms about speculation that Madoff was running a Ponzi scheme, yet the bank appears to have been concerned only with protecting its own investments.

The lawsuit against Chase claims that, while the bank began to lessen its exposure to Madoff-related investments, it did nothing to alert regulators of its suspicions. Additionally, the trustee alleges that many strange, big-ticket transactions between Madoff and other Chase customers should have triggered the banks’ money laundering alerts.

In a statement released Thursday, a rep for Chase defends the bank:

Contrary to the trustee’s allegation, JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff…

Madoff’s firm was not an important or significant customer in the context of JPMorgan’s commercial banking business, and the revenues earned from Madoff’s bank account were modest and entirely consistent with conventional market rates and fees.

JPMorgan Hid Doubts on Madoff, Documents Suggest [NYTimes]