Madoff Trustee Finds JPM Was Complicit In Ponzi Fraud

Tyler Durden's picture

For all those who were wondering why someone just bought a massive 75,000 put spread block on JPM earlier, here's the reason. Just out from the NYT, disclosing a suit filed previously against JPM by Madoff trustee Irving Picard under seal: "Senior executives at JPMorgan Chase expressed serious doubts about the legitimacy of Bernard L. Madoff’s investment business more than 18 months before his Ponzi scheme collapsed but continued to do business with him, according to internal bank documents made public in a lawsuit unsealed on Thursday. The lawsuit against the bank was filed under seal on Dec. 2 by Irving H. Picard, the bankruptcy trustee gathering assets for Mr. Madoff’s victims. At that time, David J. Sheehan, the trustee’s lawyer, bluntly asserted that Mr. Madoff “would not have been able to commit this massive Ponzi scheme without this bank.” But with the case under seal, there was no way to gauge the documentation on which the trustee based his $6.4 billion in claims against the bank — until now."

So what happens when the biggest ponzi scheme ever, that of the US economy, better known as the Russell 2000 by the Chairsatan, finally collapses. Will the entire world be guilty of complacency in that particular unprecedented pyramid scheme? Will every person who bought shares in stocks starting with March 2009 be forced to refund their earnings to a suddenly far, far angrier taxpayer base? Will Bernanke still be allowed to use the excuse that stocks went up as a result of QE2-100... but not commodities, and that any non-USD denominated food price surges are not to be blamed on the goblin in chief?

More on the latest fraud committed by JP Morgan from the FT:

A senior JPMorgan Chase risk officer was warned that Bernard Madoff had “a well-known cloud” over his head and was suspected of running a Ponzi scheme nearly 18 months before the New York broker was charged with presiding over a $19.6bn fraud, according to a newly unsealed court filing.

The allegation is part of a $6.4bn lawsuit filed against the US bank by Irving Picard, the trustee charged with recovering money for Mr Madoff’s victims. The lawsuit seeks to recover $1bn in fees and profits that JPMorgan reaped as the primary banker to Mr Madoff’s business and by structuring Madoff-related derivatives, plus $5.4bn in damages.

The 114-page complaint unsealed Thursday was originally filed secretly at JPMorgan’s request. It was one of nearly 60 lawsuits the trustee filed late last year seeking more than $40bn from dozens of banks, hedge funds and individuals he claims profited from Mr Madoff’s fraud.

Mr Picard alleges that JPMorgan ignored 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 Madoff structured products.

JPMorgan was Madoff’s primary US bank for more than 20 years and it also sold structured products related to the hedge funds that sent money to the scheme. As part of the latter process, the bank did due diligence on the hedge funds and their relationship with Mr Madoff. Mr Picard’s complaint quotes from several emails in which JPMorgan employees raised questions.

“It doesn’t look pretty,” wrote one about the Aurelia hedge fund’s arrangements, and another alllegedly complained “Mr. Madoff will not allow us to conduct any due diligence on him.”

The conversation with the risk officer allegedly occurred in June 2007 when JPMorgan was considering backing more Madoff-related structured products.

The complaint quotes an email in which the 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.”

Of course, to anyone who rightfully claims that JPM was fully complicit in the fraud, Jamie Dimon can simply counter that they are idiots, that matters here are far more complex than mere mortals can ever graps, and that if this investigations does indeed progress further, then the world as we know it may end, should the true depth of Wall Street's criminality be exposed. Which is why we see lots and lots of smooth status quo sailing ahead.