The New York Times (2/4, Henriques) reports, "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 on Thursday." Despite their suspicions, "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and out of his Chase bank accounts right until the day of his arrest in December 2008 -- although by then, the bank had withdrawn all but $35 million of the $276 million it had invested in Madoff-linked hedge funds, according to the litigation." The lawsuit "was filed under seal on Dec. 2 by Irving H. Picard, the bankruptcy trustee gathering assets for Mr. Madoff's victims."
Picard's $6.4 billion lawsuit claims, "While numerous financial institutions enabled Madoff's fraud, JPMorgan Chase was at the very centre of that fraud, and thoroughly complicit in it," Reuters (2/3) reported. Noting the bank's principal banking role for Bernard L. Madoff Investment Securities LLC, Picard legal team member Deborah Renner said executives were warned, but were preoccupied with maintaining JPMorgan's more than 20-year relationship with Madoff.
Renner added in the Associated Press (2/3) that despite its suspicions, "the bank appears to have been more concerned only with protecting its own investments in [the Madoff firm's] feeder funds." JPMorgan was "'willfully blind' to 'numerous red flags surrounding Madoff,' including the unwavering double-digit returns he reported to wealthy investors on fictitious account statements."
The Wall Street Journal (2/4, Rothfeld) reports according to the suit, JP Morgan alerted authorities with Britain's Serious Organised Crime Agency of red flags in October 2008, two months before Madoff surrendered to authorities. The bank said Madoff's investments seemed "too good to be true-meaning that it probably is." In detailing this event, the lawsuit said the report was made after a JP Morgan employee was threatened while attempting to recover the bank's money from a related fund.
Bloomberg (2/3, Jeffrey) reported, JP Morgan spokeswoman Jennifer Zuccarelli called the suit "meritless," asserting that "JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff."
The Financial Times (2/4, Masters, Murphy, et al) also reports JP Morgan's defense that it abided by all laws and regulations, and that the profits it reaped from Madoff "were modest and entirely consistent with conventional market rates and fees."