Prosecutors Move Towards Madoff Charges Against JPMorgan

Oct 24 2013 | 1:07pm ET

JPMorgan Chase's myriad and massively expensive legal troubles are about to get a good deal worse, thanks to the bank's close relationship with arch-fraudster Bernard Madoff.

Prosecutors may bring charges against the bank for failure to notify regulators about suspicious activities at Madoff's firm, which proved to be a $65 billion Ponzi scheme. JPMorgan was Madoff's primary bank.

The bank is in talks with prosecutors, who have also discussed the matter with the Office of the Comptroller of the Currency, which has said it will not interfere, The New York Times reports. The U.S. Attorney's Office in Manhattan is likely to seek a deferred-prosecution agreement with JPMorgan, in which it would withhold criminal charges if the bank does not misbehave for a period, but could also seek a guilty plea, a much more serious concern.

Even a deferred-prosecution agreement would be essentially unprecedented for a major Wall Street bank.

JPMorgan has said that all of its employees "acted in good faith" in their dealings with Madoff, but prosecutors are not so sure. At issue are a number of e-mails that appear to indicate that JPMorgan staff was skeptical of Madoff's returns, suspicions which never resulted in a report to a regulator.

In one e-mail in February 2006, an employee who had looked at Madoff's trading records wrote that he or she had "a few concerns and questions," noting that "all trades are generated by Madoff's black box." A little more than a year later, as the bank considered whether to expand its business selling derivatives linked to Madoff feeder funds, a senior risk manager wrote that another bank executive had "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. I think we owe it to ourselves to investigate further."

According to Madoff receiver Irving Picard, that probe was limited to a phone call with Madoff and "a Google search with no follow-up." Picard has sued, so far without success, JPMorgan, seeking billions of dollars.

Picard has also produced e-mails that show that many at JPMorgan weren't surprised when Madoff was arrested in December 2008. One referred to the agenda for the 2007 meeting on derivatives, writing, "Perhaps best this never sees the light of day again!!"


In Depth

Q&A: High Conviction, Low Correlation

Oct 30 2014 | 7:35am ET

Acadian Asset Management's numbers are big: over $70 billion in assets under management...

Lifestyle

Ex-Hedgie Steyer Gives $56M To Climate Action Super PAC

Oct 28 2014 | 9:23am ET

Retired Farallon Capital founder Tom Steyer has poured almost $56 million into his...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

Demeter: Family affair

David and James Hamman launched their fundamental Livestock and Grains Program in March of 2010 but it really was decades in the making.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.