According to a $6.4 billion lawsuit filed this past December, J.P. Morgan Chase & Co. stand "at the very center" of Bernie Madoff’s fraud. The lawsuit details for the first time how bank employees’ rising to the level of senior executives at J.P. Morgan expressed concerns over the irregularities in his account. Additionally, the case alleges that these concerns went unheeded and his accounts were overlooked frequently.
Specifically detailed in the court papers, is an account that J.P. Morgan employees reported their long-held suspicions to British authorities only two months before the fraud was exposed. Also, the case cites the example of a high-level risk management officer at Chase bank that sent out an e-mail on June 15, 2007 to his counterparts indicating that Madoff is suspected of being party to a Ponzi scheme. Given the fact that Madoff was arrested in December 2008, this evidence suggests the complicity of Chase bank with Madoff’s activities.
As a result, the lawsuit alleges that the bank neglected to pay attention to the billions of dollars passing through Madoff’s firm’s main account at J.P. Morgan. Additional charges cited in the case state that J.P. Morgan served to benefit by selling structured products related to Bernard L. Madoff Investment Securities feeder funds to its clients. A particularly salient piece of evidence made by the prosecutors is that J.P. Morgan redeemed its interest in Fairfield Greenwich funds the month before Madoff was arrested. Fairfield Greenwich was the largest feeder fund providing capital to Madoff, and it’s facing a major investor lawsuit of its own in a New York court. As a result, the lawsuit is asking for $1 billion collected by J.P. Morgan in profits and fees as well as $5.4 billion in damages.
On the other side of this debate, J.P. Morgan has responded to these allegations by saying that the charges are distortions of the truth both in terms of the relevant facts as well as the governing law. They also maintain that they “did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff.” The relatively clean record of J.P. Morgan in its financial dealings as well as its impressive performance throughout the recession may be at an end depending on the outcome of this trial.
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com