Madoff Trustee Sues JPMorgan Chase (primary banker sued for billions; facilitated money-launder)

Accounting Today ^ | 24/11 | Michael Cohn

[Liz]

The trustee liquidating Madoff’s asset management firm, has filed a complaint against JPMorgan Chase, claiming the bank had suspicions about Madoff’s Ponzi scheme going back to at least 2006, but waited until 2008 to alert authorities while it earned hundreds of millions of dollars from doing business with Madoff.

The complaint seeks to recover nearly $1 billion in fees and profits, and an additional $5.4 billion in damages, for JPMorgan Chase’s decades-long role as primary banker for Bernard L. Madoff Investment Securities’ (BLMIS), allegedly aiding and abetting Madoff’s fraud.

“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 in BLMIS feeder funds,” said Deborah Renner, a partner at Picard’s law firm Baker & Hostetler. “As we allege in the complaint, JPMC had a palpable concern that Madoff was a fraud for years, but it was not until October 2008 that it reported Madoff to government officials. Even then, JPMC executives did not restrict the BLMIS bank account, even though it was being used to launder money from the Ponzi scheme.”

The trustee alleges that JPMorgan Chase ignored its anti-money laundering obligations and repeatedly allowed suspicious transactions for high dollar amounts to occur in the Madoff account. The complaint alleges that, as Madoff’s banker for over two decades, JPMorgan Chase had financial reports in its possession that provided clear evidence of fraud and led a prominent fund manager at the bank to conclude that fraudulent activity was highly likely.

Employees at Chase also had concerns about Friehling & Horowitz, the small three-employee accounting firm located in a suburban strip mall in New City, N.Y., that audited Madoff’s lucrative investment management business. “Let's go see Friehling and Horowitz the next time we're in NY,” one of the bankers wrote,.” to see that the address isn't a car wash at least."

It was not until early 2006 that JPMorgan Chase performed even minimal due diligence on Friehling, according to the lawsuit. One JPMorgan Chase employee noted in an e-mail that “a quick check found that they [Friehling] are not registered with the Public Company Accounting Oversight Board, nor are they subject to peer reviews from the American Institute of Certified Public Accountants. Additionally, they have no website to provide background on their organization.”

Another employee noted that the choice of Friehling & Horowitz was an “odd choice” and questioned whether such a small firm was even competent to conduct an audit of an investment firm with “$650m in shareholder capital.”

In 2007, another JPMorgan Chase said he heard from a co-worker at lunch 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—Pls do that and let us know what you find."

JPMorgan Chase said in a statement that the lawsuit "is meritless and is based on distortions of both the relevant facts and the governing law," according to The Wall Street Journal, and claimed it "did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff." In October 2008, JPMorgan Chase filed a suspicious activity report with British authorities to relay some of its concerns about Madoff, but not the SEC.

It said in a filing with the U.K.’s Serious Organized Crime Agency that the claims for Madoff’s investments were “too good to be true—which means it probably is.” Two months later, Madoff confessed the Ponzi scheme to his two sons, calling it “one big lie,” and they alerted US authorities. Madoff is currently serving a 150-year prison sentence.

[Diana in Wisconsin]

The chickens are coming home to roost! :)

[Admin Moderator]

Do not make nearly-full text posts into comments - and also include a link with the excerpt.

[Liz]

OK-—will do.

[Admin Moderator]

Thanks. After FR’s experience with Righthaven, we need to be careful about proper excerpting and linking, and the comments doesn’t have the same kind of automated monitoring of auto-excerpting that the initial post does.

[Frantzie]

“Employees at Chase also had concerns about Friehling & Horowitz, the small three-employee accounting firm located in a suburban strip mall in New City, N.Y., that audited Madoff’s lucrative investment management business. “Let’s go see Friehling and Horowitz the next time we’re in NY,” one of the bankers wrote,.” to see that the address isn’t a car wash at least.”

It was not until early 2006 that JPMorgan Chase performed even minimal due diligence on Friehling, according to the lawsuit. One JPMorgan Chase employee noted in an e-mail that “a quick check found that they [Friehling] are not registered with the Public Company Accounting Oversight Board, nor are they subject to peer reviews from the American Institute of Certified Public Accountants. Additionally, they have no website to provide background on their organization.”

“Another employee noted that the choice of Friehling & Horowitz was an “odd choice” and questioned whether such a small firm was even competent to conduct an audit of an investment firm with “$650m in shareholder capital.”

LOL! The phony CPA was always the biggest red flag. No one at the SEC could drive to New City, NY? Walter Noel the big feeder fund could not jump in the Range Rover and drive down from Greenwich, CT? Too busy getting his daughters in the society pages so their hubbies could keep finding suckers in South America, Europe and Asia.

The phony CPA was a tip off to anyone and everyone. 3 person CPA? Well the old man had retired so it was one CPA. And the younger one rarely showed up. They had one part time lady at the office.

[proxy_user]

Two questions:

1. Did Madoff really pay $1 billion in fees for his checking account at Chase? He must have made a lot of wire transfers, but I think he could have got a better deal than that.

2. Were the investment bankers who decided no to invest in Madoff on behalf of their clients aware that Madoff had his checking account at Chase? After all, they weren’t exactly working in the transaction processing department.

[Poison Pill]

Did Madoff really pay $1 billion in fees for his checking account at Chase? He must have made a lot of wire transfers, but I think he could have got a better deal than that.

Most of that is likely interest and money JPM made from float and investment of deposits.

[NVDave]

Probably, those go fees were paid in excess to insure that these sorts of questions were not asked inside JPM.

This is one of the scandals within the overall scandal, ie, that “reputable” banks and funds knew that Madoff was running a scam, but the amounts they were being paid to do these tasks for Madoff insured their silence.

[NVDave]

Spot-on. The SEC was too busy watching porn, and the feeder funds didn’t want to know. They were making a pretty penny on this scam as well.

The Madoff scam amply proves that Wall Street has almost no honest actors.

[Liz]

ACCOUNTING TODAY EXCERPT The trustee alleges that JPMorgan Chase ignored its anti-money laundering obligations and repeatedly allowed suspicious transactions for high dollar amounts to occur in the Madoff account. The complaint alleges that, as Madoff’s banker for over two decades, JPMorgan Chase had financial reports in its possession that provided clear evidence of fraud and led a prominent fund manager at the bank to conclude that fraudulent activity was highly likely.

LINK http://www.accountingtoday.com/news/Madoff-Trustee-Sues-JPMorgan-Chase-57193-1.html

========================================

POSTER'S ANALYSIS Madoff's assets included a super-secret labyrinth of interrelated international funds, institutions and financial entities of almost unparalleled complexity and breadth......with assets and businesses in multiple places overseas that hid thievery, money laundering and tax evasion.

That serves to underline that Madoff was running simultaneous scams:

(1) a tax evasion scheme for wealthy businessmen ("losing" money is a tax write-off;

(2) a money laundering scam;

(3) a protection racket for affinity groups,

(4) aiding and abetting wealthy tax-exempt foundations to evade US banking laws and the IRS.

(5) hiding money for wealthy businessmen some of which was used for campaign donations (FEC fraud), and foundation fraud (IRS fraud)

Keep in mind Bernie‘s investors were savvy, astute successful business people, accustomed to constructing, picking apart and analyzing financial statements. One investor who spoke to reporters was a stockbroker (her family invested with Bernie for generations---the family's patriarch founded the wildly successful Stop and Shop supermarket chain). Other inevstors gave Madoff $100-500 millions to "invest" for years and years.

Beneath that smiling twinkle is a conniving criminal.

"Hi, I'm Bernie. Trust me."

[Liz]

ping to post #11

[proxy_user]

Well, this is an interesting point. Since Madoff was avowedly running a large fund, perhaps it could be argued that the transfer of large sums of money in and out of the account was not suspicious, but rather just what you’d expect with what Madoff claimed to be doing. The AML regulations are mostly designed to spot questionable CASH transactions, which did not apply to this account.

Or maybe Chase did file an SAP with the government. Under Federal law, these reports are confidential and cannot be revealed to anyone. Government regulations define precisely what transactions are considered suspicious, and computerized algorithms running against the transaction database capture them and generate reports. If Madoff’s transactions did not meet these criteria, Chase could argue that by the government’s own definitions there was no suspicious activity in this account.

[Liz]

Except that Harry Markopoulos contacted the SEC several times about Madoff----HM himself had discovered Madoff was using shady math. HM was ignored.

The SEC did nothing. Until Madoff "confessed."

The Accounting Today article reports that the trustee alleges that JPMorgan Chase, as Madoff’s banker for over two decades, had financial reports in its possession that provided clear evidence of fraud and led a prominent fund manager at the bank to conclude that fraudulent activity was highly likely.

(Snicker) As the CIA says---the crooks always leave a paper trail.

[Condor51]

*** Beneath that smiling twinkle is a conniving criminal. "Hi, I'm Bernie. Trust me." ***

Initially I *was* going to say something like: I hope he gets gang raped by Bubba, Tyrone, Jose, Maurice and everyone in the Aryan Brotherhood. But THEN, I looked up where Inmate #61727-054 is at.

Butner Federal Correctional Complex is a fricken Country Club!

The biggest 'danger' Bernie will face is hurting his back in the Sand-Trap on the 14th Hole. Or tripping, and hurting his knee on the Tennis Court!

[Liz]

The biggest 'danger' Bernie will face is hurting his back in the Sand-Trap on the 14th Hole. Or tripping, and hurting his knee on the Tennis Court!

Yeah---but one consolation is he's there for a long, long time.

[NVDave]

Liz, you’ve always had the straight dope on Madoff and his web of fellow unindicted felons.

As you’ve said, many of his cronies were also quite able in complex financial transactions. Harry Markopolous stated that South American and Russian mobs were feeding him money as well.

And that brings us to why Madoff turned himself in - he was looking for nominal protection against these mobsters.

[Liz]

Harry Markopolous stated that South American and Russian mobs were feeding Madoff money as well.

Yeah---thanks for posting that. I meant to bring it up.

That certainly was a compelling reason why Bernie turned himself into protective custody----so the savage Russian/latino drug lords could not get at him.

I think Bernie was stealing their money, too----but they were not about to wait for American jurisprudence to kick in.

Also makes you wonder if the Madoff son really committed suicide ...........or if mob justice muscled in.

[proxy_user]

They were the same financial reports every else had, and as you say, many others had the same suspicions. Those who reported their thoughts to the government were ignored. Chase can say if the SEC gave him a clean bill of health, so who were we to question it?

I predict this case will be dismissed.

[Liz]

Mmmmm…..dismissal is a possibility.

Picard better reconnoiter---maybe have the IRS step in.

The IRS is relentless if it thinks someone cheated. BTW, stolen money is taxable.