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JPMorgan Chase snared in Madoff lawsuit
Bernard L. Madoff leaves a U.S. Federal Court in New York
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TEXT OF STORY
Bob Moon: We know now, of course, that Bernard Madoff caused billions in investor losses. But newly unsealed lawsuits are shedding light on those who allegedly profited from the Ponzi scheme. Today, the focus was on the owners of the New York Mets.
A day earlier, court documents alleged that the country's biggest bank, JPMorgan Chase, long suspected fraud but kept doing business with Madoff -- and profited. Should the bank have shared its concerns with regulators? Our New York bureau chief Heidi Moore reports.
Heidi Moore: JPMorgan emerged from the financial crisis bigger, stronger and with its reputation intact. Now a lawsuit by the trustee in the Bernard Madoff case could give the bank a black eye.
JPMorgan was Madoff's main bank. Some people there suspected as far back as 2006 that Madoff's returns were too good to be true, but the bank didn't inform regulators until two months before Madoff surrendered himself.
Reuben Guttman heads the whistleblower practice at law firm Grant & Eisenhoffer.
Reuben Guttman: Clearly they should have stepped forward earlier, and they should have done something about it earlier.
JPMorgan says it didn't know what Madoff was up to.
But if the bank had anything bigger than a hunch, it should have pulled a fire alarm. So says Katrina Campbell, who trains financial employees in ethics for a firm called Global Compliance.
Katrina Campbell: The legal aspect of it is not only whether you had actual knowledge, it's also whether you had a reckless disregard for the truth -- in other words, that the truth was staring you right in the face but you chose to ignore it.
Some believe that JPMorgan, with its strength and reputation, could have tipped the scales enough to push the SEC to investigate Madoff. Instead, the lawsuit claims, JPMorgan quietly moved out $276 million of its own money from Madoff funds.
Campbell: The time has come that we now have to start saying, you know what, it's not only about the money. We're in the business of making money and handling money, but that requires that we pay attention to problems and we raise them.
There is a potentially expensive price for keeping quiet: the suit seeks to recover $6.4 billion.
I'm Heidi Moore for Marketplace.
Just as an interesting addendum to the facts in the newscast, JP Morgan added that it only tried to pull its money from Madoff because it was reducing its exposure to hedge funds after the acquisition of Bear Stearns. When a Madoff feeder-fund employees threatened a JP Morgan employee with implications of "Colombian friends," the JP Morgan employee complained to Britain's crime office because he thought there might be a drug angle. The JP Morgan employee did not, according to JP Morgan, suspect Madoff's activities. JP Morgan confirmed this account with us.
I do business with JP Morgan and it is a lousy experience.
However, that doesn't mean I can't be fair.
Why should JP Morgan bother corresponding with the SEC about Madoff when the SEC already knew what was going on to begin with? The SEC. is a RICO and so JP Morgan's defense is simply that they don't do business with RICOs.
The only agency in government doing anything to clean up Wall Street and finance is the FBI. Probably because a few of them have given shelter after their grandmothers were swindled.
