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JP Morgan's Madoff Connection

 February 04, 2011 01:25 PM

A Hispanic or an underprivileged immigrant knows what tortuous grind he/she has to undergo when it comes to getting a loan sanctioned or even opening a savings/current account. I hold nothing against the regulators for making it mandatory to adhere to know your customer (KYC) guidelines. I also understand the financial institutions (FIs) need to strictly follow KYC guidelines. Post 9/11 these regulatory changes are quite understandable.

But what pains me; or should cause pain to people like you is that FIs like JPMorgan Chase & Co. (NYSE:JPM) conveniently discriminate when it suits them.

Investors, industry watchers, several people in regulatory bodies have long held the view that a Ponzi scheme of Madoff scam magnitude couldn't have happened without the complicity of big banks like JPMC. But JPMC would like us and more importantly United States Bankruptcy Court for the Southern District of New York to believe that it knew nothing about Madoff scam (KNAMS). But in days to come public will come to know more about JPMC's ignorance or complicity regarding Madoff scam.

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Yesterday, Irving H. Picard, the Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) announced that his complaint against JPMC entities – initially filed under seal on December 2, 2010 in the United States Bankruptcy Court for the Southern District of New York – would be unsealed and its details made available to the public. That news sent minor jitter in investors and the stock fell in after hours trade by $0.29 or 0.64%.

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Irving's $6.4 billion lawsuit alleges that JPMC ignored or dismissed warning signs about the Madoff fraud even as it earned hundreds of millions of dollars from its relationship with his firm. The lawsuit claims that bankers at J.P. Morgan discussed the possibility that Bernard Madoff was operating a Ponzi scheme, and JPMC was at the very center of that fraud, and thoroughly complicit in it. As one would expect, JPMC denied any wrong doing and said that the lawsuit was meritless. However, the transactions that took place between JPMC and Madoff's entities certainly point to some wrong-doing by the former.

JPMC's connection with Madoff scam dates back to 2006, when it started to consider structuring products involving funds that channeled money to Mr. Madoff and his entities. Irving's lawsuit claims that JPMC didn't pay attention to two aspects. One, billions of dollars passing through the Madoff firm's main J.P. Morgan account, much of it by hand-written check. Two - discrepancies in Madoff firm's main J.P. Morgan account and unreported obligations, including a $95 million loan made in 2005.

It's not that everyone at JPMC was at fault, but I certainly hold the top brass that have been with JPMC since 2005. In fact, Irving's lawsuit alleges that various J.P.

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