Morgan employees raised questions about Mr. Madoff's credibility, but the concerns were brushed under.
The lawsuit alleges that some of, if not all, the fund managers at JPMC's Equity Exotics & Hybrids Desk who were tied to Madoff feeder funds were kept in the dark regarding the names of Mr. Madoff's counterparties. Moreover, Madoff was allowed to bypass the routine trading and credit risk checks regarding his transactions.
The suit claims that J.P. Morgan reported its suspicions of Mr. Madoff to British authorities in late October 2008, two months before he surrendered. In a suspicious activity report filed with Britain's Serious Organised Crime Agency, the bank said the performance of Mr. Madoff's investments appeared to be "too good to be true—meaning that it probably is." Even before Madoff surrendered or JPMC filed a report with Britain's Serious Organised Crime Agency, several internet articles raised an alarm regarding his Ponzi scheme.
The fact that Madoff was not an investment genius but a sham must have been known to the bankers and risk managers who sought to create products tied to Mr. Madoff's firm in March 2007, when he informed them that he wasn't willing to engage in "full due diligence." The lawsuit alleges that on more than one occasion, bankers expressed concern about the fact that a firm of such a large size was audited by a small suburban firm. One wrote in an email, "Let's go see (auditors) Friehling and Horowitz the next time we're in NY...to see that the address isn't a car wash at least," according to the lawsuit, referring to the accountants.
Some of the JPMC employees who tried a sort of whistle blowing were intimidated. A London employee of J.P. Morgan was threatened while trying to redeem the bank's money from a Madoff-related fund by a fund employee who mentioned having "Colombian friends" who could "cause havoc," adding, "we know where to find you."
That JPMC top brass had little respect for employees' life or customers' funds is obvious from the bank's statement that Mr. Madoff's firm "was not an important or significant customer" in the scheme of its overall commercial banking business. That JPMC's top brass was just concerned about the fees collected there from and the bonus they could get is evident to me.