Courtesy of Pam Martens.
The trial of five former employees of Bernard Madoff’s Ponzi operation is currently playing out in Manhattan as the U.S. Justice Department weighs bringing charges against JPMorgan Chase, where Madoff had his primary business banking account, for ignoring flashing red lights that a fraud was taking place.
According to lawsuits filed by Irving Picard, the Trustee handling the Madoff recovery fund, JPMorgan knew that Madoff was supposed to be engaged in managing stock portfolios for hundreds of clients. JPMorgan even created structured investments that allowed investors to make leveraged bets on the returns achieved by Madoff. But the Madoff business bank account that JPMorgan Chase oversaw, showed billions of dollars in cash being wired in and out but no payments ever going to any party engaged in processing or clearing a stock trade. Under Wall Street’s Know Your Customer Rule, the activity in the account should have been reported to U.S. regulators because it was completely incompatible with transactions that would be happening in a legitimate investment advisory account.
On October 28, 2008, less than two months before the Madoff Ponzi scheme collapsed following a confession by Madoff, JPMorgan finally did reveal its suspicions to a regulator that Madoff was running a fraud – to the Serious Organized Crime Agency. That regulator is based in the United Kingdom. According to Picard, JPMorgan never reported its suspicions to U.S. authorities.
But there are four other major Wall Street firms and their high-priced lawyers who have some explaining to do. According to prosecutors trying the current case against the five former employees, Madoff was funneling tens of millions of dollars that he was stealing from his investment advisory clients into his broker-dealer operation. Madoff has heretofore said this was a legitimate business. One such check for $31 million was dated December 28, 1999.
That was a little more than three months after Madoff started a business with four of the biggest names on Wall Street, effectively putting these primary dealers to the U.S. government’s Treasury auctions in business with the biggest financial felon in U.S. history.
On September 14, 1999, Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs partnered with Madoff to compete with the New York Stock Exchange in a venture called Primex Trading. When Wall Street behemoths create a joint venture with a much smaller firm like Madoff’s, it would be expected that the top law firms on Wall Street would have been crawling all over its books and conducting a thorough due diligence.(Major European banks were harmed in the Madoff collapse. No major Wall Street bank had any serious exposure.)
…
