JP Morgan Suspected Madoff Months Prior to Arrest, Kept Doing Business With Him


As part of the letter, assistant general counsel Rebecca Smith in JP Morgan's London office said that the bank had initiated an investigation of Madoff after the alleged confrontation with Aurelia, and found that concerns about Madoff's lack of transparency were well-documented, public and "shared by many" in the financial industry."

Smith noted, however, that the U.S. government had made inquiries into Madoff's business because of these issues and "as of late 2008, had found no wrongdoing and had taken no action whatsoever." She said that the bank "at no time prior to Madoff's arrest in December 2008 discovered or believed Madoff was a fraud."

Victims' Lawyers: 'JP Morgan Was Willfully Blind'

Baker & Hostetler, the law firm appointed to recover funds for victims, filed suit against JP Morgan in a Manhattan bankruptcy court Thursday, asking for $1 billion in fees and profits and an additional $5.4 billion in damages. In a statement accompanying the filing, the firm said its sealed complaint states that JP Morgan Chase "had clear, documented suspicions about the legitimacy of BLMIS's operations. Instead of acting on that information, it simply continued to collect fees and profit from the fraud."

Deborah Renner, a partner with Baker & Hostetler, said in a statement Thursday that "JP Morgan Chase admitted in the months before Madoff's arrest that [Madoff's] returns were too good -- especially in down markets -- to be believable, but for years they pretended that was not the case."

Baker & Hostetler partner Daniel Sheehan said "JP Morgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff."

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A spokesperson for JP Morgan Chase said that the complaint filed by the Madoff victims' lawyers in bankruptcy court Thursday distorted the facts and the law, and that "any suggestion that JP Morgan supported Madoff's fraud is utterly baseless and demonstrably false."

"Contrary to the trustee's allegations," said Jennifer Zuccarelli, "JP Morgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff. As a provider of regular commercial banking services to Madoff's brokerage firm, JP Morgan complied fully with all applicable laws and regulations governing customer accounts. Moreover, to the extent foreign affiliates of JP Morgan made indirect investments with offshore funds that in turn invested with Madoff, those affiliates invested significantly more than they ever redeemed."

A French investigating magistrate, Renaud van Ruymbeke, is currently probing what JP Morgan knew about Madoff. "JP Morgan was making hundreds of millions of dollars with Bernie Madoff and his businesses," said Emmanuel Asmar, a Paris-based attorney for Madoff victims. Asmar said he believed that banks that had done business with Madoff were in a "risky" position legally and he predicted that the banks would become "liable."

Judge Threw Out Florida Suit Against JP Morgan

In April 2009, JP Morgan was accused in a U.S. lawsuit by Florida investors who lost $12.8 million of conspiring with Madoff after learning that his investment returns were false.

The suit, filed by MLSMK Investments Co., a Palm Beach, Florida-based partnership, claimed the bank learned of the fraud in September 2008 after investigating why funds that it had invested with Madoff hadn't suffered steep losses in the global sell-off.

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