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Did JP Morgan Aid and Abet Bernie Madoff? Time for Jamie Dimon ‘To Put Up or Shut Up’

Posted by Larry Doyle on February 4, 2011 8:33 AM |

Just the facts.

A week ago at The World Economic Forum in Davos, Switzerland, Jamie Dimon, chief of JP Morgan, railed on the widespread vilification of bankers by the general public. The Wall Street Journal highlighted Dimon’s comment in writing, A Banker’s Plaintive Wail:

“A plaintive cry from one of the world’s top bankers on behalf of his industry pierced through an otherwise tame Thursday morning panel discussion here in Davos:

“I don’t lump all media together,” said Jamie Dimon, chief executive of J.P. Morgan Chase & Co. “There’s good and there’s bad. There’s irresponsible and ignorant and there’s really smart media. Well, not all bankers are the same. And I just think this constant refrain ‘bankers, bankers, bankers,’  — it’s just a really unproductive and unfair way of treating people. And I just think people should just stop doing that.”

Mr. Dimon argued that J.P. Morgan was one of the good banks..

On one hand, I agree with him. I have worked with many fabulous bankers throughout my career and count many of them as close personal friends. None of them actually run a major banking organization.

If  Mr. Dimon wants to be distinguished as ‘one of the good guys’ and JP Morgan as ‘one of the good banks,’ he now has his opportunity to ‘put up or shut up.’ How so? Let’s reenter the world of Bernie Madoff.

Were there a number of individual JP Morgan employees aware or strongly suspicious that Madoff was running a massive Ponzi scheme? Did they remain quiet in light of the millions in fees the bank was accruing from handling Bernie’s banking? Did they apprise regulators only to be stonewalled? What did they know? When did they know it?

The public at large is understandably baffled how industry insiders closely engaged and involved with Madoff’s operation could NOT have known the nature of Bernie’s operation. What about the KYC (Know Your Customer) rule?

Bernie Madoff Bernie Madoff Biography

Public pressure may now be ratcheting up on JP Morgan and Mr. Dimon given a Madoff related lawsuit unsealed yesterday and highlighted by the WSJ in writing, Trustee: JP Morgan Abetted Madoff:

JP Morgan Chase and Co. ignored or dismissed warning signs about the Madoff fraud even as it earned hundreds of millions of dollars from its relationship with his firm, according to a lawsuit unsealed Thursday.

The $6.4 billion lawsuit, filed in federal bankruptcy court, claims that bankers at J.P. Morgan discussed the possibility that Bernard Madoff was operating a Ponzi scheme, worried that a firm of such size was audited by a storefront accountant and called his returns “too good to be true.”

“While numerous financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it,” according to the 115-page lawsuit, filed under seal in December by Irving Picard, the trustee seeking to recover money for Mr. Madoff’s victims and made public on Thursday.

J.P. Morgan said in a statement that the lawsuit “is meritless and is based on distortions of both the relevant facts and the governing law.” The bank said it “did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff.”

Complicit? WOW!

Ok, Jamie boy, time to ‘put up or shut up.’ If you want to be considered one of the good banks, you are compelled to provide a full and total accounting of JP Morgan’s engagement with Mr. Madoff. If this lawsuit leads to nothing more than a massive fine but no further exposition of the truth, then I would classify that as ‘hush money.’ Good banks and good bankers do NOT pay hush money. Or do they?

America deserves the truth.

What is it going to be Jamie? In the inimitable words of Joe Friday, “Just the facts…”

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own and not those of Greenwich Investment Management. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Linda Anna Mancini

    You said it, time to step up. What is the story here? We will see.

  • LD


    I hope we see. However, if the past is any indication of the future, JPM may just pay a fine and move on.


  • Peter Sivere

    Words to live by…

    The below remarks were made by Jamie Dimon at Syracuse University’s 156th Commencement on May 16, 2010.

    Throughout my life and throughout this crisis, I’ve seen many people embarrass themselves by failing to stand up, being mealy-mouthed and acting like lemmings by simply going along with the pack, he told the graduates. Along the way, youre going to face a lot of pressure — pressure to go along, to get along, to toe the line. Have the fortitude to do the right thing, not the easy thing. Don’t be somebodys lap dog or sycophant.

    • LD

      Outstanding!! Thanks for sharing it.

      What will Jamie do? Will he do the right thing? Or will he be’mealy-mouthed’?

  • Peter Sivere

    Lengthy but worth the read.

    The Wall Street Journal

    March 9, 2004

    J.P. Morgan
    Is Facing Heat
    Of Patriot Act

    Staff Reporter of THE WALL STREET JOURNAL

    NEW YORK — Manhattan District Attorney Robert Morgenthau has asked banking
    regulators to examine documents from the recent criminal conviction of an
    unlicensed money-transfer operation to determine whether J.P. Morgan Chase
    & Co. or its predecessor banks violated “know your customer” rules.

    Staffers in Mr. Morgenthau’s office last year turned over to regulators
    court papers from its investigation of Beacon Hill Service Corp., which was
    convicted Feb. 23 in state criminal court in Manhattan of four felony
    counts of operating as an unlicensed money transmitter, Mr. Morgenthau said.

    The regulators include the New York State Banking Department and the
    Federal Reserve Bank of New York, Mr. Morgenthau added. Neither agency
    would comment on the action. However, the state agency has been reviewing
    the case, according to one person familiar with the matter.

    J.P. Morgan Chase, which declined to comment on any possible rule
    violations, said it has been working with regulators to tighten its
    standards. “We agree with regulators that financial institutions should
    continually raise standards on know-your-customer policies, and have worked
    with them to ensure that we tighten ours and strive to exceed the law,” a
    bank spokeswoman said.

    The USA Patriot Act, adopted in October 2001, expanded the scope of U.S.
    money-laundering rules in order to make it harder for terrorists to move
    money without attracting attention. It includes beefed-up
    know-your-customer requirements for some financial institutions, according
    to some legal experts.

    Beacon Hill took deposits and transmitted money on behalf of clients in
    Central and South America, including wealthy individuals and money-exchange
    houses, according to a filing by prosecutors in the criminal case. J.P.
    Morgan Chase was Beacon Hill’s bank and accepted deposits from Beacon until
    Beacon’s office was searched by Mr. Morgenthau’s agents on Feb. 4, 2003,
    according to an affidavit by a lawyer for Beacon Hill.

    Beacon Hill, which began operating in 1994, originally had an account with
    Chemical Bank, which later merged with Chase Manhattan Corp., which in turn
    merged with J.P. Morgan & Co. in 2000 to become J.P. Morgan Chase. Beacon
    had 49 customers as of mid-2002, 36 of them in a “pooled” account that
    shielded their identities from the bank, according to a report by a
    consultant to Beacon Hill that is part of the court record.

    At Beacon Hill, $5.5 billion “went in and out between 1997 and 2002,” Mr.
    Morgenthau said. Yet, such pooled arrangements meant J.P. Morgan, its
    predecessor banks and other banks who have dealt with money-transfer
    businesses in similar fashion have transferred large sums — a lot of it
    “to secrecy jurisdictions” — without knowing whose money it really was, he
    said. Such banks “were not observing the know-your-customer rule.”

    He said that there isn’t an accusation that J.P. Morgan was dealing with
    illegal money. The question, he said, is this: “Should they have taken
    money from an unlicensed money transmitter? That’s a matter for State
    Banking and the Federal Reserve to be concerned about.” He asserted, “They
    just weren’t asking the questions under know-your-customer [that] they were
    required to ask.”

    The New York licensing requirement for money transmitters, originally
    adopted as a consumer-protection measure in 1963 to guard against fraud or
    insolvency, was amended in 1990 to combat money laundering, according to
    the banking department. The licensing process requires money transmitters
    to have antimoney-laundering programs and to file suspicious activity
    reports about large cash transactions, according to Betty Santangelo, a
    money-laundering expert at law firm Schulte Roth & Zabel LLP.

    Although an official at J.P. Morgan Chase asked Beacon Hill as early as
    1998 if it needed a license to operate as a money transmitter, lawyers for
    Beacon Hill said they weren’t able to get an answer from the state Banking
    Department, according to court filings. One reason the Banking Department
    didn’t answer faster, prosecutors said in court, was that Beacon Hill’s
    lawyer asked the question in October 2000 about a client identified only as
    “XYZ Corp.,” without disclosing that it already was engaging in the
    activities described.

    At one point, prosecutors contended that a senior Chase official lied to a
    state regulator to cover for Beacon Hill. After Beacon Hill’s lawyer told
    state banking officials at a meeting in January 2001 that XYZ planned to
    bank at Chase, a Banking Department lawyer, Sara Kelsey, followed up with
    Chase’s compliance chief, Greg Meredith. Mr. Meredith “deceitfully
    confirmed that the business was not yet in operation,” according to
    grand-jury minutes described in a memorandum of law submitted by Mr.
    Morgenthau on Oct. 21, 2003, as part of the Beacon Hill case. Mr. Meredith
    told Beacon Hill it would have to hire an outside consultant to review its
    regulatory compliance, according to a filing by prosecutors. Although Chase
    wanted an audit of Beacon Hill, its owner, Anibal Contreras, restricted the
    outside consultant to a review of its policies and procedures, the filing

    Mr. Meredith didn’t return a call, and a J.P. Morgan Chase spokeswoman said
    he wouldn’t have any comment. Mr. Meredith no longer serves as the bank’s
    head of compliance, according to one person familiar with the bank, in part
    owing to his failure to take more aggressive action in dealing with Beacon

    The J.P. Morgan Chase spokeswoman said the bank first asked Beacon Hill to
    obtain “an outside compliance review,” which showed “no indication of money
    laundering.” The bank then asked for an outside legal opinion about whether
    Beacon Hill “needed a license, and the opinion said they didn’t,” she
    added. Eventually, the bank asked Beacon Hill to seek an opinion from
    regulators. “Our steps were directionally correct but too slow and not
    forceful enough,” she said.

    J.P. Morgan Chase since has exited the business of dealing with wholesale
    money remitters, she added. The bank also has tightened its
    money-laundering controls, put in new monitoring systems, and “made
    organizational changes in an effort to meet the higher standards financial
    institutions are being held to,” she said.

    Mr. Morgenthau said that the issue of identifying customers of
    money-transmitting businesses is “a very serious problem,” but “I’m having
    trouble convincing people of that: the regulators and the banks
    themselves.” One problem, he said, is what he called the “patchwork system
    of regulation,” with some bank units also regulated by the U.S. Comptroller
    of the Currency, the Federal Deposit Insurance Corp. and other entities.

  • Please take a few minutes to read my public comment to the Securities Exchange Commission from August 2010:

    Be sure to read the two attached documents at the bottom of the page. The Financial Crisis Inquiry Commission was correct. The financial crisis was avoidable, or put another way DELIBERATE!

  • Mr. Dimon’s name is being passed around Washington as a candidate to replace Tim Geithner, perhaps prior to President Obama’s 2012 reelection bid, or shortly thereafter. Thus the Madoff connection is more than a complication for Dimon: it is a potential career-changer, and not in a good way.

  • Mark J. Novitsky

    The S.E.C. & FINRA aided and abetted MADOFF…as well as the Bush Adminsitration and now the Obamam administration for its failure to actually tackle the very real problem of “our” regulators working for and being owned lock, stock, and barrel by the bankers and corporate elite. Dodd-Frank and the FCIC…same sh!t different “crisis”.

  • Congress has finally acknowledged that, yes “Houston we have a problem”. Perhaps not Houston but DC?
    Cong. Scott Garrett recently introduced legislation to protect investors of Ponzi schemes. He has admonished the SIPC appointed trustee, Irving Picard as possibly ignoring the law.
    This is a great step toward ensuring that SIPC (and the SEC and FINRA) begin to act according to their mission statements so that all investors are protected.
    Please support Garrett’s legislation here

  • coe

    As head honcho and the public face of one of the largest banks in the world; as someone who is often credited with building a “fortress” balance sheet; as someone who is acclaimed for his laser-like grasp of the details of the many businesses under his jurisdiction; and as someone who is generally viewed as part of the fix, rather than part of the problem in both banking and political circles, Jamie Dimon should not nor cannot expect to have it both ways. I am quite sympathetic to his plea to stop condemning ALL bankers – he is spot on in this view – but there are far too many stories of pure greed, criminal behavior, and a total disregard for the well-being of clients and yes, of one’s own employees to offer a free pass to these bankers that so heavily contributed to the formation and depth of our financial crisis and the unemployment, pain, and real loss suffered by so many. Call me crazy, but I’m pretty sure there exists both formal reporting demands/processes and an even more all-powerful grapevine in places like JP Morgan – there is no way that a piece of business like this Madoff account that was so revenue accretive would go unnoticed by department heads and the executive officers – first of all, the bankers involved on the ground level would be falling over themselves to claim credit for the revenues and demand their fair share of a “bonus” for their central role in landing, processing, and even for “fixing” things if/as it unraveled; second, the permissioners – compliance/legal/accounting/risk management – would clearly get involved – I believe that on balance they would do the right thing – but even as their observations and recommendations would arguably call a spade a spade,the lust for the gusto might set up the situation where their determinations would be overturned only by a senior officer of the bank; and thirdly, if/as there are investigations, requests for information and/or warnings by regulators, accounting police, and/or the legal authorities, one would have to be totally naive to believe the Executive suite wouldn’t be aware of and monitoring the situation.

    You have often written and spoke of reputation risk, LD, and the toll that is taken if an institution falls on the wrong side of this ethical bar…well, we have seen recent stories about Citibank executives ignoring direct guidance by their regulators to be more guarded about the structured credit risk in their once ballooning CDO book; about an awful-sounding Bear, Stearns mortgage fraud scheme that lined the pockets of select managers at the expense of investors; about the mortgage foreclosure nightmare; and here is yet another morality tale…somehow firms like Goldman and JPMorgan skate on this thin ice and get away with it…shame on them for participating and losing their moral compass, and shame on us for letting them get away with it!

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