According to trustee Irving Picard’s newly-unsealed complaint against JPMorgan Chase, Bernard Madoff’s principal bankers had their doubts about his activities over a year before his arrest — yet they did nothing beyond limiting the bank’s exposure. 

What emerges is a sketch of an internal tug of war. One group of senior Chase bankers was pursuing profitable credit and derivatives deals with Mr. Madoff and his big feeder-fund investors, the hedge funds that invested their clients’ money exclusively with him. Another group was arguing against doing any more big-ticket “trust me” deals with a man whose business was too opaque and whose investment returns were too implausible.

For much of 2007, the tide was with the Chase bankers designing and selling complex derivatives linked to various Madoff feeder funds. By June of that year, they already had sold at least $130 million worth of the notes to investors, and they sought approval for deals that would have pushed that total to $1.32 billion, the lawsuit asserted.

The committee agreed to increase the bank’s exposure to Mr. Madoff only to $250 million, but by 2008, the bank’s risk management executives were gaining, backed up by suspicions raised by the “due diligence” teams visiting the large hedge funds that invested with Mr. Madoff.

Also juicy: the string of 318 transfers, all in the round number of $986,301, that ought to have set off the bank’s money-laundering alarms.

Drop me a line at rjk@dailyblague.com
This entry was posted on Friday, February 4th, 2011 at 10:30 am.