One of my core beliefs is that Ponzi schemes could not operate without the complicity of banks. Banks facilitate these schemes and lend an air of legitimacy to them.
In the case of Bernie Madoff, think about it – the crook wasn’t hiding billions in his mattress or behind his mirror, like the small time crooks in movies like The Grifters. No. Bernie used banks to hide the billions he stole, and the biggest bank he used was J.P Morgan Chase & Co. (JPM)
In his interview published last week with The New York Times, Madoff made it clear that financial institutions such as banks and hedge funds he failed to name were somehow “complicit” in his $65 billion fraud.
Of course, it’s hard to believe a liar, and Bernie is one of the biggest ever. As the Times noted, Madoff’s statement was “an about-face from earlier claims that he was the only person involved” in the biggest Ponzi scheme in history.
But, after spending months in jail, Bernie’s tune has changed.
“They had to know,” Madoff said, referring to financial institutions. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.” The Times reported that Madoff spoke about the “willful blindness” of various banks and hedge funds, although he failed to name names.
J.P. Morgan, meanwhile, has been doing spin control about its awareness of Madoff’s fraud.
The day before that story hit the front page of the Times, executives with J.P. Morgan were attempting to placate the industry about charges it’s facing from the Madoff trustee that it ignored or dismissed warning signs about the fraud. The Madoff trustee, Irving Picard, sued the bank in December, and has sued a number of individuals and institutions looking to get money back for investors. So far, Picard has been extremely successful, pulling $10 billion from former Madoff clients.
As the Wall Street Journal reported, J.P. Morgan’s general counsel Stephen Cutler told a group of analysts that J.P. Morgan “did not know about or in any way participate in the fraud” and vowed not to litigate the case in the media.
CEO James Dimon then took the mic at the meeting and said: “You can imagine what I would say.”
Tough talk from J.P. Morgan, the elite of Wall Street. Real tough. Let’s see how tough they are if, and when, the bank writes Mr. Picard a check for billions.