Wall Street should not be surprised to learn that JPMorgan Chase is being accused of aiding and abetting Ponzi schemer Bernie Madoff.  Similar accusations had been leveled against the bank 2 years earlier in a lawsuit filed by Howard Kleinhendler of Wachtel & Masyr, LLC, on behalf of his clients, MLSMK Investments Co., a Palm Beach, FL-based partnership.  

    According to the complaint filed in April 2009, ... JPMorgan Chase learned of the fraud in September 2008 after investigating why funds that invested with Madoff hadn’t suffered steep losses in the global sell-off.  The bank “quietly liquidated its entire $250 million cash position” with a fund that had invested with Madoff while continuing to provide fee-generating services to Madoff’s business. 

All of which received little attention, then quickly and quietly drifted from view.  The suit was dismissed in July 2010 (and now is on appeal) by Judge Barbara Jones in New York, who wrote the following in her opinion:

“While it might have been possible for defendants to determine that Madoff was committing fraud from the ‘red flags’ that plaintiff points out, plaintiff alleges no facts to demonstrate that defendants actually did make such a discovery."

    Madoff Trustee Picard's 12/2/10 Suit, Unsealed 2/3/2011.    In his complaint, Mr. Picard charged that JPMorgan had several warnings that questioned Madoff's investment performance.

• In 2007, a high-level Chase executive sent an email to colleagues explaining that another executive "just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a ponzi scheme." 
• In 2006, a top private banking executive reportedly steered clients away from Madoff investments because his "Oz-like signals" were "too difficult to ignore." 
• In February 2006, the first Chase risk analyst to look at a Madoff feeder fund told his superiors that the funds' returns did not add up, saying that it did much better than the securities that were supposedly in its portfolio.

For further details, go to:   [Bloomberg, 2/24/09, "JPMorgan Kept Quiet..."]     [Business Insider, 3/27/09, "What Did JP Morgan Learn ..."]