WallStreetOnParade December 31 2013
Since December 16, major business media have failed to dig deeper into a potentially blockbuster story involving the Justice Department’s refusal to honor a Wall Street regulator’s request for a subpoena against JPMorgan Chase to obtain Madoff related documents the firm was refusing to turn over. JPMorgan Chase was Madoff’s banker for the last 22 years of his fraud. The Trustee in charge of recovering funds for Madoff’s victims, Irving Picard, said in a filing to the U.S. Supreme Court this Fall that JPMorgan stood “at the very center of Madoff’s fraud for over 20 years.”
It’s a big story when a serial miscreant like JPMorgan – which has promised its regulators to change its jaded ways in exchange for settlements – risks obstruction of justice charges by denying one of its key regulators internal documents. It becomes an explosive story when the Justice Department, the highest law enforcement agency in the land and the regulator’s only source of help in enforcing a subpoena for the documents, sides with the serial miscreant instead of the regulator.
The story began on December 16 when Scott Cohn of CNBC posted a story with this headline: “Feds Probe JPMorgan Interference in Madoff Case.” The article revealed that the Office of the Comptroller of the Currency (OCC), a JPMorgan Chase regulator and part of the U.S. Treasury Department, had been so riled by JPMorgan’s refusal to turn over documents related to what its employees knew about the Madoff fraud that it referred the matter to the Treasury Department’s Inspector General.
The article quotes Richard Delmar, legal counsel to the Inspector General, who explains that
“This office was looking into allegations made by JPMC’s regulator, the Office of the Comptroller of the Currency (OCC) that its oversight of the bank was being impeded, specifically with respect to the bank’s provision of banking services to Madoff.”
The Inspector General’s office clearly believed there was merit to the OCC’s claim because it issued its own administrative subpoena for the documents, according to the CNBC story. JPMorgan refused that request as well, leading the Inspector General to ask the Justice Department to enforce the subpoena – a request it refused to honor.
When the Justice Department refused to enforce this subpoena, it went against not one, or two, but three sets of investigators who had found a serious basis for suspecting JPMorgan of wrongdoing in the Madoff fraud.
Irving Picard, the Madoff victims’ fund trustee, had already filed a lower court lawsuit mapping out his case against JPMorgan. Picard told the court:
“Evidence of Madoff’s fraud permeated every facet of JPMC [JPMorgan Chase]. It ran from the Broker/Dealer Group, where BLMIS [Bernard L. Madoff Investment Securities LLC] maintained a bank account that no one honestly could have believed was serving any legitimate purpose, to Equity Exotics, where JPMC learned of the red flags inherent in BLMIS’s investment strategy, to JPMC’s London office, which learned that individuals might be laundering money through BLMIS feeder funds, to the Private Bank, which maintained intimate relationships with one of BLMIS’s largest customers, to Treasury & Security Services, which was responsible for investing the balance of the 703 Account in short-term securities.”
In a more recent filing with the U.S. Supreme Court seeking to overturn lower court findings that he lacked standing to sue JPMorgan and other banks, Picard further detailed his case against JPMorgan, explaining that JPMorgan was well aware that Madoff was claiming to invest tens of billions of dollars in a strategy that involved buying large cap stocks in the Standard and Poor’s 500 index while simultaneously hedging with options. But the Madoff firm’s primary bank account at JPMorgan, which the bank had intimate access to review for over 20 years, was devoid of evidence of stock or options trading.