JPMorgan Did A Cost-Benefit To See If It Was Worth Keeping A Ponzi Scheme As A Client

John Hogan

Irving Picard’s lawsuit against JPMorgan reveals many names of executives who suspected that Bernie Madoff’s fund was a ponzi scheme, but did nothing.The worst news is about Brian Sankey. After Madoff’s arrests, because even though the firm’s executives had held a lunch meeting to discuss their doubts about Madoff in 2007, a year before the scheme unravelled, he allegedly advised that the existence of the firm’s doubts “never [see] the light of day again.” 

Most damningly, sometime before or after that meeting, JPMorgan did a cost-benefit analysis to determine what would happen IF Madoff turned out to be a ponzi scheme. AND it insured against the chance of Madoff being a fraud.

This is from Picard’s lawsuit:

“Based on overall estimated size of BLM strategy, . . . it would take [a] . . . fraud in the order of $3bn or more . . . for JPMC to be affected.”

“JPMorgan’s investment in BLM . . . is treated as customer money . . . and therefore [is] covered by SIPC.”

Now we know why Madoff said “JPMorgan doesn’t have a chance.”

We’re reading the lawsuit now and we’ll surely have more details in a moment.

So far, the only good news from the lawsuit is about 40-year old Matthew Zames, because he seems to have initiated that lunch meeting in which he “told a senior executive in June 2007 that Mr. Madoff’s returns ‘are speculated to be part of a Ponzi scheme.'” He’s also called a JPMorgan exec who is “often cited as a young star who could snag the bank’s top job someday,” by the NYTimes in their reporting of the lawsuit. (Zames is a managing director in the firm’s liquid securities unit and co-head of fixed income. He’s on the board of the US Treasury borrowing advisory and MIT’s financial advisory committee. He used to work at LTCM. He’s also the only CEO candidate who sits on the trading floor.)

From Picard’s lawsuit

The senior executive Zames told is John Hogan, the bank’s chief risk officer for investment banking. Carlos Hernandez is also named. His involvement isn’t as detailed as the others. It’s just said that he knew about Zames’ doubts.Hogan is taking hit after hit in the press this week. Just a few days ago, an email surfaced in another lawsuit where Hogan advised his team to “protect our position” regardless of conflicts of interest with clients.

Here are all of the names of the JPMorgan employees named, in part because they are members of teams from credit risk and market risk who, along with Hogan, reviewed and approved JPMC’s structured products related to the BLMIS feeder funds.

Jonathan “Bobby” Magee – ran Equity Exotics during 2007 and 2008 when the group was structuring and issuing products related to BLMIS feeder funds. (Former employee)

Andrea De Zordo, Neil McCormick, and Dimitrios Nikolakopoulos – worked under Magee. (McCormick no longer works at JPM.)

Richard Cassa – the Client Relationship Manager in the Broker/Dealer Group responsible for BLMIS’s accounts and credit requests. He fielded requests from other divisions of JPMC to set up meetings with Madoff. (Former employee)

Jane Buyers-Russo – head of the Broker/Dealer Group (former employee)

Luke Dixon – Executive Director in EDG out of JPMC’s London office. Conducted due diligence on the BLMIS feeder funds in 2008.

Scott Palmer – worked alongside Dixon in EDG in London. Conducted due diligence on the BLMIS feeder funds in 2008.

Marco Bischof – Credit Risk Management

James Coffman – Credit Risk Management 

Andrew Cox – works out of London in Global Credit Risk and Client Operations for Europe, the Middle East, and Africa.

Richard Wise – Head of Market Risk in the Equity Division

Chen Yang – Market Risk Management reporting to Wise

Alain Krueger – in the Structured Investments Distribution Marketing division of the London Investment Bank. He was the JPMC representative who spoke to Aurelia Finance regarding JPMC’s decision to redeem from the BLMIS feeder funds.

Michael Cembalest – Chief Investment Officer at JPMorgan Global Wealth Management, which is part of the Private Bank. Cembalest’s group conducted due diligence on BLMIS and, after seeing all of the red flags, chose not to invest with any BLMIS feeder funds.

One big person who isn’t named: the CEO of investment banking, Jes Staley.