This past week, Attorney General Eric Holder announced hundreds of criminal indictments of perpetrators of Ponzi schemes.
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A rouge’s gallery of con-men, grifters, lawyers turned bad, greedy securities brokers, and money “managers”. But guess what? They are not the problem. Sadly these folks will always be around, making money the easy way: lifting it from the pockets of those who actually earned it. Though Charles Ponzi dates back less than one hundred years to the roaring 1920s, there have been snake oil salesman and bogus land deals and the like dating to the roots of Capitalism.
It was Irving Picard, the Bankruptcy Trustee for the Madoff firm that struck closer to the heart of the matter with his civil lawsuit against JPMorgan Chase, Madoff’s banker. As alleged in a still sealed lawsuit (where many details remain shrouded from public scrutiny), the bank – one of the largest and most powerful in the land – “turned a blind eye” and “ignored obvious red flags” as billions flowed in and out of the Madoff accounts. They were happy to take their fees and use those multi-billion dollar deposits for lending reserves, but never asked a question. Never a whisper: “what’s this guy up to?” Instead of buying securities for his clients, which we now know included hundreds of charitable foundations, Mr. Madoff and company simply laundered money: in one day, gone the next. Not to buy securities, but to pay that magical return of 10-12% no matter what the markets were doing.
No doubt JPMorgan Chase helped Madoff flourish. While his accountant was located in a strip mall, Madoff needed a reputable money center bank to handle the cash. He had a willing ally in JPMorgan Chase. And surely other banks sought his business.
So Attorney General Holder, focus the great talents of your department on those banks and financial institutions that were home to so many Ponzi Schemes. They provided aid and comfort to the fraudsters, at a minimum looking the other way and in some cases actively assisting in the operations of the fraud. In either case, the banks willingly took fees and paid bonuses from the very profits they earned housing these thieves. If the banks were out of the picture, Madoff and his colleagues would be forced to use some offshore facility (The Royal Bank of Trinidad and Tobago) which should give investors pause.
Some may be skeptical of my conclusion, but recall that these are the same banks that lost billions gambling on nearly worthless subprime debt, only to be bailed out by tax-payers.
(Berk Law, my firm, is currently counsel to investors of several Ponzi Schemes who have filed claims against Bank of America and JPMorgan Chase).