Frank Rich of the New York Times Is Right on Point (JP Morgan Chase Rides Safely into the Sunset)

As stated in these pages weeks ago, Madoff’s scheme, like all Ponzi Schemes, depended on the creation of an artifice of legitimacy and success.

This past Sunday Frank Rich wrote – in his elegant and insightful manner – about the lawsuit brought by Madoff receiver Irving Picard against JPMorgan Chase for its role as Madoff’s central banker. He highlighted that Chase bankers way back in 2007, eighteen months before Madoff’s arrest, were discussing “a well-known cloud” over Madoff, including speculation that he was “part of a Ponzi scheme.” Despite these concerns, Madoff continued to funnel billions of dollars of his clients’ money through Chase accounts while the bank carefully divested itself of $241 million of its $276 million in Madoff investments. Nice guys.

As stated in these pages weeks ago, Madoff’s scheme, like all Ponzi Schemes, depended on the creation of an artifice of legitimacy and success. Hence, the fancy Wall Street and London addresses, and key to the creation of that fiction, the participation of a first rate bank. JPMorgan Chase was happy to play that role. Without asking questions and despite the growing risk to investors, large and small, Madoff’s accounts remained open and under little to no scrutiny.

And it’s just going to happen again. We need stronger self regulation (“Excuse me Mr. Madoff, wondering if you could answer a few questions from Larry in our compliance department. Ok. Why haven’t you bought a security, a stock, a bond, nothing in, oh, 12 years and instead just pass the new cash received to an older investor”). Alternatively, we need more and tougher financial cops. That ain’t happening. The JPMorgan Chases of the world, with their phalanx of lawyers, will continue to be untouched by their often reckless conduct (or at a minimum turning a blind eye) in connection with the shenanigans of one future Ponzi scheme after another. And with Congress under the spell of the Tea Party and its "cut government spending" mantra blaring from K Street and supported by the latest polling data, money for enforcement will not be forthcoming no matter the risks. I can hear Fed Chairman Bernanke somewhere in the future, like a déjà vu moment, saying “we need a trillion dollars to save the financial system and I can’t tell you if that will even be enough.”

Who then is left to protect the small investors? Well there is Mr. Markopolos, of course, and Mr. Picard is doing his share, to be sure, but they merely represent fingers in the dike. Sadly, we are not better prepared for the next inevitable run up of greed and manipulation of say: “sub-prime mortgage backed securities 2.0” or some new “synthetic derivative” that is being concocted at some white shoe Wall Street law firm charging $900/hour that will become the latest rage for hedge fund managers from coast to coast.

http://ilenekent.com Ilene

Dear Mr. Berk — What an insightful and well thought out post. You are right that there needs to be more oversight and better regulation so that a Bernie Madoff is not allowed to surface again. However, all the regulations in the world will not address the ineptitude at the SEC. In fact, the very regulators whose job it should have been to catch Madoff are now senior staff at major law firms and brokerage houses.
The other key point is that Mr. Picard, while pursuing those culpable on one hand, is terrorizing smaller innocent investors on the other hand for no conceivable reason than perhaps to return money to SIPC’s coffers, that were woefully depleted after 13 years of charging only $150 per year per firm – regardless of size and regardless of risk.
I invite you to read my blog post on Mr. Rich’s article: http://www.ilenekent.com/?p=41
http://www.bernardmadoffvictims.org Ronnie Sue Ambrosino

Mr. Rich,
I wonder if you could possibly explain how Mr. Picard’s name can be used in the same context with the name of Harry Markopolos.
Markopolos tried desperately to tell the US regulatory agency responsible for ensuring fair market practices (the SEC)that Madoff was a fraud. This continued for more than 10 years. They obviously failed to listen and act upon his warnings.
Picard, on the other hand has totally acted outside the normal practices and procedures offered by the Securities Investment Protection Organization (SIPC). Their federal mandate clearly states that victims of failed brokers are due SIPC advances (up to $500,000) promptly and based on the value stated as of the date the failure was discovered.
In the Madoff case, this is the investors’ 11/30/08 account statement.
Picard has determined (without precedent or the necessary Congressional approval) to change how victims are protected and has severely reduced the number of victims that he says are entitled to SIPC coverage. In fact, according to his own website, he has denied SIPC coverage to more than 85% of Madoff investors.
Does that mean that 85% of ALL American investors may not be covered in the event that their brokers fail? I would think that if Picard is allowed to continue his inconsistent actions, American investors should be very leery of investing without the insurance they are promised.
Mr. Picard, can therefore single-handedly disrupt the safety and security needed to invest and therefore greatly impeded our country’s financial growth.
Congressman Scott Garrett realizes this and has proposed legislation to rectify it. http://t.co/MbmIGy7
I would hope that as a reporter, you would help to inform your readers of the dangers involved in the Trustee’s actions.
Thank you.
Ronnie Sue Ambrosino
Coordinator
Madoff Victims Coalition
steven Berk

Ilene:
thanks for your insights. i often wonder about what went wrong at the SEC. They are smart, well meaning professionals — so how did they miss the elephant in the room. And shame on mr. picard — although these small investors are “low hanging fruit” spend your time on the real culprits.
Steve Berk