http://www.nytimes.com/2009/01/29/business/29madoff.html

JPMorgan Exited Madoff-Linked Funds Last Fall
Peter Foley/European Pressphoto Agency

Bernard Madoff arrived at court on Jan. 14. Months before Mr. Madoff’s arrest, JPMorgan Chase took money out of hedge funds linked to him.

Published: January 28, 2009

Steve Forrest for The New York Times

Some wonder if JPMorgan saw trouble brewing and got its London unit, above, out of two hedge funds before the storm.


JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why.

As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.

But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.

A spokeswoman, Kristin Lemkau, said the bank withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Ms. Lemkau acknowledged, however, that the bank also “became concerned about the lack of transparency to some questions we posed as part of our review.”

Investors were not alerted to the move because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she added, “we did not have the right to disclose our concerns.”

That doesn’t satisfy some investors. As they see it, they were the first people who should have been alerted to the bank’s concerns. “Instead, we continued to pay our fees to the bank and remained the only ones exposed to the risks that JPMorgan did not want to assume,” said the chief asset manager of an Italian investment firm, who declined to be identified because of potential litigation.

The tale began several years ago when a unit of JPMorgan Chase in London issued a series of complex derivatives that gave investors a way to triple their bets on the Fairfield funds, whose solid consistency mirrored the track record that had quietly — and ruinously — drawn investors to Mr. Madoff for decades.

Leveraged notes issued by big banks like JPMorgan Chase and Nomura became conduits through which fresh money flowed from institutional investors into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands.

The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds. When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said.

And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year, according to documentation of those transactions.

The first sign of trouble came in early October, when Fairfield Greenwich notified investors that it would no longer pay them rebates.

The reason, according to the Italian asset manager, was that JPMorgan Chase had “suddenly cashed out” of the Fairfield funds. “The official explanation was that there had been a strategic decision to get out of all hedge funds,” the asset manager said. “The Fairfield official was quite upset.”

Several other European money managers said they were told the same thing.

A spokesman for Fairfield Greenwich declined to comment on the bank’s actions last fall, citing restrictions imposed by the beleaguered firm’s lawyers.

Given the turbulent times, the Italian asset manager said he thought the bank urgently needed to raise cash. That seemed the only way to explain why the bank would pull out of a fund that was up 5 percent when other major market indexes were down 30 percent, he added.

A source close to JPMorgan Chase, however, recalled bank officials saying that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds.

“They felt the consistency of its performance wasn’t any longer credible” given the downturn in the overall market, the source said. He added: “Just three months before that, I remember that they were ready to issue more notes.”

Some investors now note that Mr. Madoff maintained several accounts with JPMorgan Chase, and wonder if the parent bank saw trouble brewing in those accounts and got its London affiliate out of Fairfield before the storm hit.

The Italian asset manager’s colleague, the firm’s chief institutional adviser, said, “Since I heard about Madoff’s arrest, I have been wondering if it was just a tremendous stroke of luck — or if there was something JPMorgan in New York knew that led London to cash out.” Told on Tuesday about the bank’s explanation for its move, he added, “Now that I know why they say they got out, my doubts increase.”

Did the bank use its access to the Madoff checking accounts to detect trouble before his arrest? “Absolutely not,” Ms. Lemkau said.

In any case, banking authorities say there is nothing wrong with a bank looking into a customer’s checking account to get information for its other lines of business.

“It is routine for the bank to look into your checking account if you apply for a loan — so why couldn’t they look into your account if someone else applies for a loan whose risks are tied up with you?” said Stuart I. Greenbaum, a banking specialist who is the retired dean of the Olin Business School at Washington University in St. Louis.

He added, “Still, I suspect that’s worth a lawsuit somewhere.”

One of the key tests in court would be whether investors could show that they were harmed by anything the bank did or failed to do last fall, or whether any other course of action would have simply made things worse, said Charles Mooney Jr., a law professor at the University of Pennsylvania. “If I were the bank’s lawyer, those are the questions I’d ask — and the answers are far from clear,” he said.

Investors say the bank should have done a better job of investigating the Fairfield funds before it issued the notes. Another European investment manager, who also declined to be identified because of potential litigation, says he decided to purchase the notes for his clients partly on the strength of the bank’s reputation.

He said that when he saw JPMorgan Chase “put its brand name” on the Fairfield notes, “I thought that there was no more reason to remain cautious.” He added, “For me, the JPMorgan notes were the final imprimatur of Sentry’s financial soundness.”

What has upset him and other investors interviewed about their stake in the notes is that they did not know that JPMorgan Chase had already exited from Fairfield, almost unscathed, without notifying them.

“We looked at the prospectus and concluded that they had no obligation to do that,” the Italian asset manager said. “But I certainly expected it, after such an unusual move.”

After JPMorgan started pulling out of Fairfield, with credit markets in disarray everywhere, the quoted price of the notes fell by about 12 cents on the dollar, a discount that discouraged some investors from selling because the price seemed at such odds with the Fairfield Sentry fund’s continued good performance.

An executive with a Swiss financial advisory firm said that he had placed an order to redeem some notes at the end of October. But when he found out how low the quotes were, he said, “I immediately placed a stop to the withdrawal — a decision that, after Madoff’s arrest, I haven’t stopped regretting.”

His regrets seem to be justified. Some buyers of the notes face the loss of their entire investment.

In a letter dated Dec. 31, 2008, Timothy R. Hailes, a managing director and associate general counsel for the bank in London, notified investors that Mr. Madoff had been arrested and that his firm was being liquidated by regulators. These events activated provisions in the terms of the notes that allowed the bank to substitute some other asset for the Fairfield funds, which “may have a considerable impact on the value and the amount payable” to investors, according to those contracts.

Investors said that the bank had not provided any further information about their potential losses, even when asked for updates. “As of today, I still do not know if JPMorgan attributes any value to those notes,” said one European money manager.

About two-thirds of the Fairfield-linked notes the bank issued were guaranteed against principal loss, according to the bank. But the bank said the owners of the remaining notes, like all the investors cited here, had probably lost their entire stake. That would mean a loss the bank puts at about $30 million but that investors say could be much larger.

“We believe the notes that are not guaranteed are now valued at zero,” said Ms. Lemkau, although investors “could reach some recovery through bankruptcy proceedings.” In any case, she added, “The risks were fully explained to clients in the purchase agreements.”

If the bank had withdrawn almost $250 million directly from Mr. Madoff’s firm, Bernard L. Madoff Investment Securities, the bank would be subject to federal bankruptcy rules that give the court-appointed trustee leeway to recover money paid out over the previous year and use it to repay creditors. It is less likely that a similar withdrawal from Fairfield Greenwich would be within the trustee’s reach, but the question is certain to be posed in litigation, several lawyers said.

“I would consider it a probable development,” said the source close to JPMorgan Chase. “Especially with a redemption so close in time to Madoff’s arrest.”

This article was a joint investigation by The New York Times and the Italian business daily Il Sole 24 Ore. Claudio Gatti is an investigative reporter for the Italian paper, based in New York.


JPMorgan to Madoff trustee: Back off!

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Bernard Madoff - Ponzi scheme

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff's investment scandal demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff's variant of the Ponzi scheme stands as the largest financial investor fraud committed by a single person in history. Prosecutors estimate losses at Madoff's hand totaling roughly $21 billion, as estimated by the money invested by his victims. If the promised returns are added, the losses amount to $64.8 billion, but a New York court dismissed this estimation method during the Madoff trial.

The scheme is named for Charles Ponzi,[1] who became notorious for using the technique in early 1920. Ponzi did not invent the scheme (Charles Dickens' 1857 novel Little Dorrit described such a scheme decades before Ponzi was born, for example), but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth.

Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational economically if there is a reasonable expectation that government or other deep pockets will bail out those participating in the Ponzi scheme.[2]


US Department of Justice photograph, 2008

Bernard Lawrence "Bernie" Madoff (pronounced /ˈmeɪdɒf/;[3] born April 29, 1938) is a former American stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in history.

In March 2009, Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1970s,[4] and those charged with recovering the missing money believe the investment operation may never have been legitimate.[5] The amount missing from client accounts, including fabricated gains, was almost $65 billion.[6] The court-appointed trustee estimated actual losses to investors of $18 billion.[5] On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.[7][8]

Jeffry Picower, rather than Madoff, appears to have been the largest beneficiary of Madoff's Ponzi scheme, and his estate settled the claims against it for $7.2 billion.[9][10] J.P. Morgan Chase & Co. may have also benefitted from the scheme - through interest and fees charged - to the tune of a billion dollars. Trustee Irving Picard has filed suit seeking the return of $1 billion and damages of $5.4 billion. Morgan denied complicity.[11] According to the same lawsuit, New York Mets owners Fred Wilpon and Saul Katz and associated individuals and firms, received $300 million from the scheme. Wilpon and Katz "categorically reject" the charges.[12]

Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008.[13][14] The firm was one of the top market maker businesses on Wall Street,[15] which bypassed "specialist" firms by directly executing orders over the counter from retail brokers.[16]

On December 10, 2008, Madoff's sons told authorities that their father had confessed to them that the asset management unit of his firm was a massive Ponzi scheme, and quoted him as describing it as "one big lie."[17][18][19] The following day, FBI agents arrested Madoff and charged him with one count of securities fraud. The U.S. Securities and Exchange Commission (SEC) had previously conducted investigations into Madoff's business practices, but did not uncover the massive fraud.[15]


Banks Could Have Key Role in Mets Suit

Bernard L. Madoff’s arrest on Dec. 11, 2008, shook the pillars of Fred Wilpon’s world.

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JPMorgan to Madoff trustee: Back off!

By Aaron Smith, staff writer

NEW YORK (CNNMoney) -- JPMorgan Chase accused the court-appointed trustee in the Bernard Madoff Ponzi case of overstepping his bounds with his $6 billion lawsuit against the financial services company.

"JPMorgan believes that the Trustee is entirely wrong in asserting that JPMorgan violated any federal statutes or regulations," said the bank's lawyer John Savarese, in a document filed in U.S. Bankruptcy Court in New York.

"JPMorgan, moreover, has the right to demand a jury trial with respect to most of the trustee's claims, which could not be conducted in the bankruptcy court," the lawyer said.

Irving Picard, appointed as trustee by New York bankruptcy court to lead the recovery of assets stolen by Madoff's firm, has sued JPMorgan for allegedly profiting from the largest Ponzi scheme in history.

The suit is seeking to recover nearly $1 billion in fees and profits and an additional $5.4 billion in damages from JPMorgan (JPM, Fortune 500), which acted as Madoff's banker from 1986 until 2008, when his scam collapsed. Picard has also accused JPMorgan executives of knowing that Madoff's firm was a front for a Ponzi scheme, but doing nothing to stop it.

JPMorgan, through its lawyer, responded by saying the trustee is "trying to pursue an enormous backdoor class action to recoup damages" of the Madoff victims, for which JPMorgan is not responsible.

A spokesman for the trustee did not respond to CNNMoney's request for a response.

The trustee has sued hundreds of Madoff investors, including firms, individuals and the owners of the New York Mets baseball team, for profiting from their investments in his firm.

As part of this effort, the trustee reached a $7.2 billion settlement in December with Barbara Picower, widow of investor Jeffry Picower, who had withdrawn $7.8 billion from Madoff's firm since the 1970s, even though he only invested $619 million.

Many of these investors portray themselves as victims who were wiped out by the Ponzi scheme and claim they knew nothing about it prior to its collapse.

In March 2009, Madoff pleaded guilty to a federal judge for orchestrating the longest-running Ponzi scheme in history, snagging thousands of victims in his net, and stealing billions of dollars.

Madoff used his Manhattan investment firm as a front for the pyramid-style scam. He took money from investors, making a bogus claim of better-than-average returns from his market investments. Some of the money would go to his more mature investors as part of the ruse to draw in more funds.

Madoff is serving a 150-year sentence in a medium security federal prison in Butner, N.C. To top of page

http://www.infiniteunknown.net/2011/02/06/jp-morgan-suspected-bernie-madoff-running-a-ponzi-scheme-18-months-before-his-scam-was-revealed/

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  • A top Wall Street bank is said to have suspected Bernie Madoff was a crook more than 18 months before he was exposed as the world’s biggest swindler.

    But JPMorgan Chase executives continued to do business with the financier in spite of their concerns, according to a report today in the New York Times.


    Unsealed court documents allege bank told the UK’s Serious Organised Crime Agency of concerns in October 2008, two months before the fraudster admitted his empire was a sham


    JP Morgan is being sued for $6.4bn over its role in Bernard Madoff’s business empire Photograph: Timothy A Clary/AFP/Getty Images

    The UK’s Serious Organised Crime Agency (Soca) was warned about Bernard Madoff in October 2008, two months before the fraudster confessed that his investment empire was a sham, according to a lawsuit unsealed in New York.

    The allegation was made in a suit filed against JP Morgan, one of Madoff’s banks, on behalf of the fraudster’s victims.

    According to the suit, filed by the court-appointed trustee Irving Picard, executives at JP Morgan allegedly told Soca that they were concerned about “investment performance achieved by its [Madoff's business] funds which is so consistently and significantly ahead of its peers, year-on-year, even in the prevailing market conditions, as to appear too good to be true – meaning that it probably is”.

    The lawsuit, which cites internal emails, claims that employees in the bank’s “equity exotics & hybrids” desk found that the so-called feeder funds which brought in new investors knew little about Madoff’s operations and asked few questions. “It’s almost a cult [Madoff] seems to have fostered,” one employee observed.

    The suit is damning of JP Morgan’s alleged role in the scandal. It claims that Soca was informed by JP Morgan “only in an effort to protect its own investments” and the bank did nothing further to stop the fraud even though it had informed the authorities.

    “While numerous financial institutions enabled Madoff’s fraud, JP Morgan was at the very centre of the fraud and thoroughly complicit in it,” according to the suit. It details ways in which Picard alleges the bank sought to make money from investment funds that fed money to Madoff.

    According to the court filing, a senior executive at the bank was told Madoff had “a well-known cloud” over his head and was suspected of running a Ponzi scheme 18 months before his empire collapsed leaving thousands of investors penniless. The 114-page suit claims the bank did not pay attention to billions of dollars passing through the fraudster’s main JP Morgan account.

    The $6.4bn (£4bn) lawsuit against JP Morgan is one of nearly 60 Picard filed late last year seeking more than $40bn from investors, hedge funds and banks that he alleges made money with Madoff including HSBC, UBS and Citigroup.

    Lawyers for JP Morgan had managed to have the details contained in the suit sealed until now. At the time David Sheehan, a lawyer representing the trustee, said: “JP Morgan was wilfully blind to the fraud, even after learning about numerous red flags surrounding Madoff.”

    A spokeswoman said the bank had no comment but in December, when the suit was initially filed, a spokesman said: “Any suggestion that JP Morgan supported Madoff’s fraud is utterly baseless and demonstrably false. Contrary to the trustee’s allegations, JP Morgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff.”

    • The caption to this article was amended on 4 February 2011. The original said JP Madoff was being sued for $6.4bn. This has been corrected.

    Dominic Rushe in New York
    Thursday 3 February 2011 23.09 GMT

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    Bernard Madoff - Personal life

    Madoff was born in the New York City borough of Queens on April 29, 1938, and is the son of Ralph (June 1910 – July 1972) and Sylvia (née Muntner, December 1911 – December 1974) Madoff.[20][21] Ralph was a plumber before becoming a stockbroker.[22][23] Madoff's grandparents were Jewish emigrants from Poland, Romania and Austria.[24] Madoff graduated from Far Rockaway High School in 1956,[25] attended the University of Alabama for one year, where he became a brother of the Tau Chapter of the Sigma Alpha Mu fraternity,[26] then transferred to and graduated from Hofstra College in 1960 with a B.A. in political science.[27] The following year, he attended Brooklyn Law School, but did not continue.[citation needed]

    In 1959, Madoff married Ruth Alpern, who graduated from Queens College and worked in the stock market in Manhattan.[28] She later worked in Madoff's firm, and founded the Madoff Charitable Foundation.[29] Several family members worked for Madoff. His younger brother, Peter,[30] an attorney, was Senior Managing Director and Chief Compliance Officer, and Peter's daughter, Shana, also an attorney, was the compliance attorney. Madoff’s sons, Mark and Andrew, worked in the trading section, along with Charles Weiner, Madoff’s nephew.[31][32]

    Madoff lived in Roslyn, New York, in a ranch house through the 1970s and after 1980 owned an ocean-front residence in Montauk.[33] His primary residence was on Manhattan's Upper East Side,[34] and he was listed as chairman of the building's co-op board.[35] He also owned a home in France and a mansion in Palm Beach, Florida, where he was a member of the Palm Beach Country Club.[36] Madoff owned a 55-foot (17 m) sportfishing yacht named Bull,[35][37] All three homes were auctioned by the U.S. Marshals Service in September 2009.[38][39]

    According to a March 13, 2009, filing by Madoff, he and his wife were worth up to $126 million, plus an estimated $700 million for the value of his business interest in Bernard L. Madoff Investment Securities LLC.[40] Other major assets included securities ($45 million), cash ($17 million), half-interest in BLM Air Charter ($12 million), a 2006 Leopard yacht ($7 million), jewelry ($2.6 million), Manhattan apartment ($7 million), Montauk home ($3 million), Palm Beach home ($11 million), Cap d' Antibes, France property ($1 million), and furniture, household goods, and art ($9.9 million).

    Madoff was a prominent philanthropist,[19][31] who served on boards of nonprofit institutions—many of which entrusted his firm with their endowments.[19][31] The collapse and freeze of his personal assets and those of his firm affected businesses, charities, and foundations around the world, including the Chais Family Foundation,[41] the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation which were forced to close.[19][42] Madoff donated approximately $6 million to lymphoma research after his son Andrew was diagnosed with the disease.[43] He and his wife gave over $230,000 to political causes since 1991, with the bulk going to the Democratic Party.[44]

    Madoff served as the Chairman of the Board of Directors of the Sy Syms School of Business at Yeshiva University, and as Treasurer of its Board of Trustees.[31] He resigned his position at Yeshiva University after his arrest.[42] Madoff also served on the Board of New York City Center, a member of New York City's Cultural Institutions Group (CIG).[45] He served on the executive council of the Wall Street division of the UJA Foundation of New York which declined to invest funds with him because of the conflict of interest.[46]

    Madoff undertook charity work for the Gift of Life Bone Marrow Foundation and made philanthropic gifts through The Madoff Family Foundation, a $19 million private foundation, which he managed along with his wife.[19] They donated money to hospitals and theaters.[31] The foundation has also contributed to many educational, cultural, and health charities, including those later forced to close because of Madoff's fraud.[47] After Madoff's arrest, the assets of the Madoff Family Foundation were frozen by a federal court.[19]

    Mark Madoff owed his parents $22 million, and Andrew Madoff owes $9.5 million. There were two loans in 2008 from Bernard Madoff to Andrew Madoff: $4.3 million on October 6, and $250,000 on September 21.[48][49] Andrew owns a Manhattan apartment and a home in Greenwich, Connecticut, as did Mark[28] prior to his death by apparent suicide on the second anniversary of his father's arrest.[50]

    Following a divorce from his first wife in 2000, Mark withdrew money from an account. Both sons used outside investment firms to run their own private philanthropic foundations.[28][51][52] In March 2003, Andrew was diagnosed with mantle cell lymphoma and eventually returned to work. He became chairman of the Lymphoma Research Foundation in January 2008, but resigned shortly after his father's arrest.[28]

    Peter and Andrew Madoff remain the targets of a tax fraud investigation by federal prosecutors, according to The Wall Street Journal. David Friehling, Bernard Madoff's tax accountant, who pleaded guilty in a related case, is reportedly assisting the investigation. According to a civil lawsuit filed in October 2009, trustee Irving Picard alleges that Peter Madoff deposited $32,146 into his Madoff accounts and withdrew over $16 million; Andrew Madoff deposited almost $1 million into his accounts and withdrew $17 million; Mark Madoff deposited $745,482 and withdrew $18.1 million.[53]

    Sheryl Weinstein, former chief financial officer of Hadassah, disclosed in a book written to recoup her investment losses that she and Madoff had an affair more than 20 years ago. As of 1997, when Weinstein left, Hadassah had invested a total of $40 million. By the end of 2008, Hadassah had withdrawn $140 million from an account valued at $90 million. At the victim impact sentencing hearing, Weinstein testified, calling him a "beast".[54][55]

    On the morning of December 11, 2010—exactly two years after Bernard's arrest—his elder son Mark Madoff, age 46, was found dead in his New York City apartment. The city medical examiner ruled the cause of death as suicide by hanging.[56][57]

     Early career

    Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960. He was its chairman until his arrest on December 11, 2008.[13]

    The firm started as a penny stock trader with $5,000 ($37,000 in current dollar terms) that Madoff earned from working as a lifeguard and sprinkler installer.[51] He further secured a loan of $50,000 from his father-in-law which he also used to set up Bernard L. Madoff Investment Securities LLC. His business grew with the assistance of his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families.[59] Initially, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate its quotes.[32] After a trial run, the technology that the firm helped develop became the NASDAQ.[60]

    The firm functioned as a third-market provider, which bypassed exchange specialist firms, by directly executing orders over the counter from retail brokers.[16] At one point, Madoff Securities was the largest market maker at the NASDAQ and in 2008 was the sixth largest market maker on Wall Street.[32] The firm also had an investment management and advisory division, which it did not publicize, that was the focus of the fraud investigation.[61]

    Madoff was "the first prominent practitioner"[62] of payment for order flow, in which a dealer pays a broker for the right to execute a customer's order. This has been called a "legal kickback."[63] Some academics have questioned the ethics of these payments.[64][65] Madoff has argued that these payments did not alter the price that the customer received.[66] He viewed the payments as a normal business practice: "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated."[66]

    Madoff was active in the National Association of Securities Dealers (NASD), a self-regulatory securities industry organization and has served as the Chairman of the Board of Directors and on the Board of Governors of the NASD.[14]

     Government access

    Since 1991, Madoff and his wife have contributed about $240,000 to federal candidates, parties and committees, including $25,000 a year from 2005 through 2008 to the Democratic Senatorial Campaign Committee. The Committee has returned $100,000 of the Madoffs' contributions to Irving Picard, the bankruptcy trustee who oversees all claims. Senator Charles E. Schumer returned almost $30,000 received from Madoff and his relatives to the trustee, and Senator Christopher J. Dodd donated $1,500 to the Elie Wiesel Foundation for Humanity, a Madoff victim.[67]

    The Madoff family gained access to Washington's lawmakers and regulators through the industry's top trade group. The Madoff family has long-standing, high-level ties to the Securities Industry and Financial Markets Association (SIFMA), the primary securities industry organization.[68] Bernard Madoff sat on the Board of Directors of the Securities Industry Association, which merged with the Bond Market Association in 2006 to form SIFMA.[69]

    Madoff's brother Peter then served two terms as a member of SIFMA’s Board of Directors. He stepped down from the Board of Directors of SIFMA in December 2008, as news of the Ponzi scheme broke.[68] From 2000 to 2008 the two Madoff brothers gave $56,000 to SIFMA, and tens of thousands of dollars more to sponsor SIFMA industry meetings.[70] Bernard Madoff's niece Shana Madoff was active on the Executive Committee of SIFMA's Compliance & Legal Division, but resigned her SIFMA position shortly after her uncle's arrest.[71]

    In 2004 Genevievette Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, informed her supervisor branch chief Mark Donohue that her review of Madoff found numerous inconsistencies and recommended further questioning. However, because of agency pressure to investigate the mutual fund industry, she had to conclude work on the probe. Donohue's boss, Eric Swanson, an assistant director of the department,[72] married Shana Madoff, after the investigation concluded in 2005.[73] A spokesman for Swanson, who has left the SEC, said he "did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship" with Shana Madoff.[74]

    While awaiting sentencing, Madoff met with the SEC's Inspector General, H. David Kotz, who is conducting an investigation into how regulators failed to detect the fraud despite numerous red flags.[75] Madoff said he could have been caught in 2003, but bumbling investigators acted like "Lt. Colombo" and never asked the right questions.

    "I was astonished. They never even looked at my stock records. If investigators had checked with the Depository Trust Company, a central securities depository, it would've been easy for them to see. If you're looking at a Ponzi scheme, it's the first thing you do." Madoff said in the June 17, 2009, interview that SEC Chairman Mary Schapiro was a "dear friend," and SEC Commissioner Elisse Walter was a "terrific lady" whom he knew "pretty well."[76]

    Since Madoff's arrest, the SEC has been criticized for its lack of financial expertise and lack of due diligence, despite having received complaints from Harry Markopolos and others for almost a decade. The SEC's Inspector General, H. David Kotz, found that since 1992, there were six botched investigations of Madoff by the SEC, either through incompetent staff work or neglecting allegations of financial experts and whistle-blowers.[77][78][79]

     Investment scandal

    Concerns about Madoff's business surfaced as early as 1999, when financial analyst Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. According to Markopolos, he knew within five minutes that Madoff's numbers didn't add up, and it took four hours of failed attempts to replicate them to conclude Madoff was a fraud.[80] He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the government, the industry, and the press about the Madoff fraud.

    Although Madoff's wealth management business ultimately grew into a multi-billion-dollar operation, none of the major derivatives firms traded with him because they didn't think his numbers were real. None of the major Wall Street firms invested with him either, and several high-ranking executives at those firms suspected he wasn't legitimate.[80]

    Others also contended it was inconceivable that the growing volume of Madoff accounts could be competently and legitimately serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant.[81]

    The Federal Bureau of Investigation complaint says that during the first week of December 2008, Madoff confided to a senior employee, identified by Bloomberg News as one of his sons, that he said he was struggling to meet $7 billion in redemptions.[17] According to the sons, Madoff told Mark Madoff on December 9 that he planned to pay out $173 million in bonuses two months early.[82] Madoff said that “he had recently made profits through business operations, and that now was a good time to distribute it."[17] Mark told Andrew Madoff, and the next morning they asked their father to explain how he could pay bonuses to his staff if he was having trouble paying clients. They went to Madoff's apartment, with Ruth Madoff nearby. Madoff told them he was “finished,” that he had “absolutely nothing” left, that his investment fund was “just one big lie” and “a giant Ponzi scheme”.[82] According to their attorney, Madoff's sons then reported their father to federal authorities.[17] On December 11, 2008, he was arrested and charged with securities fraud.[19]

    Madoff posted $10 million bail in December 2008 and remained under 24-hour monitoring and house arrest in his Upper East Side penthouse apartment until March 12, 2009, when Judge Denny Chin revoked his bail and remanded him to the Metropolitan Correctional Center. Chin claimed Madoff was a flight risk, because of his age, wealth, and the prospect of spending the rest of his life in prison.[83] Prosecutors filed two asset forfeiture pleadings which include lists of valuable real and personal property as well as financial interests and entities.[84]

    Madoff's lawyer, Ira Sorkin, filed an appeal, and prosecutors responded with a notice of opposition. [84] On March 20, 2009, an appellate court denied Madoff's request to be released from jail and returned to home confinement until his June 29, 2009, sentencing. On June 22, 2009, Sorkin hand-delivered a customary pre-sentencing letter to the judge requesting a sentence of 12 years, because of tables cited from the Social Security Administration that his life span is predicted to be 13 years.[75][85]

    On June 26, 2009, Chin ordered Madoff to forfeit $170 million in assets. Prosecutors asked Chin to sentence Madoff to the maximum 150 years in prison.[86][87][88] Irving Picard indicated that "Mr. Madoff has not provided meaningful cooperation or assistance."[89]

    In settlement with federal prosecutors, Madoff's wife Ruth agreed to forfeit her claim to US$85 million in assets, leaving her with $2.5 million in cash.[90] The order allowed the SEC and Court appointed trustee Irving Picard to pursue Ruth Madoff's funds.[89] Massachusetts regulators also accused her of withdrawing $15 million from company-related accounts shortly before he confessed.[91]

    In February 2009, Madoff reached an agreement with the SEC, banning him from the securities industry for life.[92]

    Picard has sued Madoff's sons, Mark and Andrew, his brother Peter, and Peter's daughter, Shana, for negligence and breach of fiduciary duty, for $198 million. The defendants had received over $80 million in compensation since 2001 and "used the bank account at BLMIS like a personal piggy bank." The trustee believes they knew about the fraud because of their personal investments in the scheme, the longevity of the fraud, and because of their work at the company including roles as corporate and compliance officers. Since 1995, Peter Madoff had invested only $14, but withdrew over $16 million. Mark and Andrew Madoff withdrew more than $35 million from a small original investment.[93][94]

     Mechanics of the fraud

    According to the Securities and Exchange Commission indictment against Annette Bongiorno and Joann Crupi, two back office workers who worked for Madoff, they created false trading reports based on the returns that Madoff ordered for each customer.[95] For example, once Madoff determined a customer's return, one of the back office workers would enter a false trade from a previous date and then enter a false closing trade in the amount of the required profit, according to the indictment.[96] Prosecutors allege that Bongiorno used a computer program specially designed to backdate trades and manipulate account statements. They quote her as writing to a manager in the early 1990s "I need the ability to give any settlement date I want."[95] In some cases returns were allegedly determined before the account was even opened.[96]

    Madoff admitted during his March 2009 guilty plea that the essence of his scheme was to deposit client money into a Chase account, rather than invest it and generate steady returns as clients had believed. When clients wanted their money, "I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds," he told the court.[97]

    Affinity fraud

    Affected institutions include Kentucky University, the Women's Zionist Organization of America, the Elie Wiesel Foundation and Steven Spielberg's Wunderkinder Foundation. Jewish federations and hospitals have lost millions of dollars, forcing some organizations to close.[98] The Lappin Foundation, for instance, was temporarily forced to halt operations because it had invested its entire $8 million endowment with Madoff. Affected institutions also include Stony Brook University Foundation and the James Harris Simons family foundation.

     Size of loss to investors

    David Sheehan, chief counsel to trustee Picard, stated on September 27, 2009, that about $36 billion was invested into the scam, returning $18 billion to investors, with $18 billion missing. About half of Madoff's investors were "net winners," earning more than their investment. The withdrawal amounts in the final six years are subject to "clawback" (return of money) lawsuits.[5]

    Former SEC Chairman Harvey Pitt has estimated the actual net fraud to be between $10 and $17 billion.[99] Erin Arvedlund, who publicly questioned Madoff's reported investment performance in 2001, stated that the actual amount of the fraud will never be known, but is likely between $12 and $20 billion.[100] [101] As of September 2010 approximately $1.5 billion have been recovered for distribution to the net losers that were invested in BLMIS directly. Mr. Picard currently has approved approximately $5.6 billion in claims.

     Plea, sentencing, and prison life

    On March 12, 2009, Madoff pleaded guilty to 11 federal offenses, including securities fraud, wire fraud, mail fraud, money laundering, making false statements, perjury, theft from an employee benefit plan, and making false filings with the SEC.[102] The plea was the response to a criminal complaint filed two days earlier, which stated that over the past 20 years, Madoff had defrauded his clients of almost $65 billion in the largest Ponzi scheme in history. Madoff insisted he was solely responsible for the fraud.[6][77] Madoff did not plea bargain with the government. Rather, he pleaded guilty to all charges. It has been speculated that Madoff plead guilty because he refused to cooperate with the authorities in order to avoid naming any associates and conspirators who were involved with him in the Ponzi scheme.[103][104]

    On November 3, 2009, David Friehling, Madoff's accounting front man plead guilty to securities fraud, investment adviser fraud, making false filings to the Securities and Exchange Commission, and obstructing the IRS. Madoff's right hand man, Frank DiPascali pleaded guilty in August, 2009, and is awaiting bail.[105]

    Madoff's plea allocution stated he began his Ponzi scheme in 1991. He admitted he had never made any legitimate investments with his clients' money during this time; instead, he deposited the money into his personal business account at Chase Manhattan Bank. Chase and its successor, JPMorgan Chase, may have earned as much as $483 million from his bank account.[106][107] He was committed to satisfying his clients' expectations of high returns, despite an economic recession. He admitted to false trading activities masked by foreign transfers and false SEC filings. He told the Court his intention had always been to resume legitimate trading activity, but it proved "difficult, and ultimately impossible" to reconcile his client accounts. In the end, Madoff said, he realized that his scam would eventually be exposed.[83][108]

    On June 29, 2009, Chin sentenced Madoff to the maximum sentence of 150 years in federal prison.[7][109] Madoff's lawyers originally asked the judge to impose a sentence of 7 years because of Madoff's old age.

    Madoff apologized to his victims, saying, "I have left a legacy of shame, as some of my victims have pointed out, to my family and my grandchildren. This is something I will live in for the rest of my life. I'm sorry." He added, "I know that doesn't help you," after his victims recommended to the judge that he receive a life sentence. Chin had not received any mitigating letters from friends or family testifying to Madoff's good deeds. "The absence of such support is telling," he said.[110]

    Chin also said that Madoff had not been forthcoming about his crimes. "I have a sense Mr. Madoff has not done all that he could do or told all that he knows," said Chin, calling the fraud "extraordinarily evil," "unprecedented" and "staggering," and that the sentence would deter others from committing similar frauds.[111] Chin also agreed with prosecutors' contention that the fraud began at some point in the 1980s, and also noted that Madoff's crimes were "off the charts" since federal sentencing guidelines for fraud only go up to $400 million in losses.[112]

    Ruth did not attend court but issued a statement, saying "I am breaking my silence now because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie's crime, which is exactly the opposite of the truth. I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused. The man who committed this horrible fraud is not the man whom I have known for all these years."[113]


    Incarceration

    Madoff's attorney asked the judge to recommend that the Federal Bureau of Prisons place Madoff in the Federal Correctional Institution, Otisville, which is located 70 miles (110 km) from Manhattan. The judge, however, only recommended that Madoff be sent to a facility in the Northeast United States.[114] Madoff was transferred to the Federal Correctional Institution Butner Medium near Butner, North Carolina, about 45 miles (72 km) northwest of Raleigh; he is Bureau of Prisons Register #61727-054.[1][115] Jeff Gammage of the Philadelphia Inquirer said "Madoff's heavy sentence likely determined his fate."[114]

    Madoff's projected release date is November 14, 2139.[2][115] The release date, described as "academic" in Madoff's case, reflects a reduction for good behavior.[116] On October 13, 2009, it was reported that Madoff experienced his first prison yard fight with another senior citizen inmate. [117] When he began his sentence, Madoff's stress levels were so severe that he broke out in hives and other skin maladies soon after.[118]

    On December 18, 2009, Madoff was moved to Duke University Medical Center in Durham, North Carolina, and was treated for several facial injuries. A former inmate later claimed that the injuries were received during an alleged altercation with another inmate.[119] Other news reports described Madoff's injuries as more serious and including "facial fractures, broken ribs, and a collapsed lung".[118][120] The Federal Bureau of Prisons said Madoff signed an affidavit on December 24, 2009, which indicated that he had not been assaulted and that he had been admitted to the hospital for hypertension.[121]

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  • ^ a b Kouwe, Zachery (July 14, 2009). "Madoff Arrives at Federal Prison in North Carolina". Associated Press. The New York Times. http://www.nytimes.com/2009/07/15/business/15madoff.html?hp. Retrieved July 14, 2009. 
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  • External links

  • Banks Could Have Key Role in Mets Suit

    Bernard L. Madoff’s arrest on Dec. 11, 2008, shook the pillars of Fred Wilpon’s world.

    Read Story below

    Gone was $500 million that he and his family thought was in their Madoff investment accounts.

    On top of that, Wilpon’s remaining empire had at least a half-billion dollars in debt with no easy way to deal with it, according to court papers filed last week. There was, the records say, “very little actual cash on hand.”

    Sterling Equities, the family company that owns the Mets, was scrambling to survive.

    In the end, eight banks, including Bank of America and JP Morgan Chase, came to Wilpon’s rescue. Together, they engineered what the court papers say was a “complete and comprehensive” restructuring of 40 loans totaling $500 million owed by Sterling’s partners and other parts of the empire. In the refinancing, the family trusts of Wilpon and his brother-in-law, Saul Katz, added $100 million in debt.

    The overhaul worked, keeping Sterling afloat when global finances were in doubt and easy credit was nonexistent.

    And there is little doubt Wilpon’s public record as a careful businessman and respected team owner explained some of the willingness of the banks.

    “Here you have the Wilpons with a reputation for being smart, good businesspeople,” said Shai Waisman, a bankruptcy lawyer at Weil, Gotshal & Manges in Manhattan, “and if you’re a bank, you probably think they’ll be able to weather this storm and turn things around.”

    A lawsuit brought against Wilpon and his associates at Sterling by the trustee for Madoff’s victims — one that accuses them of having willfully ignored warnings that Madoff might have been a fraud — has offered Wilpon’s banks an unflattering portrait of the man they helped rescue.

    The trustee, Irving H. Picard, has charged that Wilpon and others at Sterling, despite having reason to be suspicious of Madoff, nonetheless used their Madoff accounts as collateral for bank loans, and that they used loans from banks to open up additional accounts with Madoff, confident that the steady money earned with Madoff would outperform the interest rates on their loans.

    A lawyer for Picard, David Sheehan, has said that when Wilpon needed cash but wanted to avoid formally going to the banks for more loans, he simply had Madoff lend him millions, all under the guise of ostensible investments in Wilpon’s real estate holdings and venture capital deals.

    Picard is seeking $1 billion from Wilpon and his partners to compensate those who he argues were true victims of Madoff.

    Wilpon’s banks have chosen not to answer questions about the lawsuit or its portrayal of Wilpon and his partners. And Wilpon’s lawyers contend that Picard “did not uncover one shred of evidence” to disprove Wilpon and his partners were anything more than victims who trusted Madoff.

    But those banks, which over the last two years have saved and supported Wilpon, could be critical players as Wilpon contends with Picard’s lawsuit and the prospect of needed hundreds of millions in cash to settle the case, according to lawyers and other banking experts.

    Those lawyers and experts suggested Wilpon’s banks could contemplate a number of options: they could call in their loans, perhaps forcing Wilpon to sell all or parts of his empire; or they could choose to assist him, helping him find a way to survive even a giant settlement.

    “Generally speaking, banks don’t act rashly in these sorts of situations,” said Anthony W. Clark, a partner at Skadden, Arps, Slate, Meagher & Flom who specializes in corporate restructurings. “They’re usually cautious and will watch to see what happens. They don’t want to precipitate the thing they are most concerned about, which is diminishing the value of the assets that serve as their collateral.”

    Wilpon’s empire is heavy with debt. With his real estate dealings, that is hardly uncommon. He and his partners routinely put up a small percentage of equity in their real estate funds and borrowed two to three times that when making acquisitions.

    There is also serious debt on his team and the new stadium he helped build in Queens. Indeed, with the Madoff case looming, Wilpon’s company’s need for cash was such that in taking out a $450 million loan on the SNY network last year, he and his partners, Time Warner Cable and Comcast, got about $240 million in cash, two-thirds of which went to Sterling. And in a $375 million financing of the Mets last year, Wilpon reportedly received $75 million in cash. It is not clear whether that cash was spent or salted away. And Wilpon has, within the last two weeks, put up for sale 25 percent of the team — a previously unthinkable option — to raise more money.

    As the banks look at the loans Wilpon and his partners have, their options depend on the specific language in the agreements, said Sandra E. Mayerson, a lawyer at Squire Sanders who specializes in restructuring and insolvency. The banks may well have forced Wilpon, in these most recent refinancings, to add more collateral or restricted the investments he could make.

    “I’m sure the Wilpon side will fight tooth and nail to keep their businesses viable,” Mayerson said. “It doesn’t help anyone, including Picard, to have those businesses fail.”

    Picard’s lawsuit described a web of dubious banking that fueled growth at Sterling. When Wilpon needed a loan to buy out his cable television deal to start SNY, he pledged at least one Madoff account as collateral. The Sterling partners opened 65 accounts solely to invest with Madoff and then often to use as collateral to borrow still more to invest in the accounts.

    Bank of America “was influenced by both the large purported balances” and “consistent returns” generated by the Sterling’s Madoff accounts when Sterling sought a $75 million loan. According to Picard, the loan supplied Sterling with half of what it needed to secure its stake in its latest real estate fund, which entitled it to 90 percent of the fund’s management fees.

    According to Picard, Wilpon and his partners used the Madoff accounts to prove their net worth and creditworthiness to raise capital “that might not have been otherwise available.”

    Some experts say that Picard’s accusations have not been proved in court. “Don’t forget that it’s only a legal claim that the trustee has against them,” said Deirdre Martini, a managing director at Wells Fargo Capital Finance.

    Still, Bradley Simon, a former federal prosecutor who is a defense lawyer at Simon & Partners, said that banks should be “nervous, if not terrified” if Picard successfully forces Wilpon and Katz to sell the Mets, SNY and real estate to come up with $1 billion.

    He added that banks should be combing their loan refinancing documents for misleading statements related to Madoff. “I don’t think they understood what Picard knows,” Simon said.


    Wilpon’s Ownership of Mets Is Threatened

    Wilpon’s Ownership of Mets Is Threatened

    Fred Wilpon’s ability to hold onto the Mets was cast into more doubt Friday when a lawsuit filed by the trustee in the Bernard L. Madoff fraud case was unsealed and revealed in vivid detail the depth of Madoff’s involvement in nearly every aspect of Wilpon’s empire, particularly his team.

    The financial pressure on Wilpon will now continue to mount, and his preference to sell 20 to 25 percent of the Mets to alleviate the strain, a plan that he announced a week ago, may not turn out to be enough of a remedy.

    Some sports executives and analysts said Friday that they believed Wilpon would most likely have to sell the team in the face of demands by the trustee, Irving H. Picard.

    Wilpon would potentially need enormous sums of money to meet those demands, either by settling with Picard, or if he eventually lost to him in court.

    Wilpon does have valuable assets in addition to the team — like his sports cable network, known as SNY, and real estate partnerships marketed under the Sterling American name. But how much Wilpon might be able to sell as he deals with Picard and whether the transactions would be sufficient to hold onto the team are open to question.

    David Sheehan, the lead lawyer for Picard, said “the entire Katz-Wilpon enterprise” was being looked at as assets that could be used to resolve the lawsuit.

    “What the trustee is looking for here is a payment in cash,” Sheehan said. “So whether they utilize the Mets, SNY, Sterling properties or any other resource is of no moment to us. What we’re looking for is a billion dollars, and unless we settle for less than that, which we’re not inclined to do, where they get the money is of no moment to us.”

    Wilpon has talked about the team as a family legacy and how he wants to turn it over to his son Jeff, the chief operating officer, which would make any sale of the team intensely painful.

    “It looks like a very messy situation for Fred,” said Fay Vincent, a former baseball commissioner who is friendly with Wilpon and Picard. “I know Picard and he’s a serious and solid lawyer, and what he’s doing has to be taken seriously.”

    Vincent said he did not want it to appear as if he were advising Wilpon on what to do, but added, “It’s important for anyone in a situation this treacherous to consider whether he can run his main business and defend himself simultaneously.”

    Michael Ozanian, the executive editor of Forbes, which valued the Mets at $858 million last year, said, “I think the Mets have been a franchise that for many years relied on borrowed money.” He said Wilpon would have to sell the team and the SNY television network “to get out of this mess.”

    Robert Boland, who teaches sports law at New York University’s Tisch Center, said that Wilpon, his partners and their families looked more vulnerable than ever and were unlikely to find relief from any substantial improvement in the financial performances of the team or Citi Field.

    The team, the stadium and the SNY network have considerable debt — about $1.5 billion in all by some estimates — and two analysts said there might not be enough money available to Wilpon to settle with Picard and make bond payments, including $52 million a year for the stadium.

    The Mets also have hit their limit on borrowing from Major League Baseball’s credit line.

    How baseball views the Mets’ situation is unclear. Wilpon and Saul Katz, his brother-in-law and business partner, met with Commissioner Bud Selig this week. Selig and Wilpon are close friends, which might lead Selig to work diligently to help him keep the team.

    But their meeting occurred before Picard’s complaint was unsealed and the full extent of Madoff’s links to the team was shown.

    According to the lawsuit, Wilpon and Katz used their Madoff money to convince lenders of their creditworthiness when they were seeking to refinance the loans that enabled them to buy out Nelson Doubleday in 2002.

    In some ways, Madoff was the team’s personal banker, making sure that the Mets could withdraw cash, when needed, to cover the team’s day-to-day operations. That ever-ready honey pot helped the team’s owners meet payroll, pay for stadium operations and provide for deferred compensation to players, according to the lawsuit.

    The Mets owners also seemed to benefit from the consistently high and steady nature of the returns they appeared to be enjoying from Madoff when they refinanced the team’s lending arrangements in 2004.

    It was then that the owners represented to banks that Madoff provided “a safe alternative to unattractive money market yields” and that over the previous 25-year period, Madoff’s average returns were 18 percent, with a standard deviation of 4 percent.

    “The direct connection between the Madoff Ponzi scheme and the Mets’ revenues is something that was unexpected,” said Marc Ganis, a sports-industry consultant. “Selig could demand that the team be sold because of the team’s connection to one of the biggest Ponzi schemes ever.”

    Baseball last faced a financial crisis with one of its teams when Thomas Hicks, then the owner of the Texas Rangers, defaulted on $525 million in loans, which pushed the team into bankruptcy. Last summer, the Rangers were sold in a court auction for $593 million to a group led by the Hall of Fame pitcher Nolan Ryan and Chuck Greenberg.

    “What we learned from the Rangers involves an owner who owed a great deal of money and could not pay,” Ganis said. “If Picard is successful, then it’s likely to be the same with Wilpon.”

    Vince Gennaro, a financial consultant to several major league teams, said Wilpon’s ability to hold onto the Mets “depends on the resources he has from other entities.”

    What was revealed Friday, Gennaro said, “makes that challenge tougher.”


    http://www.huffingtonpost.com/2011/02/04/madoff-jpmorgan-chase_n_818591.html

    Peter S. Goodman

    Peter S. Goodman
    GET UPDATES FROM Peter

    Bernie Madoff's Relationship With JPMorgan Should Shock No One

    First Posted: 02/ 4/11 09:47 AM Updated: 02/ 4/11 11:38 AM

    Madoff Jpmorgan

    http://www.infiniteunknown.net/2011/02/06/jp-morgan-suspected-bernie-madoff-running-a-ponzi-scheme-18-months-before-his-scam-was-revealed/

     
    0diggsdigg

    See also:

    - Top Wall St bank ‘suspected Bernie Madoff 18 months before his scam was revealed – but kept doing business with him’ (Daily Mail):

    A top Wall Street bank is said to have suspected Bernie Madoff was a crook more than 18 months before he was exposed as the world’s biggest swindler.

    But JPMorgan Chase executives continued to do business with the financier in spite of their concerns, according to a report today in the New York Times.


    Unsealed court documents allege bank told the UK’s Serious Organised Crime Agency of concerns in October 2008, two months before the fraudster admitted his empire was a sham


    JP Morgan is being sued for $6.4bn over its role in Bernard Madoff’s business empire Photograph: Timothy A Clary/AFP/Getty Images

    The UK’s Serious Organised Crime Agency (Soca) was warned about Bernard Madoff in October 2008, two months before the fraudster confessed that his investment empire was a sham, according to a lawsuit unsealed in New York.

    The allegation was made in a suit filed against JP Morgan, one of Madoff’s banks, on behalf of the fraudster’s victims.

    According to the suit, filed by the court-appointed trustee Irving Picard, executives at JP Morgan allegedly told Soca that they were concerned about “investment performance achieved by its [Madoff's business] funds which is so consistently and significantly ahead of its peers, year-on-year, even in the prevailing market conditions, as to appear too good to be true – meaning that it probably is”.

    The lawsuit, which cites internal emails, claims that employees in the bank’s “equity exotics & hybrids” desk found that the so-called feeder funds which brought in new investors knew little about Madoff’s operations and asked few questions. “It’s almost a cult [Madoff] seems to have fostered,” one employee observed.

    The suit is damning of JP Morgan’s alleged role in the scandal. It claims that Soca was informed by JP Morgan “only in an effort to protect its own investments” and the bank did nothing further to stop the fraud even though it had informed the authorities.

    “While numerous financial institutions enabled Madoff’s fraud, JP Morgan was at the very centre of the fraud and thoroughly complicit in it,” according to the suit. It details ways in which Picard alleges the bank sought to make money from investment funds that fed money to Madoff.

    According to the court filing, a senior executive at the bank was told Madoff had “a well-known cloud” over his head and was suspected of running a Ponzi scheme 18 months before his empire collapsed leaving thousands of investors penniless. The 114-page suit claims the bank did not pay attention to billions of dollars passing through the fraudster’s main JP Morgan account.

    The $6.4bn (£4bn) lawsuit against JP Morgan is one of nearly 60 Picard filed late last year seeking more than $40bn from investors, hedge funds and banks that he alleges made money with Madoff including HSBC, UBS and Citigroup.

    Lawyers for JP Morgan had managed to have the details contained in the suit sealed until now. At the time David Sheehan, a lawyer representing the trustee, said: “JP Morgan was wilfully blind to the fraud, even after learning about numerous red flags surrounding Madoff.”

    A spokeswoman said the bank had no comment but in December, when the suit was initially filed, a spokesman said: “Any suggestion that JP Morgan supported Madoff’s fraud is utterly baseless and demonstrably false. Contrary to the trustee’s allegations, JP Morgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff.”

    • The caption to this article was amended on 4 February 2011. The original said JP Madoff was being sued for $6.4bn. This has been corrected.

    Dominic Rushe in New York
    Thursday 3 February 2011 23.09 GMT

    http://www.guardian.co.uk/business/2011/feb/03/bernard-madoff-jp-morgan-uk-authorities-before-confession

    Bernard Madoff: JP Morgan warned UK authorities before confession

    Unsealed court documents allege bank told the UK's Serious Organised Crime Agency of concerns in October 2008, two months before the fraudster admitted his empire was a sham

  • guardian.co.uk,
  • Article history
  • bernard madoff

    JP Morgan is being sued for $6.4bn over its role in Bernard Madoff's business empire Photograph: Timothy A Clary/AFP/Getty Images

    The UK's Serious Organised Crime Agency (Soca) was warned about Bernard Madoff in October 2008, two months before the fraudster confessed that his investment empire was a sham, according to a lawsuit unsealed in New York.

    The allegation was made in a suit filed against JP Morgan, one of Madoff's banks, on behalf of the fraudster's victims.

    According to the suit, filed by the court-appointed trustee Irving Picard, executives at JP Morgan allegedly told Soca that they were concerned about "investment performance achieved by its [Madoff's business] funds which is so consistently and significantly ahead of its peers, year-on-year, even in the prevailing market conditions, as to appear too good to be true – meaning that it probably is".

    The lawsuit, which cites internal emails, claims that employees in the bank's "equity exotics & hybrids" desk found that the so-called feeder funds which brought in new investors knew little about Madoff's operations and asked few questions. "It's almost a cult [Madoff] seems to have fostered," one employee observed.

    The suit is damning of JP Morgan's alleged role in the scandal. It claims that Soca was informed by JP Morgan "only in an effort to protect its own investments" and the bank did nothing further to stop the fraud even though it had informed the authorities.

    "While numerous financial institutions enabled Madoff's fraud, JP Morgan was at the very centre of the fraud and thoroughly complicit in it," according to the suit. It details ways in which Picard alleges the bank sought to make money from investment funds that fed money to Madoff.

    According to the court filing, a senior executive at the bank was told Madoff had "a well-known cloud" over his head and was suspected of running a Ponzi scheme 18 months before his empire collapsed leaving thousands of investors penniless. The 114-page suit claims the bank did not pay attention to billions of dollars passing through the fraudster's main JP Morgan account.

    The $6.4bn (£4bn) lawsuit against JP Morgan is one of nearly 60 Picard filed late last year seeking more than $40bn from investors, hedge funds and banks that he alleges made money with Madoff including HSBC, UBS and Citigroup.

    Lawyers for JP Morgan had managed to have the details contained in the suit sealed until now. At the time David Sheehan, a lawyer representing the trustee, said: "JP Morgan was wilfully blind to the fraud, even after learning about numerous red flags surrounding Madoff."

    A spokeswoman said the bank had no comment but in December, when the suit was initially filed, a spokesman said: "Any suggestion that JP Morgan supported Madoff's fraud is utterly baseless and demonstrably false. Contrary to the trustee's allegations, JP Morgan did not know about or in any way assist in the fraud orchestrated by Bernard Madoff."

    • The caption to this article was amended on 4 February 2011. The original said JP Madoff was being sued for $6.4bn. This has been corrected.






    Wikileaks Cable: Saudi Oil Reserves Exaggerated By 40 Percent

    The Huffington Post  Yepoka Yeebo  First Posted: 02/ 9/11 09:34 AM Updated: 02/ 9/11

    http://www.huffingtonpost.com/2011/02/09/wikileaks-saudi-oil-reserves-exaggerated_n_820641.html

    A Wikileaks cable has reportedly revealed that Saudi Arabia may not have enough oil to stop prices from skyrocketing. That is, depending on how you define the country's oil reserves.

    Cables from the U.S. embassy in Saudi capital Riyadh reviewed by the Guardian, describe a warning from a senior Saudi oil executive, who said the country's crude oil reserves have been overstated by nearly 40 percent, some 300 billion barrels.

    The Guardian reports that Sadad al-Husseini, former head of exploration at the Saudi oil monopoly Aramco, told the U.S. consul general in Riyadh that the Saudi oil company could not keep up with the 12.5 million barrels a day needed to keep prices low. Peak oil, he said, could be reached as early as 2012.

    But, according the Wall Street Journal's Angus Mcdowall, there's good reason to be wary of reading too much into the cables. Mcdowall spoke with al-Husseini, who told him his comments were referring to Saudi Arabia's "oil in place" -- including recoverable and non-recoverable sources. Looking at it that way, Husseini suggested to the WSJ, makes the picture a lot less frightening.

    "The world of energy looks pretty much how it looked yesterday," Mcdowall writes.

    The price of Brent crude oil, an industry benchmark, rose above $103 a barrel last week thanks to global demand, and tensions in the Middle East and north Africa following protests in Jordan, Tunisia and Egypt. This is the highest value since September 2008, when record oil prices helped drag the economy into recession.

    A 10 percent increase in the price of oil that lasted one year could result in the loss of 270,000 American jobs, according to a simulation by IHS Insight.

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    A Wikileaks cable has revealed that Saudi Arabia may not have enough oil to stop prices rocketing. Cables from the U.S. embassy in Saudi capital Riyadh reviewed by the Guardian, describe a warning fr...
    A Wikileaks cable has revealed that Saudi Arabia may not have enough oil to stop prices rocketing. Cables from the U.S. embassy in Saudi capital Riyadh reviewed by the Guardian, describe a warning fr...

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