Bank Dumped Madoff Funds— but Didn't Tell Its Clients

JPMorgan beat scam while investors lost out
By Jason Farago,  Newser Staff
Posted Jan 29, 2009 6:00 AM CST

(Newser) – JPMorgan Chase emerged from Bernie Madoff's Ponzi scheme unscathed, but some of the bank's clients weren't so lucky. For years the bank offered its clients derivatives that were ultimately linked to Madoff, and also put $250 million in those funds. But a joint investigation by the New York Times and the Italian newspaper Il Sole found that JPMorgan dumped its own Madoff-linked securities just before the collapse—when the fund was up 5% and others were down 30%—without telling its clients, who were wiped out.

The saga began in London, where JPMorgan bankers issued notes linked to the Fairfield Greenwich Group, promising three times the future earnings of what turned out to be a Madoff feeder fund. Why JPMorgan pulled its own cash out so close to the scheme's collapse is unclear; some angry investors speculate that Madoff's personal accounts with the bank may have provided insider information. And, while JPMorgan's $250 million is likely in the clear, one expert says "I suspect that's worth a lawsuit somewhere."