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70 Comments
- LiquidSpark, on 01/29/2009, -7/+57WTF did JPM do wrong? They got out of the fund because they had doubts about it. Many companies dump funds if they have doubts about the consistency of the returns they're gonna get. They didn't know Madoff was doing anything wrong. It's sick. People want to punish JPM because they weren't stupid (in this case). I'm no fan of these big financial companies but people being mad about this just seems belligerent.
- michaelpinto, on 01/29/2009, -6/+46When you look back on the high rate of returns it may have been that someone at JP Morgan had plain old fashioned common sense rather than inside info...
- punkcat, on 01/29/2009, -5/+31JPmorgan is only guilty of doings its homework.
- xerodustrial, on 01/29/2009, -0/+20To be completely honest it really doesn't matter when they pulled funds from Madoff or if they pulled them at all. I'll get to why in a minute.
The hard part about fixing a Ponzi scheme this large, once it's been unearthed, is the issue of financial returns. Every company that invested with Madoff was under the impression they were investing under the same standard -- fork over lots of cash to a guy who says he's going to make you 15% ROI under what you assume to be legal methods. When you want your money back, you call up Madoff, and you say, "I want to pull a bit/some/most/all of my funds."
Now, companies like JP Morgan Chase were smart enough to pull their money early, for whatever reason. Maybe they got insider tips. Maybe they just had a hunch. Maybe they are undergoing drastic financial restructuring and want to see exactly where they stand, which would in many cases require the liquidation of ambiguous investments so they can be quantified.
The real question here is not WHY they pulled their money, but whether did they get a return on it or not.
People who try to pull the money too late will be met with a 100% loss -- but the people who were either smart or lucky enough to pull it before the house of cards fell get the full 15% ROI they were looking for when they invested from Madoff. How is this fair to the other investing businesses who get nothing? Doesn't that really mean that JP Morgan (or other groups who pulled their money earlier and didn't get burned as badly) is actually holding money of the companies that did get burned, and not really actual return on investment? Keep in mind, Ponzi schemes work by paying investors returns that you drum up from other investors to make it look like you're turning profits and being successful; only the little guys on the bottom of the scheme get ***** over.
So to repeat the question: How is this fair to the companies that lost everything, when some of the companies involved in the scheme made real profits? The answer is surprisingly simple -- it isn't fair. It's not their money. They have to give it back.
So where do we go from here? Well if you're familiar with the [much smaller] Wall Street Ponzi Schemes of the past few decades, then you know that the first the SEC is going to do is track down every person who ever invested 'serious' money in Madoff. Seriously. They are going to track down every entity that's invested with him, quantify all of the relative sums, gains, and losses, and try their hardest to balance all of the funds back out to the original investors in such a way as that the burned companies feel less screwed.
Needless to say, the companies that are now in jeopardy of losing the funds they did make with Madoff (like JP Morgan, for example) are not really looking to return any of that money. The way they see it, it's theirs. And you can believe the lawyers they hire will argue that case. And you can also believe that the lawyers that the burned businesses hire to demand they get as much of their money back as possible are going to argue the opposite. And you can bet dollars to donuts that the government is going to stick their nose into the situation. Every single case will be the size of my local phone book, and there will be thousands of them.
It's seriously going to be a financial (and legal, don't forget legal!) ***** unlike anything we've really ever dealt with before. If Madoff's fund fell apart with ~$50 billion in it, then you can probably assume that over the decades he's ran the company that he's moved money in the hundreds of billions of dollar range. Every one of those companies who invested a sizable sum and either won or lost money (*****, even if you break even, you're still involved, sucks to be you) is going to lawyer up and end up involved with courts and the SEC. It's going to be a huge mess. - pkjohnson17, on 01/29/2009, -6/+23this is gonna be interesting
- TruckStuff, on 01/29/2009, -4/+20Seriously. What do they want? An SEC filing every time institutional investors dump out of a fund? Or better yet, they have to get the approval of some federally-managed bureaucracy before every trade they make?
Talk about creating a story where there isn't one. - EMFK, on 01/29/2009, -14/+28For the sake of the shareholders and investors, heads need to roll. It might have helped others if JPMorgan had shared their concerns with others that have lost their life savings.
- superkendall, on 01/29/2009, -1/+13No it wouldn't. Other people tried to issue warnings about Madoff, but when something looks good people jump in. Any rational person would know you could not really get those kinds of returns year after year...
- ScienceDoc, on 01/29/2009, -11/+22JP Morgan Chase are crooks. Don't forget that JP Morgan was key in creating the Fed. They have been involved in crooked dealings at every turn. If you have a JP Morgan Chase credit card, shred it. They are the worst of the worst.
- CraigB12, on 01/29/2009, -2/+13Typical Digger that doesn't have any frame of reference. The GOVERNMENTS of Switzerland and Germany issued warnings to all investors about Madoff sometime between 2005 and 2006. There isn't even a whiff of illegality here, and anyone that says so is just not informed.
- LeepII, on 01/29/2009, -0/+9The SEC was informed of Maddoff's scheme IN 2004 and did nothing about it.
- punkcat, on 01/29/2009, -1/+9when you lose a lot of money, right or wrong, you want to blame others. thats why they are mad at JPmorgan, they want an excuse or a reason to say "its their fault, if they only told us..."
- pintomp3, on 01/29/2009, -2/+10Don't forget their involvement with Enron
http://www.sec.gov/litigation/litreleases/lr18252. ... - inactive, on 01/29/2009, -5/+12JP Morgan is in deep doo doo.
- uptwolait, on 01/29/2009, -2/+9I'll bet a good chunk of cash that Madoff hid before the collapse is being quietly held for him in JPM accounts.
- Dumbledorito, on 01/29/2009, -3/+9It would have been even more helpful if Bush's "regulation of any kind is BAAAAD" appointment to head the SEC actually listened to those below him who raised numerous read flags about Madoff's impossible profits and actually investigated.
- astroslut, on 01/29/2009, -1/+7I would rather know why the S.E.C didn't warn people?
- Wintergreen0803, on 01/30/2009, -0/+5Makes you wonder what they knew...
- AlaskaLoneWolf, on 01/29/2009, -8/+13Why am I not surprised? Isn't this the same JPMorgan that got our tax bucks to "bail" them out?
http://www.usnews.com/blogs/the-home-front/2008/10 ... - AaronCo, on 01/29/2009, -0/+5A *LOT* of people expressed concern over this guy. People even told the SEC about it, they did nothing. JPMorgan smelled a fraud and pulled out, even if they had told everyone else nobody would've listened... they didn't want to.
- inactive, on 01/29/2009, -7/+11What the FU#@%# happened to the USA??? My parents immigrated here in the mid 80s to pursue the American dream. Now it's the American nightmare. WallStreet and the Banking elites screwed America. My future and plans are all ruined now. My expectations have dropped like a stone. I'm even thinking of returning to my native country because there are better prospects.
- Arock66, on 01/29/2009, -4/+8Scamming $50 billion is quite a story.
Expecting the SEC to investigate transactions that were involved in a scam of this magnitude is not exactly asking them to do something outside their job description. - Amazetbm, on 01/31/2009, -0/+4Through the years, JP Morgan's name has been tied to some of the most underhanded financial dealings in U.S. history. So this isn't very surprising.
- superkendall, on 01/29/2009, -1/+4That's the stupidest thing I've ever heard. What the market is for, is that investors give a company money and the company produces products people want to buy - which then makes more money, which goes back to the investors.
True capitalism is win/win since everyone helps everyone else grow. In your world if Apple makes money someone else looses money, but your assumption fails in that there are many cases where if someone didn't buy a product from a company, there's nothing else they would have bought instead. - PizzaEagle, on 01/29/2009, -0/+3It's actually even more complicated than you say. For example, what happens when you buy a mutual fund that happens to have some money invested in Madoff's scheme? Do you take money from every individual investor that bought that fund? It's going to be a HUGE mess
- financephi, on 01/29/2009, -5/+8 Damn, the news just gets worse and worse. I used to wonder how the uber-rich made their money. Now I know - they stole it, whether intentionally or not.
- Chunken, on 01/29/2009, -0/+3I hope you're right but knowing how things work in this country the big companies will probably get to keep their money and the little guys get screwed. Especially if the government gets involved.
- inactive, on 01/29/2009, -1/+4Man there are sure alot of JPM fanboy appologist here! If you don't know JPM was in on it or new nothing about the Madoff scam you're fools!
- superkendall, on 01/29/2009, -1/+4It's not fair, but when things are illegal they are not fair. It's also not fair to take money from people who have sense enough to not get involved in something. I had sense enough not to drop money in Madoff, perhaps I should give money to those idiots that were in the fund as well?
Why do the people in the fund who were willing to turn a blind eye to the fact that the fund was giving returns way beyond what was realistic not have any responsibility? You say they assumed it was legal but with those kinds of returns year after year anyone with sense knew something was up.
As for "insider knowledge" helping anyone get out, even the guys SONS did not know what was going on. There was no "insider", only Madoff. - jabbajabba, on 01/30/2009, -0/+3Tony Blair got a nice job with them once his work was finished in the UK government.
- richmomz, on 01/30/2009, -2/+5Either that or they were in on the scam.
- nepidae, on 01/30/2009, -3/+6I'm fairly certain the American Dream isn't "come to America and get free stuff". Its the opertunity to work hard and take control of your own life without regard to your past station. Its times like these where people who have the motivation and skill can make it big.
- nkleffman, on 01/29/2009, -0/+2It's like if you were going to burn your house down for the insurance money, you'd get out your precious valuables first....
- pwarnock, on 02/04/2009, -0/+2I hold both banks with about the same regard. I was a fan of WaMu--I don't know who to trust anymore.
- richmomz, on 01/30/2009, -1/+3Do a little research and you will discover that this in fact is true.
- minoss, on 01/29/2009, -1/+3So when social security goes under, where do I get my refund?
- inactive, on 01/29/2009, -6/+8Remember, JP Morgan Chase is neck-deep in blood, having invested heavily in Petrochina which helps fund the Darfur genocide. Get your company to divest from these scumbags, and if they won't, then divest yourself.
http://www.divestfordarfur.org - TruckStuff, on 01/29/2009, -3/+5"Scamming $50 billion is quite a story. "
JPM didn't scam $50B, Madoff did.
"Expecting the SEC to investigate transactions that were involved in a scam of this magnitude is not exactly asking them to do something outside their job description."
Do you have any idea how many investors are "involved" with these funds? Do you have any idea how many transactions each investor is typically responsible? You're talking about investing *billions* of transactions for something of that magnitude. The federal government doesn't have the resources to investigate every transaction if they spent every last tax dollar on it.
Please go back to your basement. - SirCharge, on 02/01/2009, -0/+2Unless JPM had documented evidence, if they told their shareholders that a highly respected member of the Wall Street elite was running a Ponzi scheme they'd have been opening themselves to a lawsuit.
The SEC dropped the ball. - alffa66, on 01/29/2009, -0/+2This is deeper than we'll ever know and is supposed to be...It'll be years before any answers are given if ever... the negative domino effect will still be active as well. In big business friends and truth are few and far between but foes and lies or rather manipulative methods are plentiful...
- richmomz, on 01/30/2009, -1/+3Hmm, so JP Morgan somehow knew to pull their money just before the scandal broke... interesting. VERY interesting. Did they simply know more than everyone else - or did their prescient knowledge stem from actually being in on the scam?
- dynamojoe, on 01/30/2009, -1/+2JP Morgan can't win, can it? They make ***** investments and they get flamed. They pull their money out of a ***** investment and they get flamed. To those who say they should have sounded the alarm: Why should they give up the competitive advantage they earned by smelling the rat early?
- inactive, on 01/29/2009, -1/+2'The real question here is not WHY they pulled their money, but whether did they get a return on it or not.'
Let's not forget about Enron just yet. - MouserUK, on 01/29/2009, -1/+2These may not be shares, but brokers issue advisory notes speculating on future prices all the time, often for very little reason. It's odd that they did not in this case. There's also some potential concern surrounding whether they had an unfair advantage to know the value (i.e. similar to insider trading) as they could monitor Madoff's account.
- DaDrake, on 01/29/2009, -1/+2Just to add some more clarification. What he is talking about is a unique interpretation of one of the circuit courts during the Bayou trial. Essentially this fund, called the Bayou fund, was a fraud and the investors who lost successfully sued those who "pulled out early" for not only their returns but also much of their investment. This is call a claw back.
Claw backs are not "the law of the land" in many countries because of unintended consequences. In fact, I am fairly certain that the SCOTUS would not defend this circuit court interpretation based on practicality.
So why are claw backs such a bad idea? Simple. If you are an investor and you just discovered fraud is occurring, it is in your BEST interest to not tell anyone. If you pull out money, you may cause the fund to fail and the fraud would be discovered (and you would loose that money). All you can do is not invest anymore money and hope nobody discovers the fraud. Without a system that allows clawbacks, soon-to-be-investors would have been saved since investors would have quickly told the federal authorities and media.
When the WSJ reported that UBS AG "accounting" team, which looks at their investors, STRONGLY recommended UBS dropped all Madoff shares, it was no surprise they did not. Why? Because UBS, with a bunch of intelligent ivy-league educated employees, likely realized the repercussions if they did so.
Furthermore, in the Bayou case, the only people who won were the lawyers. While the investors who lost money did win, they recieve a very very small percentage of it.... it went all into court fees. So essentially, the investors who lost made it so everyone lost.
Short Version: Clawbacks are retarded. - pilotkid, on 02/02/2009, -0/+1This is why I left chase, they are very sneaky and shady. I'd get fee's taken out of my account for no reason, and when you call to ask what they were for its like they didn't even have a answer. Much happier at BofA!
- DMCer, on 01/30/2009, -1/+2This is Digg, where the voice of reason has no place (see EMFK's comment at the top of this page for an example of said idiocy).
- datastorageguy, on 01/30/2009, -0/+1It's funny because, if JP Morgan had been burned, diggers without a proper education nor common sense would be calling them stupid and the cause of our current economic condition.
- pwarnock, on 02/04/2009, -0/+1source?
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