February 29, 2024

Bankers Named Who Doubted Madoff

Those executives are John J. Hogan, the bank’s chief risk officer for investment banking; Matthew E. Zames, who oversees several important bank trading operations; and Carlos M. Hernandez, the head of global equities at the bank’s investment banking unit.

The identity of those executives is the latest bit of news produced by the bitter courthouse fight between the global banking giant and Irving H. Picard, the bankruptcy trustee gathering assets for victims of Mr. Madoff’s fraud, which wiped out investor accounts valued at almost $65 billion when it collapsed in December 2008.

Mr. Madoff operated his fraud primarily through an account he maintained at JPMorgan Chase. In addition, the bank created and sold its clients derivatives that were linked to various feeder funds that invested with Mr. Madoff, and it invested in those funds to hedge its risks on those derivatives.

In December, Mr. Picard filed a lawsuit seeking $6.4 billion in damages, fees and profits from the bank, asserting that its high-level doubts about Mr. Madoff’s honesty and its failure to act on those doubts to protect investors made it complicit in Mr. Madoff’s fraud.

That lawsuit did not disclose the identity of the bank executives who were involved in the bank’s assessment of Mr. Madoff, but a federal bankruptcy judge ruled earlier this week that the names had to be disclosed, and a new version of the case was filed on Thursday.

In response to the new filing, Jennifer Zuccarelli, a spokeswoman for the bank, again denied the trustee’s assertions that the bank was complicit in Mr. Madoff’s fraud, calling such accusations “patently false.”

The bank “complied fully with all applicable laws and regulations” in its dealings with Mr. Madoff and has “strong defenses to the claims brought by the Madoff trustee.”

The bank had opposed releasing the names of the senior executives on the grounds that it would violate their personal privacy and embarrass them needlessly.

The new filing by the trustee cleared up one of the mysteries in the redacted lawsuit: the executive who told a senior executive in June 2007 that Mr. Madoff’s returns “are speculated to be part of a Ponzi scheme” was Mr. Zames, a member of the bank’s executive committee who is often cited as a young star who could snag the bank’s top job someday.

His warning was given over lunch to Mr. Hogan, who is also a member of the executive committee. The new filing also showed that Brian Sankey, Mr. Hogan’s deputy, was the executive who, after Mr. Madoff’s arrest, advised that it would be best if the agenda of the meeting at which Mr. Zames’s doubts were discussed “never sees the light of day again.”

Mr. Hernandez was among the other bank executives who learned about Mr. Zames’s doubts that summer, according to the newly filed lawsuit.

The new filing also identified the bank executive who refused to put his private banking clients’ money in Madoff-related funds. It was Michael Cembalest, a chief investment officer at the bank’s private banking unit. His team investigated Mr. Madoff and, “after seeing all of the red flags, chose not to invest” in any of the feeder funds, the lawsuit noted.

Article source: http://feeds.nytimes.com/click.phdo?i=11008b71129f2dca34ea1573bf50f01b

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