Two of our nation’s top attorneys, Helen Chaitman and Lance Gotthoffer, just released Chapter 3 of their riveting and free book, JPMadoff – The Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook. All Americans concerned about financial fraud and the role of our regulators and politicians in sustaining financial fraud need to read this book at www.jpmadoff.com.
The book, which incorporates exclusive interviews with Bernie Madoff, focuses on JP Morgan Chase ’s 20-year role in laundering money for Madoff. Money laundering, as everyone knows, is a big-time criminal offense. Yet no one at JP Morgan Chase (JPMC) who was involved, year after year, in taking in Madoff’s huge client deposits and watching him transfer them to a small number of special “clients” rather than invest them in the securities he claimed he was buying, bothered to pick up the phone and inform anyone in law enforcement. Indeed, according to the authors, the New York office of JPMC failed to report anything amiss even after its London office conveyed an explicit warning that Madoff was perpetrating a fraud.
If you have a brokerage account you really need to look closely at JPMadoff.com as well as my columns on SIPC’s brokerage insurance scam, starting with Close Your Brokerage Account, which are posted at Kotlikoff.net.
According to a recent NY Times column, a new Ponzi scheme is being uncovered every four days. Your broker may seem and be perfectly honest, but his/her firm may have some very bad apples that are putting the entire operation and your own account at terrible risk. And don’t count on SIPC’s brokerage “insurance.” It actually puts you at triple jeopardy. If you spend enough of the money that you’ve accumulated in your account you stand to a) lose all your remaining assets, b) lose all SIPC insurance coverage, and c) be sued by SIPC for up to every penny you withdrew in the six years before the fraud was discovered.
You might think that parking your money in a big bank like JP Morgan Chase would insulate you from fraud. It’s just the opposite. The big banks are the biggest perpetrators of financial fraud – fraud that affects millions of us, either directly or indirectly, on an ongoing basis. While they are wrist slaps when properly scaled, you can see the list of “settlements” made between the government and the big banks here. These “settlements,” the aftermath of Wall Street’s near production of a second Great Depression, entailed not a single criminal indictment. The top two repositories of banksters, based on the number of settlements, are Bank of America BAC +1.41% and JP Morgan Chase.
The banks engage in fraud for two reasons. First, they profit from swindling the public. Second, they can get away with it via a simple technique. They buy off the regulators with promises of enormously lucrative jobs when they leave government service and they buy off the politicians with huge direct and indirect campaign contributions. Chapter 3 of JPMadoff.com, aptly entitled All in the Family, documents how this all works in very fine detail.
Many of the conclusions that the authors draw about who did exactly what and when they did it are necessarily speculative because it’s very rare to find smoking guns when it comes to financial fraud and government malfeasance. We are left with a listing of extremely disturbing facts by the authors and an invitation to draw our own conclusions. Here’s an example in the authors’ words.
From 2001 to 2005, Stephen Cutler was Chief of the SEC’s Division of Enforcement. In that position, he ignored repeated complaints that Bernie Madoff was running a Ponzi scheme. When Madoff’s scheme finally collapsed in 2008, an SEC Enforcement attorney testified that it took only “a few days” and “a phone call … to [Depository Trust & Clearing Corporation] to confirm that Madoff had not placed any trades with his investors’ funds.” In 2006, only 14 months after leaving the SEC, Cutler became general counsel of JP Morgan Chase with a compensation package in excess of $10 million annually. Even with that, Cutler did not report Madoff’s criminal activities to the federal government, as required by the Bank Secrecy Act. In fact, he waited until after Madoff confessed to file a suspicious activity report. As if the government needed the information at that point!
The authors also draw connections between a) Preet Bharara – the United States Attorney for the Southern District of New York, who decided to press no criminal charges against JPMC, b) the support by JPMC, by other big banks, and by Madoff, himself, of Bharara’s former employer, Senator Charles Schumer, and c) Schumer’s close relationship to Bharara, who was Schumer’s chief counsel and who, according to the authors, was appointed to his U.S. Attorney position in 2009 thanks to the sponsorship of the Senator.
The authors have no evidence that Senator Schumer had anything directly to do with Preet Bharara’s failure to criminally prosecute anyone at JPMC for money laundering. But the financial ties between Wall Street and Schumer and the personal ties between Schumer and Bharara (who, the authors believe, is being promoted by Schumer to replace Eric Holder as our chief law enforcement officer) raise eyebrows.
The good news with respect to Senator Schumer is that he is clearly standing up to Wall Street’s “brokerage insurance” company – SIPC, which has a) denied insurance coverage to most Madoff victims and is suing large numbers of innocent Madoff victims for spending money they were told they’d earned, b) denied brokerage insurance coverage to all Stanford victims, and c) denied brokerage insurance coverage to all McGinn-Smith victims.
Madoff, Stanford, and McGinn-Smith are the three huge Ponzi schemes discovered in the past five years. Collectively, they wiped out the finances of roughly 10,000 Americans, mostly retirees. SIPC let all three criminal operations lure in innocent victims with the promise of SIPC insurance protection. But when these frauds were discovered, SIPC decided to renege on virtually all of its insurance protection promises. Why? Because SIPC was, itself, running a scam, in this case an insurance scam. It had been collecting essentially zero insurance premiums from the big banks and was in no position to cover its insurance obligations.
Together with Senator David Vitter, Senator Schumer is sponsoring theRestoring Main Street Investor Protection and Confidence Act. Passage of this bill would not only force SIPC to actually fulfill its insurance commitments to Madoff, Stanford, and McGinn-Smith victims. It would also prohibit SIPC from suing any of us who a) invest in a brokerage account, b) do well, and then c) do what SIPC apparently thinks is criminal — withdraw and spend the principal plus investment income we are told we’ve earned.
JPMadoff — the Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook is a book you must read. It’s also a book you get to read in real time. Authors Chaitman and Gotthoffer are posting new chapters as they write them. From what I understand, they have many more shockers to disclose in their forthcoming chapters.
How will the book end? That depends, in large part, on how hard Senator Schumer fights for the little guy – the average American who can’t hire people at $10 million a year to protect his interests and ends up being swindled, first by Ponzi schemers and then by SIPC.
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