Was Madoff a “Well-Known” Fraud?

Informative write-up of the Madoff-JPMorgan suit in the NY Times. Two words in the much-quoted e-mail from a risk manager at Chase keep catching my eye:

"[A bank executive] told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme."

The cloud was well-known in June, 2007? So Wall Street was divided between those in the know and those who were clueless? Or was the division between those in the know and those who took pains not to know?

Later in the Times article we glimpse the enormous money movements that seem unremarkable at a big bank. An "unidentified wealthy Chase customer" had introduced Bernie to the bank. In 2001 this customer's account sent Madoff a check for $9 million "on a daily basis." On one day the following year, more than $300 million flowed from Madoff to the customer's account. Remarkably, the cash flow consisted of 318 checks, each made out for exactly $986,301.

Why would some Wall Street bankers wish not to know of Madoff's fraud? The suit by the trustee for Madoff's victims notes that JPMorgan Chase made good money selling derivatives based on Madoff feeder funds.

Sort of like charging for dry cleaning the emperor's new clothes.

Floyd Norris writes, "The evidence in the lawsuit clearly shows that people at JPMorgan Chase saw red flags." But as we learned back in the days of Sam Israel's Bayou funds, some people are color blind.