The writing had been on the wall for months: J.P. Morgan would be fined for its alleged involvement in the Bernie Madoff scandal. Yet, while the outcome was nearly inevitable, no one really knew what the bank did or didn’t do. At least until Tuesday, when prosecutors tore J.P. Morgan a new one while doling out a $2.6 billion penalty.
J.P. Morgan "failed miserably" by ignoring glaring red flags that should have given the bank "plenty of reasons to be uniquely suspicious” of Madoff’s fraud, according to Manhattan U.S. Attorney Preet Bharara. Truth be told, various employees at J.P. Morgan were “uniquely suspicious.” The problem was the suspicion was never communicated outside of the office. Instead, the information was used to make smart business decisions for the J.P. Morgan, at least according to prosecutors.
Despite the fact that J.P. Morgan was Madoff’s chief bank, its asset management arm twice declined to invest in Madoff funds, noting that the returns were “possibly too good to be true.” One senior executive even joked over email that the firm should pay a visit to Madoff’s accountant "to make sure it was not a car wash.” The hedge fund used a one-person accounting firm.
Then, in 2008, a J.P. Morgan analyst in the U.K. wrote an internal email claiming “there are various elements in the [Madoff] story that could make us nervous.” The bank filed a report with the UK’s Serious Organised Crime Agency, but failed to do so in the U.S. despite having an informal conversation over the matter. The bank also ignored computerized alerts over suspicious activity, among other missteps.
But perhaps the most sordid detail is what J.P. Morgan did in the fall of 2008 – after the U.K. report was filed but before Madoff was arrested. The bank pulled $275 million of its money out of Madoff feeder funds, according to Business Insider. "JPMC connected the dots when it mattered to its own profit," said Bharara.
The Wall Street Journal is reporting that no J.P. Morgan officials will be individually penalized. For what it’s worth, Madoff himself predicted back in 2011 that J.P. Morgan would eventually feel the wrath of prosecutors. He didn’t lie about that one.
Do They Drug Test? (eFinancialCareers)
What do banking candidates search for online? The short of it: many are freaking out over whether their potential employer will ask them to pee in a cup.
Bad and Getting Worse (WSJ)
The 10 largest global investment banks employ roughly 6,000 fewer fixed income traders today than they did pre-crisis. Unfortunately, FICC is expected to “remain quite a tough business" in 2014.
One Ugly Mug (Dealbook)
Successful activist investors scare people into making changes to their company. How do they go about doing that? One rather dramatic investor, when sitting down with new targets, drinks coffee from a mug featuring the faces of chairmen his hedge fund removed in earlier activist campaigns. Brutal.
History is Made (Politico)
Janet Yellen has been confirmed as the new chairwoman of the Federal Reserve. Set to begin her new post Feb. 1, Yellen is the first woman to ever lead the nation’s top bank.
Fresh Hire (FIN Alternatives)
Asset manager Coherence Capital Partners has hired former UBS executive Michael Cannon as a senior portfolio manager and partner. The New York firm, launched in Feb. 2012, currently has over $250 million under management.
No Dice (WSJ)
Former Goldman Sachs trader Fabrice Tourre’s motion for a new trial was rejected on Tuesday. He is still eligible to appeal the jury’s verdict, however.
Buzz Around the Office
Time to Put ‘Good-Looking’ on Your Resume? (NY Times)
Investors subconsciously assign higher share value to companies run by good-looking chief executives, according to a new study. Attractive CEOs also get paid more than their shabbier-looking counterparts. A one-point increase in looks (in a scale out of 10) relates to a near $900,000 uptick in compensation.
Quote of the Day: “JPMorgan doesn’t have a chance in hell of not coming up with a big settlement.” Bernie Madoff, 2011.