News breaks this morning that JP Morgan (JPM), Bernie Madoff’s lead banker, is close to settling with the Feds under a seldom used deferred prosecution agreement.
What is that?
Think of it as the equivalent of “you guys and gals had better behave yourselves going forward or we’re going to need to revisit this.” Truth be told, a deferred prosecution agreement is tougher than the standard “neither admit nor deny” treatments accorded Wall Street banks. How so? Here’s how.
It “lists the bank’s criminal violations in a court filing but stops short of an indictment as long as JP Morgan pays the penalties and acknowledges the facts of the government’s case.” Let’s revisit the Madoff trustee’s lawsuit brought against Morgan from early 2011. >>>>>>>>>>>>>>>>
We learn from that lawsuit that there were 21 causes of action against JPM individually designated as: preferential transfers; fraudulent transfers (numerous counts); aiding and abetting a fraud; aiding and abetting a breach of fiduciary duty; conversion; unjust enrichment; fraud on the regulator.
In reading through this document, it would appear to be a “How To Manual” for the opening and ongoing management of a laundromat.
Yet given what appears to be a preponderance of material supporting criminal charges, the question remains, why didn’t anybody from within JP Morgan blow the whistle long, loud, and unceasingly in order to expose the Madoff scam.
Truth be told, we do not know that that did not happen. How is that? Regrettably the Wall Street ‘code of silence’ in situations such as these is overpowering in putting the muzzle on those who might try to do the right thing. In point of fact, chapter 9 in my soon to be released book is entitled Code of Silence and details specific cases of individuals who did try to do the right thing and what happened to them. It’s not pretty.
Neither is the mess that the DOJ and the Madoff trustee are still trying to clean up from the Madoff scam.
We need a lot more than deferred prosecution agreements to make sure that scandalous situations such as Madoff never happen again. How might the cultural change on Wall Street that breaks this code of silence begin to gain a foothold?