The other reason why the allegations regarding the 703 Account are particularly interesting to me is that to a significant extent they flesh out how a bank's oversight of accounts works or at least is supposed to work. This is particularly germane because we dupes sent money to and received money from the 703 Account; it was the vehicle through which JPMC and its predecessor banks directly dealt with us.
Early on after the fraud was exposed I was dimly aware, both from general knowledge and from talking to a major league banker who is a graduate of MSL, that specific persons in a bank are charged with overseeing specific accounts, at least large ones. How the oversight process works within a bank is amply discussed in the complaint. And though the complaint does not detail how or whether information got to the very top of the bank -- to Jamie Dimon, for example, who is discussed extensively in Gillian Tett's highly regarded "Fool's Gold" -- it does show relevant processes reaching to a very high level in the bank.
Let me, then, list some of the points made in the complaint in relation to the 703 Account (allegations which incorporate material reiterated in the section on loans).
1. Banks often assign a so-called "sponsor" to an account. The sponsor has the duty of learning enough about "the client's business to identify suspicious activity." (Para. 190.) The sponsor for the 703 Account was a person identified only as "JPMC Employee 9," who retired in the Spring of 2008. Here is what the complaint says regarding old number 9 (emphasis in original):
The sponsor for the 703 Account through 2008 was [redacted] [JPMC Employee 9]. When asked about his duties as a client sponsor at his Rule 2004 bankruptcy examination, [redacted] [JPMC Employee 9] responded that he did not even know what a client sponsor was, much less that he was the sponsor for BLMIS's accounts. He had received no training regarding his duties as a client sponsor and had taken no action to discharge those duties. When shown a document in which he had recertified that he had performed his duties as a client sponsor, [redacted] [JPMC Employee9] stated that he did not have any recollection of the duties of a sponsor or of the recertification process. (Para. 191.)
192. JPMC utterly failed to "know its customer" when it came to Madoff and BLMIS. Shockingly, after decades of hosting BLMIS's checking account, [redacted] [JPMC Employee9], the client representative who had been in charge of the 703 Account for more than ten years, admitted, "I don't know what the checking account was used for." He did not know whether it was used for market making activities, investment advisory services, both, or neither.
193. [Redacted] [JPMC Employee 9] did receive financial statements from BLMIS on a regular basis. These statements included FOCUS Reports. A quick review of those reports by JPMC would have revealed irregularities that required further investigation.
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