Late last week, we learned that several federal agencies have been quietly investigating JPMorgan Chase's role in the Bernie Madoff scheme. According to the New York Times, the Justice Department, FBI and Office of the Comptroller of the Currency have amassed voluminous evidence that Chase knew Madoff had turned his wealth management business into a massive Ponzi scheme and failed to stop him or report him to authorities. Chase is either going to have to sign a deferred prosecution agreement--something no major New York bank has ever had to do--or plead guilty to violations of the Bank Secrecy Act. Whatever happens, one thing is beyond dispute. Chase's CEO, Jamie Dimon, must pay for this with his job.
It's one thing to admit to reckless trading and oversight breakdowns, as Chase did in the London Whale affair. It's another to admit to deceiving investors about the risks involved in mortgage-backed securities. But when a bank has enough information to stop the largest investment fraud in world financial history and fails to stop it, on principle alone the CEO must go.
When you look at the specific evidence that the feds are reportedly relying on, if there's anything to it it's even more reason to call for Dimon's ouster. The feds appear to be relying on several emails that suggest Chase continued to do business with Madoff despite numerous questions about whether he was legitimate--questions that were apparently serious enough that Chase should have told regulators.
They also seem to be relying heavily on evidence obtained by Irving Picard, the trustee responsible for recovering the money Madoff stole. Back in 2010, Picard sued Chase for $6.4 billion, claiming that some very senior people at Chase knew Madoff was a fraud and did nothing. Two things Picard found stick out. First, Chase had enough suspicions about Madoff's business that by 2008, it yanked every penny it had with him--and yet, failed to report it. Second--and most damningly in my opinion--when Chase finally did tell regulators in the UK in October 2008 that it thought his returns were "too good to be true," it continued to allow Madoff to conduct normal banking activities right up until his arrest two months later. The latter instance, to my mind, is like a lawyer who knows his client is committing a crime and doesn't report it to the police.
The White House forced GM's Rick Wagoner to resign as a condition of getting more more federal money. So why shouldn't the feds force Dimon to resign after being at the helm for the worst of Madoff's crimes? And if the feds don't make him resign, we need to put the heat on Chase to force him out.