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Linus Wilson
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Dr. Linus Wilson is an associate professor of finance at the University of Louisiana at Lafayette. He received his doctor of philosophy in financial economics from the University of Oxford in England in 2007. He has conducted extensive research into the Troubled Asset Relief Program (TARP). He... More
My company:
Oxriver Capital
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Academic Research
  • Madoff’s Bank Accounts 0 comments
    Oct 21, 2009 7:42 PM | about stocks: JPM, BK

    An updated filing on October 20, 2009, by a plaintiff in New York Superior Court, which was reported on by Reuters, alleges that JP Morgan Chase (NYSE:JPM), Bank of New York Mellon (NYSE:BK), and KPMG are liable for some of the losses of the Ponzi King’s investors.  As the Bernie Madoff Investment Securities’ (BMIS)’s bankruptcy trustee sharpens his case against Madoff investors who have taken out more money than they put in, Madoff investors are looking for other, deeper pockets to share in their misery.

    JP Morgan Chase was the bank into which the Madoff’s victims deposited their savings.  Bank of New York Mellon had an account with Bernie Madoff’s legitimate broker dealer business, according to Ms. Arvedlund’s well-researched book.  The Chase “703” bank account peaked at $5.5 billion dollars in 2008.  Banks make money by lending out money at rates of interest higher than they pay out to depositors.  This is often measured by the net interest margin.  Assuming that the Madoff deposits earned the bank’s net interest margin and grew at a random geometric rate, my paper estimates that JP Morgan Chase generated approximately $483 million in after-tax profits from this very large account over the course of sixteen years.  Yet, until the complete bank account records are made public, precise estimates of JP Morgan Chase’s profits are impossible.  Further, just because JP Morgan profited from the large bank account does not necessarily mean they did anything wrong or illegal.  Those determinations are for the courts.

    While the salacious accusations of drug abuse and sexual misconduct in this recent complaint have made the most headlines, its other accusations may prove costly investors in JP Morgan Chase or possibly Bank of New York Mellon.  The Madoff scandal has plenty of pain to spread around.

    Disclosure:  I only have long positions in broad-based index funds.

    Stocks: JPM, BK
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