You ever play hide and seek with your pals and the “hider” sneaks home?

That’s a sin in childhood games but not, it seems, in the grown-up world of finance. JPMorgan sold a triple-leveraged investment in Fairfield Greenwich Group’s Madoff Ponzi and, to show its good faith, put in $250 million of its own money. Then, early last fall, JPMorgan grew suspicious and pulled all of its own money out and went home but didn’t warn its investors. They stayed in, lost everything, and now they’re mad. JPMorgan’s behavior wouldn’t pass muster at Tiny Tots Nursery School- it probably will on Wall Street. Bad boys.

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One response to “You ever play hide and seek with your pals and the “hider” sneaks home?

  1. CEA

    Well, the “rules” by the Trustee on this one were that anyone who pulled out 9 months prior to Dec. 12 (when Madoff confessed) who did not show “good faith” that the money was pulled out b/c of, say, regular quarterly withdrawals or estate planning, that sort of thing, would thus have knowingly participated in the fraud, and thus would have its money forfeited.

    “It may turn out that actions against former investors will conclude that some of them did find out about the fraud and that’s why they redeemed. If you were taking your money out because you knew of the fraud, then you lose the good faith defense and you wouldn’t be allowed to keep the invested principle.”

    (from the WSJ: http://blogs.wsj.com/law/2008/12/17/how-will-the-trustee-in-the-madoff-case-return-investors-their-money/ )

    So JPM is basically screwed, anyway. Not only on their own money, but now their clients are livid. Lawsuits a-go-go!