d. BLMIS's auditor was a small, unknown firm;
e. BLMIS had a conflict of interest as it was the clearing broker, subcustodian, and sub-investment adviser;
f. feeder fund administrators could not reconcile the numbers they got from BLMIS with any third party source to confirm their accuracy; and
g. there was public speculation that Madoff operated a Ponzi scheme, or was engaged in other illegal activity, such as front-running.
6. JPMC looked the other way, ignoring the warning signs, even in the aftermath of
other well-known frauds. In response to those who, prior to Madoff's arrest, found it "[h]ard to believe that [fraud] would be going on over years with regulators [sic] blessing," Risk Officer of JPMC's Investment Bank responded, "you will recall that Refco was also regulated by the same crowd you refer to below and there was noise about them for years before it was discovered to be rotten to the core."
7. JPMC's due diligence team was further concerned about fraud at BLMIS in the
wake of another well-known fraud, the Petters fraud. Some of these concerns centered on
BLMIS's small, unknown auditor, Friehling & Horowitz ("Friehling"):
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