The "DD" [due diligence] done by all counterparties seems suspect. Given the scale and duration of the Petters fraud it cannot be sufficient that there's simply trust in an individual and there's been a long operating history . . . . Let's go see Friehling and Horowitz the next time we're in NY . . . to see that the address isn't a car wash at least.
8. In or about September 2008, as JPMC was re-evaluating its hedge fund investments in the midst of the worldwide financial crisis, [JPMC Employee 3], of JPMC's London office, had a telephone call with individuals at Aurelia Finance, S.A. ("Aurelia Finance"), a Swiss company that purchased and distributed JPMC's structured products. During the course of that call, the individuals at Aurelia Finance made references to "Colombian friends" and insisted that JPMC maintain its BLMIS-related hedge. That conversation triggered a concern that Colombian drug money was somehow involved in the BLMIS-Aurelia Finance relationship, which led to an internal investigation at JPMC of BLMIS and Aurelia Finance for money laundering. Significantly, it was only when its own money was at stake that JPMC decided to report BLMIS to a government authority.
9. As reported in the French press, by the end of October 2008, JPMC admitted in a
filing of suspicious activity made to the United Kingdom's Serious Organised Crime Agency ("SOCA") that it knew that Madoff was "too good to be true," and a likely fraud:
(1) . . . [T]he investment performance achieved by [BLMIS's]
funds . . . is so consistently and significantly ahead of its peers
year-on-year, even in the prevailing market conditions, as to
appear too good to be true--meaning that it probably is; and
(2) the lack of transparency around Madoff Securities trading
techniques, the implementation of its investment strategy, and the
identity of its OTC option counterparties; and (3) its unwillingness
to provide helpful information.
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