Systemic And Intential Fraud? (Part I and II)


Gee, a bank would never create a system that was intentionally programmed to screw the customer….. especially a state pension fund…. right?

What’s this?

Bank of New York Mellon Corp. currency traders used a foreign-exchange system called “Charlie” to create fake trades and overcharge Virginia pension funds by at least $20 million, according to allegations in recently unsealed documents in a Virginia court.

Oh, the allegation is that they did exactly that!

To be fair the banks involved are denying they did anything wrong.  But this has whistleblowers involved, who it appears have inside information on exactly how this was done, and unfortunately there also appear to be records that at least strongly imply that there was a problem with the execution of these trades.

The alleged scheme was to take a foreign currency order and then “give” the fund the worst price of the day for it – that is, if buying give them the highest price and if selling give them the lowest, when in fact the bank had executed the trade “on time.”  This of course would allow the bank to pocket the difference between the actual executed trade and the worst price of the day.

This sort of scheme is also illegal, if indeed it happened, as you’re paying the institution to execute the trade when ordered, not to skim off as much as it can by structuring the transactions to its benefit and your detriment.

At this point it appears the allegations include trades executed for Florida, Virginia and California pension funds, and include State Street and Bank of NY Mellon.

We shall see what sort of evidence is developed as this proceeds…. watch this one closely folks, as if this is proved up it’s hard-core evidence of an intentional scheme developed for the express purpose of screwing the customer, in this case state pension funds, out of significant amounts of money.

If this claim is proved up the obvious question will then be “who else got hosed and by what mechanism?” within the banking system, since the allegation here is made that the in-house systems involved were intentionally designed to produce the scam, not that a single bad broker or other individual exploited some sort of loophole.


And in a follow-up to the sordid accusations against BONY and State Street, we have this!

J.P. Morgan Chase & Co. ignored or dismissed warning signs about the Madoff fraud even as it earned hundreds of millions of dollars from its relationship with his firm, according to a lawsuit unsealed Thursday.

Uh yeah, I’ve speculated on this before.  How do you have a custodial account relationship with a huge fund like Madoff’s that never clears an actual trade and yet not have any idea that something funny is going on – and that “funny” thing might be criminal?

Well, as it turns out, the bankruptcy trustee believes that not only did JP Morgan suspect something was wrong, they were pretty sure of it and yet continued and enabled the relationship for the purpose of making a profit.

“While numerous financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it,” according to the 115-page lawsuit, filed under seal in December by Irving Picard, the trustee seeking to recover money for Mr. Madoff’s victims and made public on Thursday.

The profit, in this case, was more than a billion dollars.

JP Morgan denies wrongdoing and knowledge.  We’ll see.

I’d argue that it’s pretty tough to move the sort of money around that Madoff did and not have any idea how it’s happening.  But that’s me – after all, we are talking about a total “take” here of $50 billion, right?  That’s the total scam that Madoff supposedly was responsible for, which strongly implies that this amount of money had to either come or go somewhere, and if it came and went without leaving any sort of trace in the market then I think we got ourselves a little bit of a problem.

Picard’s lawsuit was filed under seal in December.

The Market-Ticker