Madoff Suggests Banks Knew of His Fraud

Convicted Ponzi scheme operator Bernard Madoff says many large banks and hedge funds "had to know" his investment empire was a house of cards built on fraud, years before it finally collapsed in December 2008.

In an exclusive prison interview with The New York Times, Madoff insisted that, while bankers knew what he was up to, his family was completely in the dark. Madoff is currently serving a 150-year sentence at a prison in North Carolina.

In the interview, Madoff accused unnamed banks and hedge funds of "willful blindness" to his activities. He said there was stark contrast between his regulatory fillings with the Securities and Exchange Commission (SEC) and the other information that was available to them.

‘Had to know’

"They had to know," Madoff told the Times. "But the attitude was sort of, 'If you're doing something wrong, we don't want to know.' "

Over the years, Madoff collected billions of dollars in investments and provided stunningly consistent returns that always beat the market. He was able to maintain his facade by using investors money to meet their limited demands for withdrawals.

As long as times were good, the scheme worked. Most investors wanted to keep their money invested with Madoff, where they were convinced it was rapidly growing. But when the market collapsed in the fall of 2008, too many of Madoff's investors wanted to withdraw their money. Unable able to meet those demands, Madoff turned himself in.

In the Times interview, Madoff said he has been helping Irving Picard, the trustee appointed to represent Madoff victims, try to recover some of the money. In the interview, the Times said Madoff repeatedly said that the information he provided Picard had been useful.

Lawsuit names Chase

In December, Picard filed a lawsuit against JPMorgan Chase, claiming the bank "was at the very center" of Madoff's Ponzi scheme and "thoroughly complicit" in it.

According to the complaint, JPMorgan Chase had reason to look the other way. It claims the bank earned a half-billion dollars in its relationship with Madoff -- money that ultimately came from the pocket's of Madoff's victims. It further claims many of the bank's executives strongly suspected Madoff's enterprise was fraudulent, but said nothing.

JPMorgan Chase issued a statement after the lawsuit was unsealed earlier this month, calling the complaint "meritless" and based on distortions.

"Contrary to the trustee's allegations, JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff," the company said in a statement. "Madoff's firm was not an important or significant customer in the context of JPMorgan's commercial banking business, and the revenues earned from Madoff's bank account were modest and entirely consistent with conventional market rates and fees."