07 Jan Dimon and Chase Directors Not Liable on Madoff

Yes his name is still causing headlines. Ponzi schemer extraordinaire Bernie Madoff, the 77-year old who attended Far Rockaway High School in NY a few years after both my parents, pled guilty to fraud back in 2009 and is now serving a 150 year sentence. Many estimates of the size of his theft vary, but all agree it was in the billions. And for two decades Madoff’s company and funds were customers of JP Morgan Chase.

Did they fail to see warning signs of the scam at the bank? That was the allegation of some JPM shareholders, who sued the bank’s directors, including CEO Jamie Dimon, saying they breached their fiduciary duties to note warnings and didn’t have enough controls in place to spot this kind of thing, caring more about the very lucrative customer he was. And don’t forget, Madoff had been the Chairman of Nasdaq and was to many a well-respected Wall Street veteran before the fraud was uncovered.

An appeals court has now agreed with a lower court that the shareholders don’t have a case to make the directors of the bank pay. The fact that there were some controls, even if not “reasonable,” seems to be enough for the court under Delaware law. The court felt the shareholders, to prevail, would have had to prove that the directors “utterly failed to implement any reporting or information system or controls,” and they said that wasn’t the case. What do you think?