What Exactly Did J.P. Morgan Know About Bernie Madoff? (JPM)

Senior executives at J.P. Morgan (NYSE: JPM) knew that Bernie Madoff was running a Ponzi Scheme as early as 2007, but they did nothing about it.

An email from a J.P. Morgan staffer was written in June 2007 discussing that Madoff might be running a Ponzi scheme. The email reads: "For whatever it[']s worth, I am sitting at lunch with [JPMC Employee 1] who just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a [P]onzi scheme."

J.P. Morgan is being sued for its negligence, as well as being Madoff's banker for an extended period of time.

The lawsuit filed by trustee Irving Picard against JPMorgan was unsealed yesterday. It was filed in a New York bankruptcy court in December.

The lawsuit is trying to recover $1 billion in fees, as well as another $5.4 billion in damages.

Despite the warning, Picard and the lawsuit say that the bank did nothing about it until October 2008. J.P. Morgan admitted to the United Kingdom's Serious Organized Crime Agency that Madoff's firm's performance was "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."

Deborah Renner, a partner at Baker & Hostetler, the court-appointed counsel for the trustee, said that did not recuse J.P. Morgan from acting in its own interest.

"Even then, JPMC executives did not restrict the BLMIS [Madoff's] bank account, even though it was being used to launder money from the Ponzi scheme," said Renner.

What is not known at this time is how high up it goes, whether it includes CEO Jamie Dimon or not, as well as other C-level executives.