Compliance February 9, 2011

JPMorgan Responds to Madoff Trustee Suit

JPMorgan Chase & Co accused the trustee seeking $6.4 billion for victims of Bernard Madoff's Ponzi scheme of exceeding his authority by suing in bankruptcy court, where a judge, rather than a jury, would decide the case.
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The bank wants the case moved to federal district court. Reuters reports that in its filing, JPMorgan said the case requires a “significant interpretation” of federal banking law, including the Bank Secrecy Act and USA Patriot Act, and a determination of whether Irving H. Picard has standing to sue, requiring an assessment of federal securities law.  

“The trustee’s claims raise fundamental questions, of great importance to the banking industry as a whole, as to whether banks such as JPMorgan have liability to private plaintiffs for fraud conducted by their customers,” JPMorgan said, according to Reuters. “These issues fall outside the province of the bankruptcy court.”  

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Picard’s complaint seeks to recover nearly $1 billion in fees and profits and an additional $5.4 billion in damages. The complaint alleges that JPMC had a palpable concern that Madoff was a fraud for years, but it was not until October 2008 that it reported Madoff to government officials (see “Madoff Trustee Complaint against J.P. Morgan Unsealed“).  

JPMorgan has said it did not know about or assist in Madoff’s fraud.  

The case is Picard v. JPMorgan Chase & Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-04932.
Products February 9, 2011

Forward Management Launches Commodity Long/Short Fund

Forward Management, LLC has created the Forward Commodity Long/Short Strategy Fund (FCOMX).
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The new mutual fund seeks to profit from both up and down movements of commodity prices. It is offered in investor and institutional share classes and is available through Charles Schwab, LPL Financial, Matrix Clearing, National Financial, and Pershing. 

The fund uses the Credit Suisse Momentum and Volatility Enhanced Return Strategy (CS MOVERS) Index, an index that seeks to capitalize on the price momentum of major commodity futures, according to the company. The fund uses a total return swap to gain exposure to the CS MOVERS Index.  

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The CS MOVERS Index uses a tactical approach to seek positive absolute returns at bullish and bearish points in the commodity cycle for each of the 24 single commodities, or sub-indexes, in the S&P GSCI Index. It employs a systematic process that uses volatility-adjusted momentum to invest long or short in commodities that rank highest in positive or negative returns over previous months, subject to diversification rules, the announcement said. Rankings are recalculated and the portfolio is rebalanced monthly.

Forward has worked with Credit Suisse to enhance the index with a strategy component seeking to increase total return by adding positive “roll yield.” Roll yield is the difference in the price of futures contracts as the nearby contract approaches expire and the position must be rolled to the next contract. 

The fund pursues positive roll yield by allocating long positions to nearby, first deferred or second deferred futures contracts based on seasonally and risk-adjusted performance. Based on portfolio modeling, the enhanced strategy increased annualized total return of the CS MOVERS Index from 18.7% to 20.6% over the 1998-2010 period. 

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