This is a very misleading article in my opinion. Investment banks provide investors access to risks which they want, in this case investors WANTED access to Madoff structured notes because Madoff had been outperforming, therefore JPM had a find a way to hedge themselves to reduce their risk. After investing a tremendous amount in madoff, JPM probably realized that they could hedge easier by going long the general market on roughly a 1.1 to 1 ratio I would imagine or the structured desk wanted to use their short to hedge another long position they couldn't get out of while retaining some idiosyncratic risk that Madoff was in fact a fraud (this type of tail hedge is very valuable on the st btw). When assessing risks of this size, I am glad that JPM seemed to be asking all the right questions about Madoff (which no one else, not even the SEC, was asking), it is funny JPM is being penalized for this.<p>Creating a similar idiosyncratic risk could be to sell a gold ETF and own physical gold, paying maybe 30 bps a year for a real outperformance during a) hyperinflation if real gold is needed or b) some gold bars at the ETF turn out to be fake/not there (some have been found to be tungsten) c) another unforseen event. These options are hard to create and very valuable to a huge investment bank such as JPM which is generally very long the mkt in general and actually allows them to make more loans.<p>Also, most benefiting from rising prices in madoff claims are distressed hedgefunds and investment banks btw. They own probably 90% of the claims now, 'vicitms" selling at roughly 20 cents on the dollar. Anyone really pointing the finger at JPM is very naive about the whole system.