If they really though there was fraud, why wouldnt they have taken a huge short position and reported to the SEC, accelerating the winddown process. This is what saba did with the JPM whale trades, they took a huge CDS position and reported the "whale", making 100mm+.
They didnt do this because a) they didnt know about the fraud, or b) didnt want to hurt their clients.
Everyone likes to point the finger at someone else, but if you were buying madoff structured notes /investing in madoff and knew nothing about the fund and did no research, it is your fault if you lost money.
The issue at hand (and for which JPMorgan was fined) wasn't whether they definitively knew, or "thought" there was a fraud or not. It was for specific violations of the Bank Secrecy Act: failing to report suspicious activity, and failing to create specific controls against money laundering.
All of the recent press articles are really quite clear about this. You may not agree with the SEC's findings of JPM's culpability in these charges; you may not be even particularly fond of the Bank Secrecy Act, for that matter. But you might want to do a little bit of research into what JPM was, you know, actually prosecuted for before engaging in engaging in naked speculation about how what JPM may have "thought" about Madoff's activities based on the extent to which one particular unit may have been shorting his positions.
Everyone is required to act like police to some extent. If someone comes into your sporting goods store looking to buy a baseball bat to attack his neighbor, you're required not to sell it to him (and in some jurisdictions, you're required to call the police).
They didnt do this because a) they didnt know about the fraud, or b) didnt want to hurt their clients.
Everyone likes to point the finger at someone else, but if you were buying madoff structured notes /investing in madoff and knew nothing about the fund and did no research, it is your fault if you lost money.