“For decades, Bernie Madoff was able to launder billions of Ponzi proceeds essentially through a single set of accounts at JPMorgan,” said US attorney Preet Bharara. “The bank repeatedly ignored warning signs.”
JPMorgan Chase has agreed to pay $2.6 billion to resolve charges that its lax oversight allowed Bernard Madoff’s Ponzi scheme to run. The deal is part of a US settlement over criminal charges, and it came on a Tuesday.
Where the money goes
The mechanics matter. Of the total, $2.24 billion is earmarked for Madoff’s victims and $350 million is a penalty owed to the Office of the Comptroller of the Currency. Inside the victims’ share sits a $1.7 billion settlement paid through the Justice Department, the largest penalty ever for a Bank Secrecy Act violation. Another $543 million goes to the trustee trying to recover the $17.5 billion in principal Madoff’s clients lost. Counting the JPMorgan payment, he has so far recovered about $9.8 billion.
BETTER FINANCE breaks the figures down differently: $1.7 billion to the Department of Justice, $350 million to the OCC, $325 million to trustee Irving Picard and $218 million to class-action plaintiffs. It adds that the bank agreed not to claim a tax deduction or credit for the $1.7 billion.
The warnings inside the bank
Madoff used JPMorgan “almost exclusively” as his banker for more than 20 years, according to the Justice authorities. About 4,000 clients handed him billions over that stretch. He never invested it. He moved it in and out of the JPMorgan accounts and reported huge gains to clients that did not exist.
Bank staff had doubts dating back to at least 1994. They never took them to JPMorgan’s anti-money laundering staff or to regulators.
In 2007, the bank’s chief investment officer wrote that another executive spoke of “a well-known cloud” over Madoff and that his returns raised suspicions of a Ponzi scheme. In another case, a client asked a JPMorgan senior investment officer to question Madoff about his steady returns in a volatile market. The officer concluded Madoff might be “smoothing out the returns” by sharing trading profits from other Madoff accounts.
The catch: JPMorgan never filed a “suspicious activity report” with the US Treasury, and never warned senior compliance staff, the US said.
Deferred prosecution
The bank avoids a trial for now. Under the deferred prosecution agreement, prosecutors will drop the criminal charges after two years if JPMorgan pays, reforms its anti-money laundering policies, cooperates with continuing investigations and reports any wrongdoing by the bank or its staff. No individual executives were accused.
A reporter asked Bharara whether such a deal deters wrongdoing less than seeking to convict the largest US bank. “You take into consideration all factors,” he answered, adding that a criminal case against a big financial institution and employer carries “collateral consequences.” He also called the fine “the largest-ever bank forfeiture” and said “JPMorgan as an institution failed and failed miserably.”
JPMorgan called Madoff’s scheme “an unprecedented and widespread fraud that deceived thousands, including us.” The bank conceded it “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.” It insisted: “We do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme.”
The fraud itself
Madoff, once a prominent Wall Street broker and chairman of the Nasdaq exchange, was arrested in December 2008 for fabricating account statements covering tens of billions of dollars. His firm, Bernard L. Madoff Investment Securities, had reported $65 billion. It collapsed with $300 million in assets. After admitting the firm was a Ponzi scheme, he was sentenced to 150 years in prison.
The settlement follows other large JPMorgan deals: $13 billion over high-risk mortgage securities, and more than $1 billion over a fraudulent trading scheme whose losses the bank failed to detect and prevent. BETTER FINANCE reports the bank has set aside $23 billion for legal problems and expects to raise reserves by another $400 million, cutting fourth-quarter earnings by about $850 million. JPMorgan shares fell 1.2% on a day when most other Dow Jones Industrial Average components rose.
Sources
- JPMorgan to pay $2.6 billion for role in Madoff Ponzi fraud
- JPMorgan to pay $2.6 billion over Madoff scandal – BETTER FINANCE
Sources
- JPMorgan to pay $2.6 billion for role in Madoff Ponzi fraud
- JPMorgan settles for $2.6 billion fine over Madoff fallout | PBS News
