JPMorgan Chase Bank is being fined $1.7 billion and charged with two felony violations in connection with the bank’s relationship with Bernard L. Madoff Investment Securities.
Under the agreement announced Tuesday by the U.S. Justice Department, the bank agreed to pay a $1.7 billion penalty to consumers who were victims of the Madoff fraud; to refrain from future criminal conduct and cooperate fully with the government; and to continue reforms of its anti-money laundering compliance program.
If the bank continues to comply with the agreement, the department has agreed to defer prosecution on the felony charges for two years, and then dismiss the charges.
“Today, the largest financial institution in the country stands charged with two criminal offenses,” said Preet Bharara, U.S. Attorney for the Southern District of New York. “Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also.”
Bharara said, in this case, JPMorgan connected the dots for its own interests, but wasn’t so diligent otherwise.
With Tuesday’s agreement, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices, he said, adding consumers who were victims of Bernie Madoff’s epic fraud are $1.7 billion closer to being made whole.
In separate actions, the U.S. Treasury Department, Office of the Comptroller of the Currency, and Financial Crimes Enforcement Network announced that they had also reached agreements with JPMorgan.
Since 1986, JPMorgan and its predecessor institutions served as the main bank through which Madoff ran his Ponzi scheme. Madoff Securities maintained a series of linked checking and brokerage accounts at JPMorgan – referred to as the “703 Account.”
Early on in its relationship with Madoff Securities, JPMorgan, because of its unique vantage point as the firm’s banker, had reason to be suspicious about Madoff, Bharara said. Over the years, other parts of the bank developed their own suspicions about Madoff.
On October 29, 2008, JPMorgan filed a report with regulators in the United Kingdom, listing Madoff Securities as the “suspect.” The report concluded that Madoff’s returns were “probably” “too good to be true,” and “as a result,” JPMorgan was withdrawing about $300 million of its own money from the Madoff feeder funds. No reports about its concerns relating to Madoff were filed in the United States.
Madoff pled guilty without going to trial and is now serving a 150-year prison term. Five members of his staff are now on trial in New York.
A court-appointed trustee is trying to recover funds from the fraud for investors, and the agreement reached between JPMorgan and the Department of Justice "would be independent" of the trustee's claims against the bank, according to the USA Today article “JPMorgan Expected to Pay $2B for Role in Madoff Case.”
The fines JPMorgan paid in 2012 and this fine total $20 billion.