This week, U.S. Prosecutors and Regulators are to announce that JP Morgan Chase & Co. are to pay more than $2 billion in penalties for alleged failures to alert about Bernie Madoff’s massive Ponzi scheme fraud, that lost investors billions of dollars just five years ago.
The bulk of the fines are expected to be distributed to victims of Madoff’s Ponzi scheme, who pleaded guilty to numerous fraud charges, including securities fraud, wire fraud, mail fraud, and money laundering. Penalties paid to the Justice Department are expected to amount to greater than $1.5 billion – an amount that is expected to form the largest chunk of the total. The rest will be paid to the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, both of which are part of the Treasury Department.
The OCC action is expected to highlight larger control weaknesses beyond the bank’s dealings with Mr. Madoff, who had a two-decade long relationship with the banking giant before his arrest in December 2008. The penalties will be the latest in a string of lawsuit settlements for the largest US bank, which agreed to pay out nearly $20 billion late in 2013 to end an array of lawsuits and investigations in regards to the bank’s past mortgage bond sales and the 2012 “London whale” trading debacle. JP Morgan set aside third-quarter legal reserves of $9 billion and told investors that $23 billion was on hand to absorb future settlements and lawsuits.
Prosecutors in the US Attorney’s Office and the Federal Bureau of Investigation have been investigating possibilities that JP Morgan had failed to alert regulators about Mr. Madoff’s activities despite numerous red flags. A focal point of the case is why the bank didn’t provide a formal report raising concerns about Madoff in the US, despite filing a such a report with regulators in the UK.
J.P. Morgan has said previously that it didn’t know about or participate in the Madoff fraud. But in recent months the bank began discussing a deferred-prosecution agreement with the U.S. Attorney’s Office that would resolve the investigation, said people close to the talks. Under such a pact, companies typically pay a penalty and prosecutors file charges that are dismissed after a set period if the company lives up to certain conditions.