JP Morgan Facing $2bn Fine for Involvement in Madoff Ponzi Scheme

CAPITALISM, 16 Dec 2013

Dominic Rushe – The Guardian

Bank tentatively agreed to pay $2bn to settle allegations it failed to inform US authorities of the jailed fraudsters suspicious activity.

JP Morgan Chase, the biggest bank in the US, is facing another multi-billion dollar fine, this time deriving from its involvement with notorious Ponzi scheme fraudster Bernard Madoff.

The bank has tentatively agreed to pay $2bn to settle allegations it failed to inform US authorities of the jailed fraudsters suspicious activity, according to people familiar with negotiations. A settlement deal with the Justice Department could come as early as next week. The bank declined to comment.

Madoff was arrested at his Manhattan penthouse five years ago this week after his $20bn scam came to light. JP Morgan was his bank for two decades and the US authorities suspect it continued to service his business even as it suspected something was wrong.

The fraudster himself predicted the bank would one day face a big fine. In a 2011 interview with the Financial Times he said: “JPMorgan doesn’t have a chance in hell of not coming up with a big settlement.” He claimed: “There were people at the bank who knew what was going on,” an assertion that JP Morgan has consistently claimed is false.

According to court papers filed by Irving Picard, the trustee charged with recouping losses for Madoff’s victims, the bank had grave doubts about Madoff 18 months before his scam unwound. The documents quote one banker claiming Madoff’s “Oz-like signals” were difficult to ignore.

The filings also quote a June 2007 email from a senior JP Morgan banker warning colleagues that another banker “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

The bank filed a “suspicious activity” report with UK authorities in 2008 but did not take a similar step in the US.

JP Morgan has always denied wrongdoing and disputes Picard’s findings but this week chief executive Jamie Dimon signalled that a deal was in the offing and suggested it was easier for the bank to settle than to fight its corner in court. “You read about Madoff in the paper the other day. We have to get some of these things behind us so we can do our job,” he told a conference in New York on Wednesday, first reported by the Financial Times.

According to a report in the New York Times on Thursday, the settlement would include a so-called deferred-prosecution agreement. Such an agreement would list all of JP Morgan’s alleged criminal wrongdoings but stop short of an indictment as long as the bank acknowledges wrongdoing and pays the fines.

The agreement would be the second time in a month that JP Morgan has been forced to acknowledge wrongdoing. On November 19 the bank paid a record $13bn to settle charges that it routinely bundled poor quality home loans into securities that were billed as high-quality to investors. That settlement too required the bank to own up to wrongdoing, something Wall Street has fought against for fear of triggering more shareholder lawsuits.

If the fine comes before Christmas it will cap an annus horribilis for JP Morgan. Alongside the $13bn fine for its involvement in the subprime loan scandal, JP Morgan has:

  • paid $4.5bn in November to settle allegations it has mis-sold mortgage bonds to pension funds and other institutional investors;
  • paid $920m in September to settle US investigations into the “London Whale” trading scandal;
  • in the same month, paid another $390m in refunds and $80m in settlement for billing credit card customers for identity theft protection they did not receive;
  • paid $410m in penalties and repayments in July related to alleged manipulation of California and midwest electricity markets;

Investors, however, have largely discounted the historic scandals and the bank’s share price is currently close to a year high.

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