JPMorgan Chase & Co., which agreed to pay $1.7 billion to settle claims that it facilitated Bernard Madoff’s Ponzi scheme, “failed miserably” as a financial institution, Manhattan U.S. Attorney Preet Bharara said.
“JPMorgan had an inadquate and ineffective anti-money laundering program,” Bharara said at a press conference today.
JPMorgan, the biggest bank in the U.S. by assets, avoided prosecution by entering into an accord with Bharara’s office that acknowledged oversight lapses related to an account Madoff used to fund his fraud. The bank will pay $1.7 billion to settle the U.S. allegations, $350 million in a related case by the Office of the Comptroller of the Currency, plus $543 million to cover separate private claims, the firm said.
“The bank connected the dots when it came to its own profits, but not when it came to its own legal obligations,” Bharara said, who added that the bank was aware of Madoff’s questionable transactions as early as 1994.
Starting in the 1990s, employees of various JPMorgan entities and predecessor entities raised questions about Madoff Securities, including the validity of the firm, the government said.
“At no time during this period did JPMorgan Chase and company personnel communicate their concerns about Madoff Securities,” the U.S. alleged. JPMorgan personnel also didn’t file any suspicious activity reports required under federal banking rules with the U.S., Bharara said. The New York-based bank acknowledged suspicion of Madoff’s investment firm in an Oct. 29, 2008, report to a U.K. regulator, the U.S. said in court papers.
At today’s press conference, Bharara displayed a timeline chart with comments made by JPMorgan employees who suspected Madoff’s fraud that ended when he was arrested in December 2008 and cost investors about $17 billion. Madoff is serving a 150- year federal prison sentence in North Carolina.
A JPMorgan fund manager wrote in December 1998, that Madoff’s returns are “possibly too good to be true” and that there were “too many red flags” for the bank to do business with Madoff, according to the timeline.
In June 2007, a senior JPMorgan chief risk officer said, “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme,” according to the exhibit.
The U.S. agreement includes the largest ever bank forfeiture and also the largest ever Department of Justice penalty, Bharara said. JPMorgan, led by Chief Executive Officer Jamie Dimon, agreed in 2013 to pay $15.7 billion to resolve other U.S. regulatory probes into practices including mortgage- bond sales and energy trading.
Between late 1986 and the Madoff firm’s collapse, “the Madoff Ponzi scheme was conducted almost exclusively through a demand deposit account and other linked cash and brokerage accounts held at JPMorgan,” prosecutors said in a criminal information in Manhattan federal court. “Virtually all client investments were deposited into the primary Madoff Securities account at JPMorgan Chase Bank N.A. and virtually all client ‘redemptions’ were paid from a linked disbursement account.”
JPMorgan “failed to carry out its legal obligations while Bernard Madoff built his massive house of cards,” George Venizelos, the FBI assistant director in charge, said in a statement today. “JPMorgan finds itself criminally charged as a consequence. But it took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for JPMorgan to alert authorities to what the world already knew.”
“In order to avoid these types of disasters in the future -- we all need to be invested in making our markets safer and more equitable,” Venizelos said. “The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”
Bharara said today that his office intends for “every penny” of the $1.7 billion go to “help make Bernie Madoff’s victims closer to whole.”
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