JPMorgan Chase has reached a settlement with federal authorities to resolve allegations that the bank missed its chance to warn federal authorities about the Ponzi scheme of Bernard L. Madoff. JPMorgan was Mr. Madoff’s primary bank for more than two decades and had a unique window into his scheme. Mr. Madoff was eventually charged with stealing billions of dollars from his clients and was given a 150-year prison sentence for those crimes.
In a Manhattan court, federal prosecutors imposed a $1.7 billion penalty on JPMorgan for two felony violations of the Bank Secrecy Act. The Bank Secrecy Act was enacted in 1970 and requires banks to alert authorities to suspicious activity. The record payout requires JPMorgan to pay the $1.7 billion to Mr. Madoff’s victims and the bank cannot write off the sum as a tax deduction. Preet Bharara, the United States attorney in Manhattan whose office ran the case, said, “JPMorgan as an institution failed and failed miserably.”
The prosecutors accused the bank of turning a blind eye to Mr. Madoff’s fraud. Prosecutors argued that “the Madoff Ponzi scheme was conducted almost exclusively through” various accounts “held at JPMorgan” in a document outlining the wrongdoing by the bank. According to prosecutors, on two occasions in 2007 and 2008, JPMorgan’s own computer system raised red flags on Mr. Madoff’s accounts, but JPMorgan employees “closed the alerts” both times.
Federal regulators also issued a rebuke of the bank. The Office of the Comptroller of the Currency reached a $350 million settlement with the bank to resolve allegations related to the Madoff case and broader breakdowns in safeguards against anti-money laundering. After paying these settlements, resolving the government investigations will have cost JPMorgan nearly $20 billion over the last 12 months. George Venizelos, a senior F.B.I. official, commented, “JPMorgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards.”
