(Reuters) - The Treasury Department watchdog ordered JPMorgan Chase & Co (JPM.N) to work with U.S. regulators seeking documents in connection with a probe into the bank's relationship with convicted Ponzi schemer Bernard Madoff, in a warning letter dated December 21.
The letter from Treasury Inspector General Eric Thorson to JPMorgan's general counsel, Stephen Cutler, which was reviewed by Reuters on Friday, revealed that the Office of the Comptroller of the Currency has been unable to get documents it requested.
JPMorgan has argued it does not have to turn over certain kinds of documents to the OCC because it would impinge on its attorney-client privilege rights, according to the letter.
Thorson told the bank his office would not accept that argument and ordered JPMorgan to tell his office by January 11 how it would resolve the dispute with the OCC.
"The OCC could not do its work and carry out its authority under its examination statute...if that statute was interpreted or operated to bar access to bank records for which a claim of privilege was made," Thorson said in the letter, which was first reported by Bloomberg.
Thorson said the OCC referred the matter to the inspector general's office to determine whether JPMorgan was impeding the regulator's national bank oversight program. The OCC is an independent regulator within the Treasury Department.
The letter did not say what kinds of documents the OCC is seeking or give more detail about the bank regulator's investigation into JPMorgan.
A spokesman for the OCC declined to comment on Friday.
"This dispute does not go to the merits of the matter," said JPMorgan spokeswoman Jennifer Zuccarelli. "But it does raise an important issue of principle: whether we and other banks - large and small alike - have the fundamental right, long recognized in this country, to communicate freely with and seek confidential guidance from their lawyers.
"We will of course continue to work together with our regulators on this matter," Zuccarelli said.
Madoff was convicted in 2009 of defrauding thousands of investors and is serving a 150-year prison sentence.
Irving Picard, a trustee for Madoff's victims, has accused JPMorgan of ignoring warning signs that Madoff's business was a fraud and has attempted to sue the bank.
A judge found that the trustee lacked power to bring claims against the bank for harm to former Madoff customers, tossing out all but $425 million of Picard's $19.9 billion lawsuit against JPMorgan.
The bank has said there was no showing that anyone there knew of Madoff's elaborate scheme.
Picard is in the process of appealing the ruling.
(Reporting By Emily Stephenson and Sarah N. Lynch; additional reporting by Douglas Palmer; Editing by Leslie Adler)