U.S. authorities near deal with JPMorgan on Madoff violations

NEW YORK Thu Dec 12, 2013 2:14pm EST

A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar

A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013.

Credit: Reuters/Mike Segar

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) is working with criminal and regulatory authorities on settlements over the bank's relationship with convicted Ponzi schemer Bernard Madoff, ones that would involve $2 billion in penalties and a rare criminal action, according to sources familiar with the matter.

The settlements would fault the bank for turning a blind eye to warning signs about Madoff's firm, which was revealed in December 2008 to be the operator of a massive Ponzi scheme, the sources said.

One source said JPMorgan employees in New York, through internal communications at the bank, expressed confusion about details of Madoff's activity and his fund's returns, but the bank decided not to file a suspicious activity report with U.S. regulators, despite the fact that its London office had filed a similar report with UK authorities.

JPMorgan spokesman Mark Kornblau declined to comment.

The criminal component to the case was first reported by the New York Times on Wednesday.

Madoff was convicted in 2009 of defrauding thousands of investors and is serving a 150-year prison sentence. JPMorgan has been accused of ignoring warning signs that Madoff's business was a fraud, often to win more fees and commissions.

Irving Picard, a trustee for Madoff's victims, accused JPMorgan of ignoring warning signs about Madoff and sued the bank for $19.9 billion. But a judge tossed all but $425 million of Picard's lawsuit. An appeal of the ruling by Picard to the U.S. Supreme Court is pending.

JPMorgan has said in the past there was no evidence showing that anyone at the bank knew of Madoff's elaborate scheme. The suspicious activity report the bank filed in London, two months before Madoff was arrested, described his investment performance as "too good to be true," according to Picard's lawsuit.

The settlement with federal prosecutors in Manhattan would include more than $1 billion in penalties to resolve the criminal case, which would specifically cite JPMorgan for abetting Madoff's fraud.

Jennifer Queliz, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment.

The rest of the fines would be imposed by Washington regulators, including the Office of the Comptroller of the Currency and the Federal Reserve, for failures in JPMorgan's anti-money laundering policy related to the Madoff case, one of the sources said.

The sources said the settlement could come as early as this month. The original goal, one of the sources said, was to finalize it before the Christmas and New Year's holidays.

JPMorgan, the biggest U.S. bank by assets, recently reached a $13 billion settlement in connection with a range of government claims over bad mortgage securities and struck another deal with regulators to pay about $1 billion for its "London Whale" derivatives trading debacle.

(Reporting By Emily Flitter; Additional reporting by David Henry and Nate Raymond; Editing by Steve Orlofsky)

(This story was refiled to fix typo in the first paragraph)

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Comments (3)
SteveC wrote:
Gee, ya think maybe someone at JP Morgan was making a buck or two off of Madoff’s scheme?

Dec 12, 2013 5:15pm EST  --  Report as abuse
Hmmmm…..Mortgage fraud, London Whale and now Bernie Madoff. Doing business with J P Morgan just gives you that warm fuzzy feeling all over, doesn’t it? Well, at least Jamie Dimon never said he was doing God’s work. You know something? A few years ago people said that criminal prosecution could never happen to our TBTF banks. Well here we are with a little more apparent progress in that area. I wonder how long it will be before some senior executive actually goes to prison?

Dec 12, 2013 5:26pm EST  --  Report as abuse
Wulff wrote:
The SEC and everybody else, except one columnist, missed the Madoff Ponzi scheme over many years. Now Morgan gets taken for another billion. Seems like the SEC should be held responsible for all the losses and their employees should also be fined and barred from a job with any connection to the financial sector, auditing, bookkeeping, etc. for life. Don’t hold your breath on that one.

Dec 12, 2013 9:02pm EST  --  Report as abuse
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