J.P. Morgan Chase & Co. face paying a $2 billion dollar settlement this week for their penalties in the biggest Ponzi scheme case in American history. J.P. Morgan was Bernard L. Madoff’s bank for 20 years before his arrest. Last December marks Madoff’s fifth year in jail for defrauding billions of dollars from investors.
According to people familiar with the case, prosecution considered charging the nation’s largest bank in violation of the Bank Secrecy Act. The federal law mandates a bank’s records of any suspicious activities and conduct internal investigations involving money-laundering.
Manhattan prosecutors have opted for a lesser charge on the bank’s misconduct, said people behind negotiations. This deferred-prosecution agreement could ultimately let J.P. Morgan evade an indictment. The U.S. attorney’s office would simply drop charges under certain conditions have been met. Deferred-prosecution is adhered to when the bank pays fines and agrees to not take part in such activities again.
Chief Executive Officer Jamie Dimon has thrown billions of dollars toward increasing compliance activities. This arrangement was determined during rounds of negotiations with government authorities.
J.P. Morgan has attempted to secure a deadline extension for a court case. This tolling agreement would have delayed the lawsuit past the five-year legal deadline, said a person with knowledge of the ongoing talks.
Dimon would rather bring the whole Madoff ordeal to an end as quickly as possible. He told the crowd at a New York Goldman Sachs Financial Services Conference, “We have got to get some of these things behind us so we can do our job. Our job is to serve clients around the world. That’s our job. So I want to get it behind us.”
J.P. Morgan stopped the OIG from examining Madoff’s relationship with the bank. The U.S. Treasury Department’s Office of the Inspector General issued a subpoena on behalf of the Office of the Comptroller of the Currency.
OIG wanted to solicit information from the bank to determine if there was any interference with the OCC probe. The bank refused to release the required documents to the OIG through attorney-client privileges. The Justice Department gave a nod to the move.
Despite being close to reaching a deal with the government this upcoming week, J.P. Morgan maintains that no employees knew about Madoff’s ill-transactions. The New York Times confirms an internal email revealed a J.P. Morgan senior risk manager’s report from a bank executive who noted Madoff’s illegal actions before his arrest: “There is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.” No criminal charges have been brought upon individual J.P. Morgan executives but the company still may face a $2 billion penalty.
How much of the $2 billion goes to investors? That exact number has not been settled, said people familiar with the negotiations. Sources have confirmed that the Justice Department will get more than $1.5 billion, while the rest goes to two Treasury Department units. The Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network are expected to be paid nearly a half billion dollars.
The multi-trillion dollar bank has just reached a $20 billion settlement in December 2013 for a mammoth of past government investigations, including mortgage bonds sales. Bernie Madoff is serving his 150-year prison sentence. J.P. Morgan executives could avoid any jail time with a deferred-prosecution agreement but the company still may face paying $2 billion in penalties.
By Teria Seah