JPMorgan has agreed to pay $2.6 billion to the Department of Justice and various victims of Bernie Madoff’s $18 billion ponzi scheme, Reuters writes. That amount includes a $1.7 billion fine for violating money laundering rules and is “the largest forfeiture a bank has ever had to pay to resolve anti-money laundering violations.” It also includes a $350 million payment to the Office of the Comptroller of Currency. The bank is also paying $218 million to settle a private class action lawsuit over Madoff, and $325 million to settle a case with the Madoff bankruptcy trustee.
The remarkable part of this agreement, Sheelah Kolhatkar says, is that it’s a deferred prosecution agreement, which is reserved for “cases in which the facts underlying the case are severe but a criminal indictment might destroy the company.”
The settlement documents, Felix writes, show that JPMorgan, Madoff’s primary banker for more than 20 years, was guilty of “sheer unmitigated — and, yes, probably criminal — incompetence.” A Madoff account which JPMorgan’s banker thought was only being used for rent and expenses saw $752 million in inflows in one day, yet a JPMorgan investigation into the account went nowhere. Tom Braithwaite writes that in 1998 and 2007 JPMorgan’s asset management division decided not to invest in Madoff funds because their returns were “possibly too good to be true”.
JPMorgan never passed those red flags on to authorities, Michael Hiltzik writes. Banks, he argues, are the first line of defense in preventing fraud, and JPMorgan’s lawyers appear to have blocked warnings to regulators.
Matt Levine suggests the failure of the bank’s various divisions to share these red flags internally could be a function of its complexity. There’s no reason JPMorgan’s London investment bank, he writes, should be reporting its misgivings to US regulators. He adds: