Too big to regulate
JPMorgan has agreed to pay $2.6 billion to the Department of Justice and various victims of Bernie Madoffâ€™s $18 billion ponzi scheme, Reuters writes. That amount includes a $1.7 billion fine for violating money laundering rules and is â€śthe largest forfeiture a bank has ever had to pay to resolve anti-money laundering violations.â€ť 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 itâ€™s a deferred prosecution agreement, which is reserved for â€ścases in which the facts underlying the case are severe but a criminal indictment might destroy the company.â€ť
The settlement documents, Felix writes, show that JPMorgan, Madoffâ€™s primary banker for more than 20 years, was guilty of â€śsheer unmitigated â€” and, yes, probably criminal â€” incompetence.â€ť A Madoff account which JPMorganâ€™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 JPMorganâ€™s asset management division decided not to invest in Madoff funds because their returns were â€śpossibly too good to be trueâ€ť.
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 JPMorganâ€™s lawyers appear to have blocked warnings to regulators.
Matt Levine suggests the failure of the bankâ€™s various divisions to share these red flags internally could be a function of its complexity. Thereâ€™s no reason JPMorganâ€™s London investment bank, he writes, should be reporting its misgivings to US regulators. He adds:
In that sense, JPMorgan’s $1.7 billion forfeiture here looks a bit like a tax on bigness and integration: You can grow huge, offer a loosely integrated set of every conceivable financial product, and bask in the cross-selling opportunities, but every now and then it’ll cost you a couple of billion dollars.
Still, JPMorgan, and Jamie Dimon, are doing just fine, despite some $20 billion in penalties over the last year. A CNBC headline put it this way: â€śMore trouble for JPMorgan, more love from analysts.â€ť Felix writes that â€śwhile prosecutors are winning countless battles against the bank, itâ€™s abundantly clear that the bank is going to win the war.â€ť — Ben Walsh and Ryan McCarthy
On to todayâ€™s links: