NEW YORK – JPMorgan Chase & Co., already beset by costly legal woes, will pay more than $2.5 billion for ignoring obvious warning signs of Bernard Madoff’s massive Ponzi scheme, authorities said Tuesday.
The nation’s largest bank will forfeit a record $1.7 billion to settle criminal charges, plus pay an additional $543 million to settle civil claims by victims. It also will pay a $350 million civil penalty for what the Treasury Department called “critical and widespread deficiencies” in its programs to prevent money laundering and other suspicious activity.
The bank failed to carry out its legal obligations while Madoff “built his massive house of cards,” said George Venizelos, head of the FBI’s New York office.
“It took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for JPMorgan to alert authorities to what the world already knew,” he said.
Madoff banked at JPMorgan through what court papers referred to as the “703 account.” In 2008, the bank’s London desk circulated a memo describing JPMorgan’s inability to validate his trading activity or custody of assets and his “odd choice” of a one-man accounting firm, the government said.
In late October 2008, it filed a suspicious activity report with British officials. In the weeks that followed, JPMorgan withdrew about $300 million of its own money from Madoff feeder funds. The fraud was revealed when Madoff was arrested that December.
“Despite all these alarm bells, JPMorgan never closed or even seriously questioned Madoff’s Ponzi-enabling 703 account,” U.S. Attorney Preet Bharara said. “On the other hand, when it came to its own money, JPMorgan knew how to connect the dots.”
Prosecutors called the $1.7 billion the largest forfeiture by a U.S. bank and the largest Department of Justice penalty for a Bank Secrecy Act violation.
The settlement includes a so-called deferred prosecution agreement that requires the bank to acknowledge failures in its protections against money laundering but also allows it to avoid criminal charges. No individual executives were accused of wrongdoing.
A statement of facts included in the agreement describes internal communications at JPMorgan expressing concerns about how Madoff was generating his purported returns. As early as 1998, a JPMorgan fund manager wrote that the returns were “possibly too good to be true” and there were “too many red flags.”