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JPMorgan to pay $1.7 billion to Madoff's victims

By Associated Press

LAST UPDATED: 05:58 a.m. HST, Jan 07, 2014

NEW YORK >> JPMorgan Chase & Co., already beset by other costly legal woes, has agreed to pay $1.7 billion to settle criminal charges that the bank ignored obvious warning signs of Bernard Madoff's massive Ponzi scheme, federal authorities said today.

The $1.7 billion represents the largest ever forfeiture by a U.S. bank and the largest Department of Justice penalty for a Bank Secrecy Act violation, the government said. 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.

The deal was announced by the office of U.S. Attorney Preet Bharara, who scheduled an afternoon news conference to detail the agreement to resolve criminal charges: two felony violations of the Bank Secrecy Act in connection with the bank's relationship with Bernard L. Madoff Investment Securities, the private investment arm of Madoff's former business.

Under the agreement, the criminal charges will be deferred for two years as JPMorgan admits to its conduct, pays the $1.7 billion to victims of Madoff's fraud and reforms its anti-money laundering policies, prosecutors said in a release.

A statement of facts included in the agreement describes internal communications at JPMorgan expressing concerns about how Madoff was generating his purported returns. It says executives were disturbed by the fact that Madoff wouldn't let the bank examine his books.

"How much do we have in Madoff at the moment?" a bank analyst wrote in a 2008 email. "To be honest, the more I think about it, the more concerned I am."

JPMorgan didn't immediately comment on the settlement. It shares fell 55 cents to $58.45 in morning trading today.

The deal was similar to one reached in late 2012 with the British bank HSBC, which agreed to pay $1.9 billion to settle claims it laundered money for Iran, Libya and Mexico's murderous drug cartels. Some observers called the HSBC settlement - which included a $1.25 billion forfeiture and $655 million in civil penalties - an example of the government stopping short of bringing criminal charges against a big bank or its executives because such prosecutions could be devastating enough to cause the institution to fail.

JPMorgan was Madoff's primary bank in the later years of a multi-decade fraud that ended in 2008 when he revealed to the FBI that his investment advisory business was a Ponzi scheme.

Account statements for thousands of clients showing $60 billion in assets were fiction. Of the roughly $17.5 billion in principal that was real, most of it was gone.

Since then, a court-appointed trustee has recovered more than $9.5 billion to redistribute to burned clients. The trustee sued JPMorgan for $6.4 billion in 2010, accusing the bank of being "willfully blind" and "thoroughly complicit" in the fraud, but an appeals court found in 2012 that he had no legal standing to make the claim.

The JPMorgan settlement is the latest in a series of major deals it has made to resolve its legal troubles. In November, the bank agreed to pay $13 billion over risky mortgage securities it sold before the financial crisis - the largest settlement to date between the Justice Department and a corporation.

JPMorgan still has several lawsuits pending against it related to the high-risk mortgage bonds that soured after the housing market collapsed in 2007. There's also an ongoing criminal investigation led by the office of U.S. Attorney Benjamin Wagner in Sacramento, Calif.

The bank may be negotiating or litigating over the issue for years and has set aside $23 billion to cover those costs. JPMorgan told regulators in a filing in October that it may need as much as $5.7 billion more.

Madoff, 75, pleaded guilty and is serving a 150-year prison term.

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HiNaihe808 wrote:
Account statements for thousands of clients showing $60 billion in assets were fiction. Of the roughly $17.5 billion in principal that was real, most of it was gone.
on January 7,2014 | 05:10AM
Sandybeach wrote:
Biggest bank robbery in history. One billion, seven hundred million. The victims....the banks stock holders. The prime suspect Jamie Diamond. Seems like justice denied when petty criminal fill our prisons and serious violators are given deferred prosecution. How is the public to take homelessness and poverty seriously when our most respect financial institutions are getting away with fines and financial penalties. Greed at the top makes citizens insensitive to the plight of the most unfortunate in our communities.
on January 7,2014 | 06:18AM
Ronin006 wrote:
J.P. Morgan gets fined $1.7 billion for allegedly ignoring warning signs of Madoff’s Ponzi scheme. Obama and his administration perpetrate fraud to get Obamacare passed and he gets reelected. Something is terribly wrong with this.
on January 7,2014 | 08:28AM
HD36 wrote:
The hope here is that coming down hard on the big banks will make people forget that we bailed out these mega casinos that pose as investment banks but are in reality massive hedge funds that are fueled by monetary policy which has pegged the interest rate or cost of money, to historical lows for the last 3 decades, such that we do not have a free capital market in the bond market. What we have is a Greenspan/ Bernacke/ and soon Yellen, put, meanig a floor of federal taxpayer backstop, through debt monetization which deforms the economy to dizzying heights such that Mitt Willard Romney, under Bain Capital was able to make over $175 million in less than a day, from an LBO of an Italian phone company. Just the tip of the iceburg of course, but impossible under a sound money policy. Instead the Wall Street banks have stolen trillions in savings, via zero interest rates, and transferred it up to the .0001% who can play the LBO, M&A, and font run the Fed.
on January 7,2014 | 06:06PM
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