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article imageJP Morgan Chase to pay $2.6 billion to gov't and Madoff victims

By Brett Wilkins     Jan 8, 2014 in Business
Washington - JP Morgan Chase has agreed to pay $2.6 billion to the US government and victims of Bernie Madoff's Ponzi scheme to settle allegations that the bank did not notify authorities about suspected fraud at the jailed financier's fund.
The Washington Post reports government prosecutors allege JP Morgan Chase never alerted the Treasury Department about its suspicions of wrongdoing at Madoff's fund, even as the financial giant cut its exposure to it to minimize losses. The bank also allowed Madoff to move billions of dollars that investors poured into the $17.3 billion Ponzi scheme in and out of his Chase accounts right up to the day he was arrested in December 2008.
The Justice Department fined JP Morgan Chase $1.7 billion for violations of the Bank Secrecy Act (BSA), which requires financial firms to notify authorities of suspicious activity. It is the largest-ever penalty for a BSA violation and will be paid to Madoff's victims as restitution. An additional $350 million civil penalty has been assessed by the Office of the Comptroller of the Currency in a separate deal. Another $461 million will be paid to the Treasury Department's Financial Crimes Enforcement Network.
"JP Morgan as an institution failed, and failed miserably," Manhattan US Attorney Preet Bharara declared in a news conference announcing the settlement. "In part because of that failure, for decades Bernie Madoff was able to launder billions of dollars in Ponzi proceeds through a single set of accounts at JP Morgan."
According to a statement of facts, Madoff kept an account at JP Morgan Chase or banks it had purchased from 1986 until his 2008 arrest. Deposits and transfers associated with that account totaled more than $150 billion, almost all of it coming from investors in Madoff Securities. But the investment funds were not used to purchase securities, as Madoff had promised. At the time the Ponzi scheme came crashing down, Madoff Securities had more than 4,000 clients, with an estimated combined balance of $65 billion. Yet the company held only $300 million in assets. Madoff is currently serving a 150-year prison sentence after being convicted of what his judge called an "extraordinarily evil" fraud.
Despite the record fine levied on JP Morgan Chase, the $2.6 billion represents a relatively small percentage of the company's profits, which topped $20 billion last year. Some observers expressed their disappointment over what they say amounts to a slap on the wrist, or a disturbing trend in which financial criminals pay their way out of prosecution.
"This marks the latest example of a predilection toward settling through the use of deferred prosecution agreements, instead of issuing indictments," the watchdog group Public Citizen said in a statement criticizing the settlement. "It also underscores the continuing, and perhaps growing, problem of 'too big to jail.'"
Former Treasury Department official Jimmy Gurule, now a professor at Notre Dame University's law school, lamented the lack of accountability.
"It appears that no person, no bank official, no bank employee, not a single one, is going to be personally accountable for the scandal," Gurule told Reuters. "[JP Morgan Chase] was clearly willfully blind, I think, to detecting and reporting suspicious transactions to the Treasury Department."
But JP Morgan Chase denies complicity in the scheme.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," JP Morgan Chase spokesman Joe Evangelisti told Reuters. "[But] we do not believe that any JP Morgan Chase employee knowingly assisted Madoff's Ponzi scheme."
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