JPMorgan Chase plans to reach as soon as this week roughly $2 billion in criminal and civil settlements with federal authorities who suspect that it ignored signs of Bernard L. Madoff’s Ponzi scheme. http://dealbook.nytimes.com/2014/01/05/jpmorgan-chase-nears-a-2-billion-deal-in-a-case-tied-to-madoff/?hp&_r=0 All told, after reaching the Madoff settlements with federal prosecutors in Manhattan and regulators in Washington, the bank will have paid some $20 billion to resolve government investigations over the last 12 months.
JPMorgan’s Madoff settlements, the people briefed on the case said, would also involve a so-called deferred prosecution agreement, a criminal action that would essentially suspend an indictment as long as JPMorgan acknowledged the facts of the government’s case and changed its behavior. The agreement, nearly unheard-of for a giant American bank and typically employed only when misconduct is extreme, underscores the magnitude of the case against JPMorgan.
The bank’s settlement talks with the authorities, reported by The New York Times last month, thrust JPMorgan into the spotlight on the fifth anniversary of Mr. Madoff’s arrest.
Under the terms of the deals, the bank will pay more than $1 billion to the prosecutors in Manhattan and the remainder to the Office of the Comptroller of the Currency and a unit of the Treasury Department investigating broader breakdowns in the bank’s safeguards against money-laundering. The government plans to earmark some of the payout for Mr. Madoff’s victims, according to the people briefed on the case, who spoke on condition they not be named because they were not authorized to discuss private settlement talks.
JPMorgan at one point discussed a so-called tolling agreement with prosecutors that would essentially extend the five-year legal deadline for bringing a case, one person said. The deadline might have otherwise expired late last year.
JPMorgan declined to comment for this article, but has publicly maintained that “all personnel acted in good faith” in the Madoff matter.
A spokesman for the United States attorney’s office in Manhattan, and the F.B.I., which led the investigation into JPMorgan, declined to comment. A spokesman for the comptroller’s office also declined to comment.
Despite serving as painful reminders of JPMorgan’s ties to Mr. Madoff — it was his primary bank for more than two decades — the settlements would enable the bank to put another investigation behind it. The expected deal comes on the heels of JPMorgan’s payment of a record $13 billion to the Justice Department and other government authorities over its sale of troubled mortgage securities in the period leading up to the financial crisis.
JPMorgan is keen to regain its credibility and is resigned to pulling out the checkbook to make that happen.
Jamie Dimon, the bank’s chief executive, has played a role in some of the government negotiations and has directed billions of dollars to new compliance measures. In his annual letter to shareholders in 2013, Mr. Dimon also apologized for letting “our regulators down.”
But even as JPMorgan whittles down its regulatory woes, new threats have emerged. Authorities have opened a bribery investigation into JPMorgan’s hiring practices in China, prompting the bank to turn over internal emails and documents about its “Sons and Daughters” hiring program, which employed the children of the nation’s ruling elite.
The Madoff case, perhaps the largest threat to JPMorgan as it hung over the bank these last five years, produced its own damaging emails. The emails, some of which came to light in a private lawsuit against the bank, suggest that even as questions swirled about the legitimacy of Mr. Madoff’s operation, JPMorgan continued to do business with him.
In one internal email sent before Mr. Madoff’s arrest in December 2008, a senior risk manager at JPMorgan reported that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
No individual executives have been accused of wrongdoing. However, federal prosecutors are expected to cite JPMorgan for a criminal violation of the Bank Secrecy Act, a federal law that requires banks to maintain internal checks against money-laundering and to report suspicious transactions to the authorities. Alongside the bank’s ties to Mr. Madoff, the regulators at the comptroller’s office have examined lax controls in JPMorgan’s private banking unit in Asia and within the so-called correspondent banking business, in which it relies on foreign institutions to process transactions overseas.
At one point in the settlement talks, the people briefed on the case said, prosecutors explored a harsher punishment for JPMorgan: demanding that the bank plead guilty to a criminal violation of the Bank Secrecy Act. In a meeting with prosecutors to discuss the potential fallout from such a plea, which could have jeopardized JPMorgan’s charter as a national bank, the comptroller’s office promised not to interfere.
But ultimately, the prosecutors opted for the fine and the deferred prosecution agreement. While big foreign banks like UBS have reached deferred prosecution agreements, according to a University of Virginia Law School database, JPMorgan will be the first American bank on Wall Street to strike such a deal.
The decision could reignite concerns that Wall Street banks are too big to indict, though prosecutors very likely concluded that a deferred prosecution agreement was more appropriate for a case that began as a civil investigation, without a criminal component. Preet Bharara, the United States attorney in Manhattan whose office is handling the JPMorgan case, has been an outspoken critic of prosecutors’ backing down for fear of putting a company out of business.
“I don’t think anyone is too big to indict — no one is too big to jail,” he said in a recent speech.