Madoff ties cost JPMorgan $2.6 billion

JPMorgan is to pay $2.6 billion to settle civil and criminal allegations that the bank failed to halt Bernard Madoff’s Ponzi scheme.

JP Morgan Chase & Co (JPMorgan) has had to pay out $29 billion in settlements over the last 24 months, this is about three-quarters of the company’s $39 billion of estimated profit over the period.

According to JP Morgan, this latest settlement has reduced its net income for Q4 2013 by approximately $850 million.

According to Manhattan U.S. Attorney Preet Bharara, JPMorgan acknowledged that it ignored warning signs for a decade-and-a-half that Madoff had used his account in fraudulent activities. By acknowledging this the bank avoided prosecution.

The $2.6 billion is broken down as follows:

  • Government charges – $1.7 billion.
  • A case by the Office of the Comptroller of the Currency – $350 million.
  • Private claims – $543 million.

Preet Bharara said:

“Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also.”

“In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today’s resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff’s epic fraud are $1.7 billion closer to being made whole.”

FBI Assistant Director-in-Charge George Venizelos said:

“J.P. Morgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards. Today, J.P. Morgan finds itself criminally charged as a consequence. But it took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for J.P. Morgan to alert authorities to what the world already knew.”

“In order to avoid these types of disasters in the future – we all need to be invested in making our markets safer and more equitable. The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”

Regarding settlements reached during Jamie Dimon’s tenure, Mark Williams, a former Federal Reserve bank examiner who teaches risk management at Boston University is quoted by Bloomsberg as saying “This is a continuation of a systemic problem at the bank. It’s a cultural problem that stems from the top.”

Investor advocacy groups criticize JPMorgan deal

Several advocacy groups have criticized the deal in which neither JPMorgan nor any of its staff face prosecution.

Fox News quotes Ron Stein, president of the Network for Investor Action & Protection, who said:

“I’m deeply disappointed. The fact that no one is actually being prosecuted is an embarrassment to the Department of Justice.”

Dennis Kelleher, CEO of Better Markets, Inc., an independent nonprofit investor advocacy group, said “JPMorgan Chase paying $1.7 billion for its criminal conduct helping Bernard Madoff’s Ponzi scheme is good, but still inadequate to stop what can only be called a one-bank crime spree. First, once again, not a single individual working for JP Morgan Chase has been held accountable. Banks do not commit crimes, bankers do.”