South Florida Lawyer Blog
The Feds are alleging that as early as 1998, there were red flags with the JPMorgan “703 account”, an account that Bernie Madoff banked through. And, in 2008, the bank’s London desk circulated a memo describing JPMorgan’s inability to validate his trading activity or custody of assets and concerns over his “odd choice” of a one-man accounting firm, the government said.
Bank records show that funds were being transferred back and forth from the 703 account for no reason. Madoff was recording double-digit returns on investments that were “too good to be true.” The bank itself was worried enough about possible fraud to withdraw about $300 million of its own money from Madoff feeder funds, three months before the Madoff Ponzi scheme was exposed by authorities.
When Madoff finally revealed to the FBI that his investment advisory business was a Ponzi scheme in December 2008, fictitious account statements for thousands of clients showed $60 billion in assets. Of the roughly $17.5 billion in principal that was real, most of it was gone.
For keeping quiet about its suspicions, on Tuesday, JPMorgan agreed to forfeit $1.7 billion to settle criminal charges alleging it turned a blind eye to the Madoff bank fraud, plus it will pay an additional $543 million to settle civil claims by victims. The bank will 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.
According to U.S. Attorney Preet Bharara:
“Despite all these alarm bells, JPMorgan never closed or even seriously questioned Madoff’s Ponzi-enabling 703 account …On the other hand, when it came to its own money, JPMorgan knew how to connect the dots and take action to protect itself against risk.”
In a statement, JPMorgan said it recognized it “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.”
The settlement includes a so-called two year “deferred prosecution agreement” that requires the bank to acknowledge failures in its protections against money laundering and to pay the $1.7 billion into a fund established for victims of Madoff’s fraud, in exchange for avoiding criminal charges. (No individual executives were accused of wrongdoing.) It also resolves 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.
It is believed by prosecutors that the $1.7 billion forfeiture is the largest in history by a U.S. bank and the largest Department of Justice penalty for a Bank Secrecy Act violation.