NEW YORK (AP) — JPMorgan Chase & Co., already beset by costly legal woes, will pay more than $2.5 billion for ignoring obvious warning signs of Bernard Madoff’s massive Ponzi scheme, authorities said Tuesday.
The nation’s largest bank will forfeit a record $1.7 billion to settle criminal charges, plus pay an additional $543 million to settle civil claims by victims. It 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.
The bank failed to carry out its legal obligations while Madoff “built his massive house of cards,” George Venizelos, head of the FBI’s New York office, said at a news conference.
“It took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for JPMorgan to alert authorities to what the world already knew,” he said.
Madoff banked at JPMorgan through what court papers referred to as the “703 account.” In 2008, the bank’s London desk circulated a memo describing JPMorgan’s inability to validate his trading activity or custody of assets and his “odd choice” of a one-man accounting firm, the government said.
In late October 2008, it filed a suspicious activity report with British officials. In the weeks that followed, JPMorgan withdrew about $300 million of its own money from Madoff feeder funds. The fraud was revealed when Madoff was arrested in December 2008.
“Despite all these alarm bells, JPMorgan never closed or even seriously questioned Madoff’s Ponzi-enabling 703 account,” said U.S. Attorney Preet Bharara.
“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.”
Madoff, 75, pleaded guilty and is serving a 150-year prison term.
When his scam unraveled, account statements for thousands of his clients showed $60 billion in assets. In reality, the roughly $17.5 billion in principal they gave him was almost gone.
A court-appointed trustee has recovered more than $9.78 billion. The $1.7 billion criminal forfeiture and will go to a second victims’ pool.
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 the U.S. attorney in Sacramento, Calif.
The more than $2 billion that JPMorgan is paying is about 10 percent of the bank’s $21.3 billion net income reported for 2012. It already has set aside $23 billion this year to cover settlement and litigation costs — including the $13 billion it agreed to pay in November in a settlement with the Justice Department over its sales of risky mortgage securities before the financial crisis struck.