Bernie Madoff is not done haunting JPMorgan Chase (NYSE:JPM), the bank he used while orchestrating the largest Ponzi scheme in history. On Thursday, The New York Times reported that federal authorities could be narrowing in on an approximately $2 billion settlement related to the bank’s alleged neglect to investigate suspicious activity related to Madoff while he was a customer, as well as other charges related to the bank’s money-laundering controls.
Formerly a non-executive chairman of the Nasdaq exchange, Madoff pleaded guilty to 11 accounts of felony financial fraud in 2009 and is currently serving a 150-year sentence. All told, the amount missing from client accounts, including fabricated gains, was nearly $65 billion, with actual losses to investors of about $18 billion.
Madoff has been behind bars for about four years now, and the magnitude of his fraud is still making waves. In April, Reuters reported that the Office of the Comptroller of the Currency was engaging JPMorgan over its involvement with Madoff over the years and was considering filing a cease-and-desist order. The OCC’s gripe with the bank is a result of the fact that it failed to perform due diligence on Madoff and detect or report suspicious activity.
The cease-and-desist order would require the bank to patch the holes in its anti-money laundering unit and tighten its risk controls.
Sources originally told Reuters that authorities weren’t seeking to impose any financial penalties on JPMorgan, but the situation has clearly evolved. The relationship between the bank and regulators has grown tense in the wake of the London Whale incident, and with the Department of Justice landing a record penalty of $13 billion, other authorities may feel empowered to pursue a tougher course of action.
The big issue on the table is whether JPMorgan will face criminal charges as a result of the regulatory action. U.S District Attorney for Manhattan Preet Bharara previously suggested that criminal charges against JPMorgan were possible, but The New York Times report says that it is less likely now with the deferred-prosecution agreement. Criminal cases carry a higher burden of proof than civil cases, and it’s unclear regulators have the evidence they need.
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