Working through a long list of legal problems, JPMorgan Chase is starting the new year with another steep payout to the government.
The bank 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, according to people briefed on the case.
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 during 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 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 Madoff’s victims, according to the people briefed on the case, who spoke on condition of anonymity 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 U.S.attorney’s office in Manhattan, and the FBI, 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 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 about its sale of troubled mortgage securities in the period leading up to the financial crisis.
The payouts reflect a new conciliatory stance at JPMorgan. Within the bank, there is growing impatience among executives who worry that the scrutiny distracts from its record profits. And while it continues to haggle over the details of each settlement, people close to the bank say,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, 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 email 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 Madoff’s operation, JPMorgan continued to do business with him.
In one internal email sent before 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.
Still, 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.
Business, Pages 23 on 01/07/2014