JPMorgan to pay $1.7 billion to settle Madoff fraud claims

Updated 2:05 p.m. ET

JPMorgan Chase (JPM) has agreed to pay $1.7 billion to victims of Bernard Madoff’s Ponzi scheme, the largest penalty ever levied for violations of the Bank Secrecy Act.

Under the settlement, announced Tuesday, the banking giant will pay an additional $350 million civil penalty to the U.S. Comptroller of the Currency. Separately, JPMorgan has agreed to pay $543 million to trustee Irving Picard, who has been tasked with recovering money for Madoff’s victims.

Even though an astounding $150 billion went in an out of Madoff's accounts, JPMorgan never filed a suspicious activity report about him as required by law, according to federal investigators. The company did withdraw about $275 million from Madoff feeder funds before the fraud was disclosed because some people at JPMorgan suspected that his consistent double-digit returns were too good to be true.

"JPMorgan had plenty of reasons to be uniquely suspicious about him," said U.S. Attorney Preet Bharara in a press conference to discuss the agreement with JPMorgan. "Warning signs abounded."

 
 No JPMorgan employees are being charged or will pay a financial penalty under the deal, announced Tuesday.

Federal prosecutors and regulators said JPMorgan for years ignored red flags regarding Madoff, whose investment firm banked with the company for more than two decades. The settlement with JPMorgan calls for a deferred prosecution agreement under which it will admit to oversight lapses and agree to cooperate with government investigators for two years.

"Prior to Madoff's arrest on Dec. 11, 2008, JPMorgan Chase Bank, the defendant, lacked effective policies, procedures or controls designed to reasonably ensure that information... obtained in the the course of [JPMorgan's] other lines of business was communicated to anti-money laundering compliance personnel based in the U.S.," the U.S. Justice Department said in the agreement. 

 Madoff is serving a 150-year sentence in federal prison in North Carolina.  Five former employees of  his firm are also on trial for their role in what is the largest financial fraud in history.

In an email to Bloomberg News, JPMorgan spokesman Joseph Evangelisti acknowledged that the company “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.” But he said that no JPMorgan employees “knowingly” assisted Madoff in his fraud.

This is the latest check that JPMorgan has written to cover penalties related to its past actions.  In November,  the bank agreed to pay $13 billion in penalties to settle complaints regarding the sale of mortgage-backed securities in the run-up to the financial crisis. Two months earlier, the bank agreed to pay $920 million in connection with a $6.2 billion trading loss the company incurred in the "London Whale" case. The tab for those losses grew by $100 million in a separate settlement with the Commodity Futures and Trading Commission.

Being able to put its legal woes behind it may be worth the steep price JPMorgan is paying. The company was particularly eager to get the Madoff matter settled before it reports quarterly earnings later this month.

The string of legal problems has also blemished the reputation of JPMorgan CEO Jamie Dimon. It's also dented his pay -- his 2012 compensation fell 19 percent, to $18.7 million, and he did not receive a customary bonus.

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