Full-Text Source Documents In J.P. Morgan Chase Madoff Settlement

January 7, 2014

Pursuant to a January 6, 2014 Deferred Prosecution Agreement ("DPA"), JPMorgan Chase Bank, N.A. ("JPM") agreed to pay a $1.7 Billion Stipulated Forfeiture Amount and further consented to the filing of a two-count criminal Information, which charged the firm with failure to:
  1. maintain an effective anti-money laundering program; and 
  2. to file a suspicious activity report.
In entering into the DPA, JPM admitted and stipulated to the Statement of Facts prepared by the Office of the United States Attorney for the Southern District of New York ("SDNY"). Additionally, the $1.7 Billion is deemed a penalty ineligible for a tax deduction or tax credit. As such, JPM's potential criminal liability in connection with its former relationship with Bernard L. Madoff Investment Securities LLC ("Madoff LLC") is essentially resolved under the terms of the DPA.The DPA is contingent upon satisfaction of various terms and conditions for a two-year period.  No individual, human being employed by JPM has been charged. 

In the SDNY press release announcing the settlement,United States Attorney Preet Bharara is quoted as saying: 

Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people's money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today's resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff's epic fraud are $1.7 billion closer to being made whole.

At his press conference announcing the settlement, Bharara said that "JP Morgan as an institution failed and failed miserably . . . for years, the bank repeatedly ignored warning signs, allowed suspicious round-trip transactions through Madoff's account. . ."

Bill Singer's Comment

Yet another chapter in the Madoff Ponzi seems to have come to an end - perhaps more of a whimper than any meaningful bang.  As is too often the case with the policing of Wall Street, it comes down to checkbook diplomacy. You write a check. A big one. You go to the woodshed. You watch the clock. And when the time is right, you come back, smile, act contrite, and it's back to business . . . as usual, if not worse.

I'm sorry but my heart's just not in this one. I can't offer you a full blown history and analysis of this sordid chapter in the history of Wall Street. It's been done to death and by now any effort to re-tell that shameful fraud would be little more than a disgusting regurgitation. 

But . . . there is one last point that I will make. 

While the various regulators and prosecutors are taking their victory laps, slapping each other on the backs, and high-fiving for having gotten yet another plea, they might want to step back (just a bit) and take a breath (just for a second) and remember the carnage caused by the Madoff Ponzi and the "ignored warning signs" that apparently was the default mode of in-house compliance at Wall Street's too-big-to-fail. 

One other thing, while taking that quiet moment of retrospection, perhaps Bharara and his colleagues would consider a bit more expansive admonition: one that also acknowledges that Wall Street's regulators ignored warning signs and allowed suspicious transactions to go on at Madoff LLC for too many years.  There's more than enough blame to go around here!

By way of a brief reminder, perhaps the US Attorney and his colleagues should re-read the

Case No. OIG-509
Investigation of Failure of the SEC To Uncover Bernard Madoff's Ponzi Scheme

What the OIG Report discloses are numerous SEC failures to timely investigate the breathtaking Madoff case. By way of a quick refresher course, let me quote from the OIG's Report:

The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six substantive complaints that raised significant red flags concerning Madoff's hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoff's investment operations that appeared in reputable publications in 2001 and questioned Madoff's unusually consistent returns.

In the Financial Industry Regulatory Authority's ("FINRA's") September 2009


The Madoff case also highlights the need to improve the exchange of information within FINRA and between the SEC and FINRA, including the sharing of information about potentially fraudulent conduct at member firms. Finally, the Madoff case demonstrates the need for FINRA to clarify the extent of its jurisdiction, and to more aggressively exercise that jurisdiction.