JPMorgan Chase & Co. (JPM), the target of multiple U.S. Justice Department investigations, tentatively agreed to pay about $2 billion to resolve probes into whether it ignored warning signs about Bernard Madoff’s crimes, according to a person briefed on the matter.
The bank also assented to a deferred-prosecution agreement, said the person, who asked not to be identified because the negotiations are private. In such deals, the government agrees not to prosecute for a specified period and charges are dismissed if the entity improves its programs and complies with the law. The talks are in their final stages and the accord could be announced before year-end, the person said.
Chief Executive Officer Jamie Dimon, 57, is seeking to resolve government probes that have beset JPMorgan, the biggest U.S. bank, while overhauling internal controls to improve relations with regulators. Wall Street firms have spent years fighting off claims brought on behalf of Madoff’s victims, including accusations that the companies ignored the con man’s fraud to continue reaping fees.
The Office of Comptroller of the Currency, the bank’s primary regulator, and Manhattan U.S. Attorney Preet Bharara have been investigating how New York-based JPMorgan handled funds controlled by Madoff, whose multibillion-dollar fraud was the biggest Ponzi scheme in the nation’s history. James Margolin, a Bharara spokesman, and the FBI’s Peter Donald declined to comment.
The OCC, which sanctioned the lender in January for violating the Bank Secrecy Act, plans to punish the company for BSA violations related to Madoff, according to another person briefed on the probe. The OCC also is likely to fine the bank for additional anti-money laundering violations, the person said. Bryan Hubbard, an OCC spokesman, declined to comment.
The 1970 Bank Secrecy Act requires financial institutions to assist government agencies in detecting and preventing money laundering, such as reporting cash transactions exceeding $10,000.
Bloomberg News reported in October that a deferred-prosecution agreement was among options the U.S. had discussed with the bank. The New York Times reported on the tentative $2 billion accord late yesterday. About half of the penalties will go toward resolving the Justice Department’s criminal case while the rest will be paid to federal bank regulators, the newspaper said, citing people briefed on the case.
JPMorgan listed at least eight Justice Department probes in a quarterly filing last month, including the Madoff inquiry, and investigations into hirings in Asia and the bank’s energy-trading practices. Weeks later, the firm agreed to a record $13 billion settlement to end government investigations of its mortgage-bond sales.
If JPMorgan enters a deferred-prosecution agreement in the Madoff case, it would be the second time that Attorney General Eric Holder has allowed Dimon’s bank to avoid prosecution for behavior the government has deemed criminal.
The first was in 2011, when the department granted JPMorgan a non-prosecution agreement for its dealings in the municipal bond markets. The bank’s employees “entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment and related contracts” from 2001 through 2006, the Justice Department said at the time.
In that case, the bank agreed to pay $228 million to federal and state agencies and to cooperate in the ongoing probe. The investigation resulted in criminal charges against 18 individuals at firms including JPMorgan. UBS AG (UBSN) and Wells Fargo & Co.’s Wachovia also agreed to pay penalties and enter into non-prosecution agreements over the charges of rigging bids in the municipal bond market.
Other banks that have entered into non- or deferred-prosecution agreements include London-based HSBC Holdings Plc. (HSBA) Wachovia’s cases focused on conduct before the lender’s 2008 acquisition by Wells Fargo.
“Because a deferred-prosecution agreement or a plea agreement involves oversight by a judge, they are better tools to fix compliance issues than a non-prosecution agreement that is never filed in a court,” said Brandon Garrett, a professor at the University of Virginia School of Law who specializes in corporte crime.
The Justice Department is increasingly calling for corporate monitors in non- and deferred-prosecution agreements to review companies’ compliance with the terms of the agreements and to ensure corporate reform, according to a 2008 department memo on the topic. The corporate monitors are usually employed by the firms and approved by the government.