The U.S. prosecution of JPMorgan Chase & Co. was deferred by a federal judge after the bank agreed to pay $2.6 billion to resolve criminal and civil allegations it failed to stop Bernard Madoff’s Ponzi scheme.
Stephen Cutler, JPMorgan’s general counsel, pleaded not guilty today on behalf of the bank to two violations of the Bank Secrecy Act in connection with Madoff at an arraignment before U.S. District Judge P. Kevin Castel. The judge deferred prosecution of the case until January 2016, when the case will be dismissed if the bank complies with the settlement.
“The required judicial intervention to protect the integrity of the process is not necessary,” Castel ruled. He set the next hearing for Jan. 15, 2016.
JPMorgan, the biggest bank in the U.S. by assets, avoided prosecution by entering into an accord with the office of Manhattan U.S. Attorney Preet Bharara that acknowledged oversight lapses related to a JPMorgan account Madoff used to fund his fraud.
The bank said it will pay $1.7 billion to settle the U.S. allegations and $350 million in a related case by the Office of the Comptroller of the Currency, plus $543 million to cover separate private claims.
Bharara said yesterday that the criminal charges will be dismissed after two years if JPMorgan complies with the agreement and implements reforms of its anti-money laundering compliance program.
While JPMorgan had been Madoff’s bank for decades and discovered questionable transactions as early as 1994, the New York-based bank didn’t file any suspicious activity reports required under federal banking rules, Bharara said. JPMorgan acknowledged in the accord that it ignored red flags for about 15 years that Madoff used his account to run a fraud, Bharara said.
The U.S. agreement includes the largest ever bank forfeiture and also the largest ever Department of Justice penalty, Bharara said. JPMorgan, led by Chief Executive Officer Jamie Dimon, agreed in 2013 to pay $15.7 billion to resolve other U.S. regulatory probes into practices including mortgage-bond sales and energy trading.
The accord brings its legal settlements from the past two years to more than $29 billion and further eroding its once-record earnings.
The civil case is U.S. v. JPMorgan 14-CV-0063, U.S. District Court, Southern District of New York (Manhattan).