U.S. Probe of JPMorgan’s Madoff Ties Seen Snagged on Agency Rift

The U.S. Justice Department is stalling a regulatory investigation of JPMorgan Chase & Co.’s business dealings with convicted Ponzi schemer Bernard Madoff, an inspector general told lawmakers.

Eric Thorson, the Treasury Department’s internal watchdog, wrote to lawmakers on June 20 to complain that the Justice Department’s civil division hasn’t acted to move the case forward despite his request for assistance “many weeks” ago, making it impossible to resolve “an important issue involving one of the country’s largest financial institutions.”

The Justice Department doesn’t comment publicly on internal deliberations. An official who spoke on condition of anonymity said the agency is continuing to review the complex legal issues involved and hasn’t shelved the matter.

The flap arises from an inquiry by the Office of the Comptroller of the Currency, a part of the Treasury, which has been reviewing JPMorgan’s ties to Madoff. The former investment adviser maintained accounts with the bank for two decades before confessing to running a fraud that caused investors to lose about $17 billion in principal.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment.

Thorson stepped into the fray when he was asked late last year by the OCC to make sure that JPMorgan wasn’t impeding their investigation by withholding some documents under attorney-client privilege. The inspector general worked out an agreement with the bank that would allow a federal judge to review the documents and decide whether the privilege was properly invoked.

‘Serious Problem’

Thorson’s office doesn’t have its own authority to make the necessary filing in federal court that would start the judge’s review. By law that must be done by the Justice Department.

In his letter to lawmakers, including the leaders of the Senate and House committees that oversee banking regulators and the Justice Department, Thorson wrote that his office has had a “serious problem” with Justice. He wrote that he hadn’t received a response from Justice to a May 31 letter he sent to Stuart Delery, acting head of the civil division.

In that letter, which he attached to the one sent to Capitol Hill, Thorson told Delery that the department’s failure to act has “the effect of terminating this phase of our investigation.”

Copies of both letters were provided to Bloomberg News.

While both JPMorgan and the inspector general have come to an agreement, Thorson wrote to Delery, “your office has resisted the advancement of this matter.”

Rich Delmar, counsel to the inspector general, declined to comment.

In Contact

The Justice official said its civil division attorneys have remained in contact with the inspector general’s office to discuss the legal issues, adding that it was unfortunate Thorson would go to lawmakers before the review is completed.

The OCC’s probe is one of several reviews that have looked into JPMorgan’s business ties to Madoff.

JPMorgan was sued in 2010 by the trustee liquidating Madoff’s firm, Irving H. Picard, who accused it of aiding Madoff’s fraud while serving as his primary banker. The lawsuit, eventually demanding $19 billion, has since been dismissed. Last week, a federal appeals court in New York upheld the dismissal.

The trustee also accused the bank of withdrawing $276 million in its own investments in Madoff-related feeder funds about three weeks before Madoff’s Dec. 11, 2008, arrest. JPMorgan described the withdrawals as part of “an across-the-board review of its exposure to hedge funds,” according to its court filings.

In responding to Picard’s suit, the bank issued a statement saying it “did not know about or in any way become a party to the fraud” and called it an “unfounded claim” that JPMorgan earned substantial fees from Madoff’s account. JPMorgan also objected in court when the trustee sought more freedom to use confidential Madoff documents provided by the bank.

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