Column: Time to hold JPMorgan to account, says Delamaide
It's the latest development in a series of unfolding legal woes for the bankin giant, according to a report published Thursday on the website of The New York Times and citing unnamed sources.
The report comes less than a week after several media outlets, including the Times, the Wall Street Journal and the Associated Press, among others, said JPMorgan has struck a tentative $13 billion deal with the Justice Department to settle a wide range of issue regarding its sale of bad mortgages.
Report: JPMorgan, Justice near $13 billion settlement
According to the Times report Thursday, federal authorities and bank executives have discussed a deferred prosecution agreement in which JPMorgan would pay a financial fine and make acknowledgments concerning its Madoff-related activities. The Times account, citing information from people briefed on the inquiry, reported that JPMorgan could also be required to hire an independent monitor.
It's the latest sign that the nation's largest bank isn't out of legal jeopardy for its connection to the Madoff scandal.
This month, the court-appointed trustee trying to recover billions Madoff stole in the now-infamous fraud petitioned the Supreme Court to rule whether JPMorgan should be required to pay for taking little action on suspicious financial activity in the account the disgraced financier held at the bank.
Irving Picard's petition also argues that Swiss banking giant UBS, global bank HSBC and other financial institutions should share legal liability with JPMorgan for failing to stop the fraud.
"Madoff did not sustain this unprecedented fraud for more than two decades by him! self," David Rivkin, the counsel for trustee Irving Picard, wrote in the Oct. 9 petition. "Instead, he was aided by a network of financial institutions, feeder funds and individuals who funneled investments" into Madoff's firm, provided essential financial services "and (of course) skimmed off substantial amounts for their efforts."
The petition asks the high court to review a federal appeals court decision in June that upheld lower court rulings, barring the trustee from pursuing financial recovery from the financial institutions. The high court set a Dec. 9 deadline for the banks and feeder funds to file legal responses.
The banks and feeder funds cited in the petition have until Dec. 9 to file legal responses. In earlier court filings at the appeals level, they have repeatedly argued that they could not have detected or stopped Madoff's scheme.
The Supreme Court petition, formally known as a writ of certiorari, is viewed as a legal long shot. The Supreme Court agrees to accept only a fraction of the many cases submitted for review each year. But Picard's petition argues that several federal appeals courts around the nation have issued differing rulings on similar matters. The Supreme Court at times agrees to review such cases in order to resolve legal discrepancies.
JPMorgan "was foremost among (financial institution) collaborators, standing at the very center of Madoff's fraud for over 20 years," Picard's petition argues.
Billions of dollars flowed through Madoff's retail checking account at the New York-based bank "in suspicious and repetitive round-trip transactions." Even though at the time Madoff was allegedly making investments on behalf of thousands of mom-and-pop clients, celebrities, charities and financial institutions, the account funds weren't "segregated in any fashion," the petition argues.
The bank's chief risk officer, John Hogan, warned colleagues about 18 months before the fraud collapsed in December 2008 that "there is a well-known cloud over the! head of ! Madoff and that his returns are speculated to be part of a Ponzi scheme," the petition says. At the time, JPMorgan responded by assigning a junior employee "to see what a Google search could turn up about Madoff," the petition also says.
Trial: Ex-Madoff employees argue he and aide ran scam alone
Despite its suspicions, the bank ultimately invested with several feeder funds that funneled money to Madoff. But unlike thousands of other investors who lost everything they gave to Madoff, the petition says, "JPMorgan chase redeemed more than $276 million before the scheme crumbled. At that time, the bank sent a suspicious activity report about Madoff to the United Kingdom's Serious Organized Crime Agency."
The "revelations came too late to do anyone, save JPM, any good," the petition argues.
Even if JP Morgan strikes a deal with prosecutors on Madoff, individual employees "who did business with" Madoff and JPMorgan Chase's national banking subsidiary may still face criminal charges for ignoring and failing to report suspicious activities in Madoff's account, the Times report Thursday said. An announcement by prosecutors could be made by the end of the year, it said.
A spokesman for the U.S. District Attorney's office told USA TODAY that the office had no comment on the Times report. USA TODAY has reached out to a spokesman at JP Morgan Chase for comment.
Shares of JPMorgan fell 0.8% in afternoon trading Thursday.
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