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JPMorgan in Legal Trouble Over Bernie Madoff

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Bernie Madoff was so five years ago, but for JPMorgan Chase (NYSE: JPM), the case is still very much right now.

Federal authorities might be planning to take action against the bank, claiming that it chose to look the other way when suspicious activity took place in Madoff’s accounts.

Madoff has said that the banks he did business with, including JPMorgan serving as his primary bank, “had to know” that something illegal was going on. Federal prosecutors agreed and opened a criminal probe into the bank’s dealings with Madoff and its servicing of his accounts.

The investigation uncovered e-mails including one from a JPMorgan employee that acknowledged Madoff’s returns were “a little too good to be true.”

But don’t expect a grand spectacle of a court trial like the Madoff case. Prosecutors are reportedly considering a deferred-prosecution agreement that would impose a fine on the bank, require it to hire an independent monitor, and other concessions. Regulators are concerned that the case could destabilize the bank causing systemic risk but have said that they won’t stand in the way of any legal action.

The Justice Department is likely to make an announcement regarding the case by the end of the year but the timing is unfortunate for JPMorgan. Terms of any monetary settlement were not disclosed but this comes on the heels of a tentative $13 billion settlement tentatively reached between the Justice Department and the bank over questionable mortgage practices prior to the financial crisis, ironically, taking place at the same time as the Madoff scandal.

Related: JPMorgan Will Likely Pay the Government $13 Billion to Settle Civil Claims

If a deferred prosecution agreement is reached, JPMorgan will become the largest bank to enter into such an agreement. Only Wachovia and the banking arm of American Express (NYSE: AXP) have entered into these types of agreements.

JPMorgan CEO Jamie Dimon is eager to put the past behind--the reason the bank prefers to agree on settlements instead of taking part in public legal battles with the government. Each of these allegations degrades the bank’s reputation as one of the best run banks in the world.

Sources familiar with the matter said that the Justice Department has not decided on any action and the investigation is still ongoing.

Disclosure: At the time of this writing, Tim Parker had no position in the companies mentioned.

Posted-In: American Express Bernie Madoff JPMorgan Chase Justice DepartmentNews Rumors Legal Best of Benzinga

 

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