JP Morgan settles Medoff tab

After years of denying culpability in the Ponzi scheme, JP Morgan Bank agreed to $2.6 billion in payments to resolve charges it failed to police Mr. Madoff's activities and entered into a rare pact with prosecutors intended to head off a criminal case, The Wall Street Journal reported.


The admission netted US prosecutors a high-profile participant in the web of business connections that allowed Mr. Madoff to remain a prominent Wall Street figure and trusted money manager even as he stole an estimated $17 billion from thousands of investors.


The pact with prosecutors deals another blow to the country's largest bank, one that survived the financial crisis with relatively little damage but which has since run into a blizzard of trouble. The resulting probes have prompted the bank to make roughly $22 billion in payouts over the past year to end an array of lawsuits and investigations tied to issues ranging from misrepresentations on past mortgage-bond sales to the 2012 "London whale" trading debacle.


Victims of Mr. Madoff's crimes will receive $2.24 billion in compensation as a result of the pacts announced Tuesday. Before then, $11.8 billion had been recovered for victims and creditors of Mr. Madoff's fraudulent operations. Of that, $4.9 billion has been returned to investors to date.


US Attorney Preet Bharara, who conducted his investigation with the Federal Bureau of Investigation, said at a news conference that JP Morgan "failed miserably" as an institution and repeatedly ignored warnings about Mr. Madoff despite "plenty of reasons to be uniquely suspicious."


"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," a J.P. Morgan spokesman said. "We do not believe that any J.P. Morgan Chase employee knowingly assisted Madoff's Ponzi scheme."


JP Morgan Chief Executive and ChairmanJames Dimon, eager to solve the latest of several thorny legal problems for the bank, met face to face with Mr. Bharara about a month ago as the two sides negotiated a settlement, said a person familiar with the meeting. There were numerous flare-ups between bank lawyers and government officials as J.P. Morgan disagreed with prosecutors' conclusion that criminal charges were necessary, said another person familiar with the talks.


Prosecutors accused the bank in a federal criminal filing of lacking the controls that might have stopped Mr. Madoff from essentially laundering his ill-gotten gains through the bank and passing them off as legitimate profits for years. In the deferred-prosecution agreement announced Tuesday, J.P. Morgan acknowledged it didn't have the proper systems in place to catch Mr. Madoff and that various procedures designed to root out and report suspicious behavior were flawed.


The bank didn't admit to any criminal liability, but it did agree to a statement of facts that highlighted a number of red flags missed by the bank as employees in various divisions raised questions about Mr. Madoff between the late 1990s and 2008.
In the Tuesday news conference, Mr. Bharara said that, while individuals had played a role, penalizing the bank's "overall systemic failure" was the proper course.