JPMorgan Chase Faces Criminal Charges On Madoff Scam

NY Attorney General Files Lawsuit Against JP Morgan Chase Over Bear Stearns Fraud


Did JPMorgan Chase create Bernie Madoff and his ponzi scheme? No, they didn’t.

But if Preet Bharara, U.S. attorney here in New York City, gets his way — and he just might — the bank will be forced to admit criminality in not reporting its suspicions about Madoff well before the fraudster was officially discovered and brought down. And yes, failing to report suspected criminality of this sort is a crime.

Coming hot on the heels of JPMorgan’s latest $13 billion apology payment for the shady acts of its subsidiaries leading up to the mortgage crisis, the Madoff-related case is relatively simple in concept.

According to the government, JPMorgan Chase had ample reason to believe that their client, the aforementioned Mr. Madoff, was running a scam. And they told no one. Uh-oh:


It is highly unusual for such a major bank to be pressured by prosecutors to admit criminal guilt. That pressure reflects the seriousness of what prosecutors consider senior JPMorgan officials to have done: Sources close to the investigation say investigators learned from the bank’s own internal, confidential records that even though senior JPMorgan executives suspected Madoff was running a Ponzi scheme, they never informed federal regulators of their suspicions, as is required by federal law.

Such a warning might have tipped off regulators — and more importantly, investors — years earlier. Said one federal law enforcement official: “If they had stricter controls in place, if they had stricter money-laundering standards, if they simply informed regulators of their suspicions … perhaps someone in government would have given Madoff a look, and shut him down earlier.” Billions of investors’ dollars might very well have been saved.

Why didn’t Chase report Madoff when they could have? Well, it turns out that much of Madoff’s ill-gotten money was parked in Chase accounts. And that is a very large amount of money, it goes without saying.

Criminal charges are extraordinarily rare in the case of big banks, because they can do real damage to the bank’s business; and until now, the fear of a “too big to fail” bank going under because of a criminal action has dissuaded the Justice Department from using their biggest artillery in myriad bank investigations.

But now, it appears, the gloves may be coming off:


The Wall Street Journal reported on its website Thursday night that the comptroller had told the Justice Department that criminal charges against JPMorgan Chase could trigger a review of the bank’s charter. The Journal reported that during a Sept. 6 meeting with the Justice Department, the OCC said it would be required to conduct a hearing on possibly revoking a bank’s charter in the event of such a criminal conviction.

Our prediction: it won’t happen. Another few billion will change hands, and you’ll read about that soon enough.

But Justice is playing hardball now, and it’s well past due.


About rhb

rhb Rob is a NYC-based Internet entrepreneur. He's also a businessman and job creator (wait: doesn't demand create jobs?) who understands the sense, and the eventual predominance, of the progressive agenda.

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