FinCEN Hits JPMorgan With $461M Fine In Connection With Madoff Scheme

Posted by Patrick Barnard on January 10, 2014 No Comments
Categories : Residential Mortgage

After agreeing earlier this week to pay nearly $2.6 billion to settle several civil suits alleging that it failed to report evidence of disgraced financier Bernard Madoff's Ponzi scheme to authorities, JPMorgan Chase was fined another $461 million by the Financial Crimes Enforcement Network (FinCEN) for failing to file suspicious activity reports after noticing numerous ‘red flags’ in connection with Madoff's operation.

Federal prosecutors say JPMorgan employees internally raised concerns about Madoff's business in the years leading up to the discovery of his scheme in late 2008. Although the bank withdrew most of the money it had in a fund invested with Madoff upon discovering the suspicious activity, it failed to report the activity, as required by law, federal authorities say.

The fine brought against the bank by FinCEN is for willfully violating the Bank Secrecy Act.

‘When JPMorgan suspected Mr. Madoff's fraud, it focused on its own investment exposure and saved itself approximately $250 million,’ Jennifer Shasky Calvery, director of FinCEN, says in a Jan. 7 release. ‘If it had given the same attention to its anti-money laundering responsibilities, it could have saved itself $2 billion, and potentially saved thousands of other fraud victims untold misery and loss.’

As per the release, JPMorgan employees had noted several ‘red flags’ indicating suspicious activity connected to Madoff's operation, Bernard L. Madoff Investment Securities LLC, starting in 2007. These red flags included 1.) BLM's investment performance appeared too good to be true; 2.) BLM's trading techniques and investment activity lacked expected transparency; 3.) BLM used a small, unknown auditor; and 4.) BLM repeatedly refused to provide full information to JPMorgan as part of its due diligence reviews.

The fine and aforementioned civil penalties come just weeks after JPMorgan finalized a $13 billion settlement with the U.S. Department of Justice (DOJ) over alleged ‘faulty’ mortgage-backed securities (MBS) the bank sold to investors and pension funds in the lead-up to the financial crisis.

That civil settlement, which came after months of negotiations, resolved several state and federal investigations into JPMorgan's sale of MBS to investors from 2005 through 2008. It is reportedly the largest settlement ever reached between a financial firm and the U.S. government.

JPMorgan still faces probes by the DOJ related to its energy-trading business and recruiting practices in Asia. The fine brings the cost of JPMorgan's legal woes since the financial crisis to more than $37 billion.

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