JP Morgan Chase is facing a fine of an estimated $2bn (£1.2bn) for its role in the Bernie Madoff Ponzi fraud.
The penalty will follow the $20bn the US banking giant was forced to pay out last year to resolve a series of lawsuits relating to its “London whale” trading debacle and past mortgage bond sales.
The federal actions could be announced today, according to the Wall Street Journal. JP Morgan had a 20-year relationship with Madoff before his arrest in 2008.
At the time of its collapse, Madoff Securities claimed to have $65bn in client assets. In fact it had only about $300m.
In 2009, Madoff was sentenced to 150 years in prison but his fraud left behind many ruined investors. US authorities have since been investigating why the bank failed to alert regulators about Madoff’s activities.
The case centres on the question of why JP Morgan failed to produce a formal report raising concerns about Madoff in the US, despite filing a warning document with the UK authorities.
US law requires banks to file a suspicious-activity report when they “detect certain known or suspected violations of federal law or suspicious transactions”.
In 2012, the most recent year for which data is available, there were about 1.6 million such reports filed in the US. JP Morgan alone typically files 150,000 to 200,000 suspicious-activity reports each year.
The bulk of the fines is expected to be eventually handed to victims of Madoff’s billion-dollar Ponzi scheme – believed to be the largest financial fraud in US history.
Some $1.5bn is expected to be paid to the US Justice Department with the rest being paid to the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, both of which are part of the US Treasury Department.
Previously JP Morgan said it did not know about the Madoff fraud. But in recent months the bank began discussing a deferred-prosecution agreement with the US Attorney’s Office that would resolve the investigation.
The bank hopes to resolve the settlements before it reports its fourth-quarter 2013 earnings on 14 January, according to reports.Reuse content