JPMorgan Chase will be forced to pay $2.6 billion to settle charges by the federal government that the bank turned a blind eye to the Ponzi scheme run by Wall Street financier Bernard L. Madoff. The heavy penalty, which includes $1.7 billion for the fraud’s victims, is welcome, but it’s hard to fathom why no one at the bank was indicted.
Mr. Madoff, who pleaded guilty in 2009 to defrauding 4,500 investors of an estimated $17.3 billion, is serving a 150-year prison sentence. JPMorgan, his banker for 22 years, was suspicious of Mr. Madoff’s actions beginning at least in 1998 and, even though it was required under the Bank Secrecy Act to inform federal authorities of its concerns, it did not. In fact, JPMorgan cleansed its portfolio of Madoff investments just before his indictment.
It’s good that JPMorgan is getting a stiff financial punishment for its enabling role in Mr. Madoff’s fraud and that most of the payout will go to his victims.
Unfortunately, the $2.6 billion penalty on top of the $13 billion settlement the bank reached with the government in November over questionable practices with mortgage bonds, doesn’t stack up to JPMorgan’s 2012 profit of $21.3 billion.
Another questionable part of the deal with federal prosecutors in New York is that no JPMorgan employees will face charges for the bank’s role in connection with Mr. Madoff’s fraud, despite the fact some of the bank’s officers were suspicious of the operation.
When a bank is involved in criminal activity, it is important to remember that banks don’t cheat people, bankers do. To JPMorgan, a stiff fine and no prison time is an easy punishment to swallow — one that leaves it off too easily for helping someone defraud thousands of investors of billions of dollars.