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[video] JPMorgan Pays $2.6 Billion for Role in Madoff Scandal (Update 1)

Bharara also made clear that the entire $1.7 being paid to the Justice Department was not tax deductible and would go to Madoff's victims.

Using an elaborate chart showing a timeline of events, Bharara described how JPMorgan and predecessor institutions served as "the primary bank through which Madoff ran his Ponzi scheme," since 1986.

JPMorgan from early point had "plenty of reasons to be uniquely suspicious" about Madoff, Bharara said.  "Warning signs abounded."

In the mid-1990s, the bank learned, that Madoff and a prominent client of JPMorgan's private bank, were engaging in what looked like round trip or check kiting transactions.  large sums of money were being transferred back and forth between accounts for no apparent legitimate business purpose .  These transactions were sufficiently suspicious that another bank involved in those transactions filed a suspicious activity report, or SAR, and closed Madoff's account at the bank.  But JPMorgan, far from closing the account, allowed the transactions to continue for close to a decade or more, never filing a single SAR, or even notifying its own anti-money laundering compliance group.

Bharara added that "between 1986 and 2008, an astounding $150 billion went in and out of that account, and notably, none of it was used for the purpose and sale of securities, even though that was Madoff's stated business."

Numerous other examples of warning signs to JPMorgan Chase that Madoff's business was a fraud, were detailed during the press conference, as well as the bank's actions to mitigate its risk from Madoff's scheme, before it collapsed and became known to the public.

JPMorgan in an afternoon filing with the Securities and Exchange Commission said that although it was "substantially reserved for the settlements announced today," its fourth quarter net income would be lowered by $850 million, in part "as a result of the amounts of the settlement payments that are non-tax-deductible."

JPMorgan's shares were down 1.4% in afternoon trading, to $58.19.

The following chart shows the performance of JPMorgan Chase's stock over the past 12 months, against the KBW Bank Index (I:BKX) and the S&P 500 (^GSPC):

JPM Chart
JPM data by YCharts



-- Written by Philip van Doorn in Jupiter, Fla.



>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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