NEW YORK (TheStreet) - JPMorgan Chase (JPM) faces a deferred prosecution agreement with the Justice Department and a possible criminal admission of guilt for its role as Bernie Madoff's banker, according to a detailed report from The New York Times.
The report states that the Federal Bureau of Investigation and the U.S. attorney's office in New York are focusing on whether or not JPMorgan adequately aired its concerns to authorities about Madoff's investing activities, which were later discovered to be a Ponzi scheme that caused tens of billions of dollars in investor losses.
The inquiry could lead to a deferred prosecution agreement between JPMorgan and the Department of Justice, which would stay criminal charges against the nation's largest bank by assets so long as it remains compliant with the law. Such a settlement, nevertheless, would give JPMorgan little room for further error as the bank tries to extricate itself from an onslaught of regulatory and legal inquires into its mortgage origination, securitization, trading and hiring practices.
According to the Times report, the bank could also face an even more burdensome Madoff-related regulatory backlash.
Prosecutors are weighing a criminal charge against JPMorgan for prospective violations of the Bank Secrecy Act (BSA), which requires firms to report suspicions of fraudulent activity such as Madoff's Ponzi scheme. Emails disclosed in litigation brought forward by Irving Picard, the trustee seeking to recover Madoff investor funds, indicate some officials at JPMorgan had qualms over the Madoff firm's opaque accounting practices. However, the bank doesn't appear to have expressed its concerns to any governmental regulators, a possible BSA violation.
A BSA action would likely target JPMorgan's main national banking subsidiary. Earlier in October, JPMorgan Chairman and CEO Jamie Dimon relinquished his chairmanship of the subsidiary. The Times report indicates the Madoff probe may not lead to criminal charges against JPMorgan.