1. Bernie's Boneheaded Bankers
JPMorgan Chase (JPM) was "dumb" in both senses of the word when it came to Bernie Madoff's Ponzi scheme. Like the rest of the financial world, JPMorgan Chase was "dumb," as in stupid, idiotic or silly, due to its inability to recognize the extent of the fraud Madoff was perpetuating in plain sight. In addition, the behemoth of a bank was "dumb," as in speechless, because it failed to pipe up when it did recognize that Bernie was up to some very bad things indeed.
Now Bernie's favorite bank is paying $2.6 billion in consequences for its dually dumb actions. And while many on Wall Street are decrying this latest multi-billion dollar settlement as yet another attempt by Uncle Sam to pick JPMorgan CEO Jamie Dimon's pocket for its own Madoff mismanagement, a quick read of U.S. Attorney Preet Bharara's statement reveals this really is justice at work.
As for the details, JPMorgan consented to a two-count criminal information, through which the Justice Department charged the bank with "failure to maintain an effective anti-money laundering program... and failure to file a suspicious activity report." JPMorgan agreed to pay $1.7 billion to the federal government as part of the agreement.
It also agreed to pay $350 million to the Office of the Comptroller of the Currency, its primary regulator, and also settled private lawsuits for $524 million, including a suit by Irving Picard, the court-appointed trustee seeking to resolve the claims of the victims of Madoff's Ponzi scheme. JPMorgan's shares fell over 1% to $58 on Tuesday in reaction to this latest settlement.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time. We filed a Suspicious Activity Reports (SAR) in the U.K. in late October 2008, but not in the U.S.," said the bank in a statement. "We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme."
Oh, come on, guys. You shouldn't have mentioned that October 2008 report. That's just embarrassing considering JPMorgan served as "the primary bank through which Madoff ran his Ponzi scheme" since 1986, to borrow Preet's words.
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."
He also offered numerous other examples of warning signs to JPMorgan Chase that Madoff's business was a fraud, and he detailed the bank's actions to mitigate its risk from Madoff's scheme before it collapsed and became known to the public.
Look. We don't deny that in many cases JPMorgan is being forced to hand over billions for the mortgage sins of others, most notably those committed by Bear Stearns and Washington Mutual prior to Dimon's purchase of the pair at the height of the 2008 financial crisis. And we'll grant you that the government's "London Whale" witch hunt also reeks of fishiness.
JPMorgan's Madoff behavior stands apart from all that. And the bank is rightfully paying up for its dumbness, however you define it.
-- Written by Gregg Greenberg in New York