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Feds: Chase ‘Turned A Blind Eye’ To Fraud

chase buildingIt’s déjà vu for JPMorgan Chase in 2014 as the biggest, baddest bank on the block has just settled another allegation of wrongdoing, agreeing to fork over another $2 billion.

This time, the federal government says Chase “turned a blind eye” to obvious evidence that investment adviser Bernie Madoff was running an enormous Ponzi scheme. The bank held some of Madoff’s money and noticed account irregularities as far back as 1998.

Chase agreed this week to pay $1.7 billion to settle criminal charges, which represents the largest forfeiture by a U.S. bank and the biggest Department of Justice penalty for a Bank Secrecy Act violation.

Chase will dole out an additional $350 million civil penalty to the Treasury Department’s Office of the Comptroller of the Currency for failing to alert U.S. authorities that it had suspicions about Madoff.

“It took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for J.P. Morgan to alert authorities to what the world already knew,” said George Venizelos, head of the FBI’s New York office, in a statement.

As a refresher, in 2009 Madoff pleaded guilty to bilking investors in his securities firm of billions of dollars and was sentenced to 150 years in prison.

Chase might have helped to kill the fraudulent investment operation early on, but instead bank records and emails prove that the bank simply ignored suspicious transactions by Madoff.

In 2007, the bank’s chief risk officer wrote in an email, “there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of Ponzi scheme,” according to a press release from the Justice Department.

And in late 2008, JPMorgan withdrew around $300 million of its own money from Madoff funds because it couldn’t validate his trading activity or his assets. But Chase still didn’t pass on the information to authorities.

While Chase pays the $1.7 billion to Madoff’s victims, criminal charges will be deferred for two years. The bank — and its executives — can avoid prosecution by cooperating with federal investigators and beefing up fraud monitoring.

Chase executives are becoming somewhat expert at avoiding criminal charges. This is the second time in three months the bank has cut a deal to avoid prosecution, which means despite the financial penalty, this is a major victory for JPMorgan and CEO Jamie Dimon.

This settlement is simply another entry on the laundry list of the bank’s misdeeds.

Here’s a breakdown of the major JPMorgan Chase settlements in 2013, which were enough to wipe out the bank’s $21.2 billion in profits logged in 2012:

National mortgage settlement: Chase was one of 10 banks accused of foreclosing on borrowers with illegal paperwork – the so-called “robo-signing” scandal. Settlement with 49 state AGs: $1.96 billion just for Chase.

The London Whale scandal: The bank suffered a $6.2 billion loss at the company’s London Branch due to risky derivatives trading. Losing money isn’t illegal. But Chase executives knew that those losses weren’t being fully reported to shareholders. Settlement with the Securities and Exchange Commission: $920 million.

Unfair credit card billing: JPMorgan was accused of unfairly billing and charging customers for credit monitoring services they never received. Settlement with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau: $80 million in penalties and $309 million in refunds.

Power market manipulation: The bank was accused of manipulating the electricity market in California and the Midwest from September 2010 through November 2012. Settlement with the Federal Energy Regulatory Commission: $410 million – a $285 million fine and $125 million in refunds to electric customers.

Institutional investor fraud: JPMorgan was accused of selling mortgage-backed securities to institutional investors that they knew were doomed to fail. Settlement with 21 institutional investors: $4.5 billion to settle losses.

Credit market manipulation: Chase was accused of using “manipulative devices” to inflate derivative prices and hide their losses during the London Whale scandal. Settlement with the Commodity Futures Trading Commission: $100 million.

Mortgage-backed securities fraud: In the biggest legal settlement ever between the U.S. government and a single company or individual, Chase was accused of a wide range of allegations about how the bank fraudulently created, marketed and sold bonds backed by home loans that were almost certain to fail and did. Settlement with the Justice Department: $13 billion — $9 billion to federal and state civil claims and $4 billion in the form of relief for consumers who were harmed by the actions of JPMorgan Chase, Bear Stearns and Washington Mutual.

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