Bernie Madoff

JPMorgan has avoided prosecution for committing fraud in the mortgage security markets (that led to the 2008 crash), lying to regulators, defrauding homeowners, and on and on. But now it seems they stole from rich people, and that is unforgivable. Steal from middle class homeowners? Whatever. But steal from rich pensioners with political clout? Out come the wolves.

JPMorgan for the first time in a long time might face a criminal action due to the firm’s involvement in the Bernie Madoff ponzi scheme.

JPMorgan Chase and federal authorities are nearing settlements over the bank’s ties to Bernard L. Madoff, striking tentative deals that would involve roughly $2 billion in penalties and a rare criminal action. The government will use a sizable portion of the money to compensate Mr. Madoff’s victims…

A settlement with federal prosecutors in Manhattan, the people said, would include a so-called deferred-prosecution agreement and more than $1 billion in penalties to resolve the criminal case. The rest of the fines would be imposed by Washington regulators investigating broader gaps in the bank’s money-laundering safeguards.

Before your jaw hits the floor let’s be clear. If JPMorgan pays the fines for the deferred prosecution agreement they will not be indicted. JPMorgan, of course, will have the money to pay any fines thanks to the government. Much like JPMorgan’s other fines which were/are/will be paid with fed loan profits and tax write offs – it’s a shell game between Wall Street and Washington were neither party gets truly punished for malfeasance and/or lack of vigilance.

The damage is, in truth, to JPMorgan’s reputation not its bottom line. Guess which shareholders care about more?

 The agreement to deferred prosecution would also list the bank’s criminal violations in a court filing but stop short of an indictment as long as JPMorgan pays the penalties and acknowledges the facts of the government’s case. In the negotiations, the prosecutors discussed the idea of extracting a guilty plea from JPMorgan, the people said, but ultimately chose the steep fine and deferred-prosecution agreement, which could come by the end of the year.

Until now, no big Wall Street bank has ever been subjected to such an agreement, which is typically deployed only when misconduct is severe. JPMorgan, the authorities suspect, continued to serve as Mr. Madoff’s primary bank even as questions mounted about his operation, with one bank executive acknowledging before the arrest that Mr. Madoff’s “Oz-like signals” were “too difficult to ignore,” according to a private lawsuit.

It’s truly hard to believe JPMorgan would look the other way when fraud went on, isn’t it? No, no isn’t.

The agreement does confirm something Madoff himself alleged which was that the rest of Wall Street was aware of his multi-billion dollar ponzi scheme the entire time and just ignored the evidence as long as it suited them. That Madoff himself was the rule rather than the exception. That on Wall Street, fraud is a business model.

Looks like JPMorgan proved Madoff right.

Photo by US Department of Justice under public domain.