Lack of Individual Accountability Sends the Wrong Message to Wall Street
The announcement that JP Morgan will pay about $2.6 billion for its role in the Bernie Madoff Ponzi scheme is ethically reprehensible because not one executive of the firm is being held criminally or even civilly liable for the disaster that caused so much grief to so many people. The government should be ashamed for letting the guilty slide by with no consequences for their actions (or inactions). It sends the wrong message to Wall Street that someone complicit in financial fraud can get away with it. After all, how can a firm such as JP Morgan Chase do what it did to obscure the facts and fail to disclose Madoff’s activities be held liable as a firm only? Didn’t at least someone know what was going on and do nothing? The firm doesn’t act on its own without someone serving as the principle player or an accessory to the crime.
In case you missed it, on January 7, Preet Bharara, U.S. Attorney for the Southern District of New York, announced a settlement with JPMorgan Chase. The firm agreed to pay $1.7 billion to settle criminal charges that it ignored obvious warning signs of Bernard Madoff's massive Ponzi scheme, plus pay an additional $543 million to settle civil claims by victims. It also will pay a $350 million civil penalty for what the Treasury Department called "critical and widespread deficiencies" in its programs to prevent money laundering and other suspicious activity.
Here are brief details of JP Morgan’s role in the fraud. Madoff banked at JPMorgan through what court papers referred to as the "703 account." In 2008, the bank's London desk circulated a memo describing JPMorgan's inability to validate his trading activity or custody of assets and his "odd choice" of a one-man accounting firm. In late October 2008, it filed a suspicious activity report with British officials. In the weeks that followed, JPMorgan withdrew about $300 million of its own money from Madoff feeder funds. The fraud was revealed when Madoff was arrested in December 2008.
"Despite all these alarm bells, JPMorgan never closed or even seriously questioned Madoff's Ponzi-enabling 703 account," said U.S. Attorney Preet Bharara. "On the other hand, when it came to its own money, JPMorgan knew how to connect the dots and take action to protect itself against risk."
Prosecutors called the $1.7 billion penalty to settle the criminal charges the largest forfeiture by a U.S. bank and the largest Department of Justice penalty for a Bank Secrecy Act violation. The settlement includes a so-called deferred prosecution agreement that requires the bank to acknowledge failures in its protections against money laundering but also allows it to avoid criminal charges. No individual executives were accused of wrongdoing.
What a joke -- deferred prosecution and no criminality, along with no individual accountability.
Blog posted by Steven Mintz, aka Ethics Sage, on January 9, 2014