On Tuesday, U.S. Attorney Preet Bharara held a news conference announcing that JPMorgan Chase, the bank where Bernard Madoff did most of his banking during his Ponzi scheme, had agreed to pay a $1.7 billion penalty for not alerting authorities of Madoff’s actions.
Bharara stated that JPMorgan Chase’s failures as a bank were directly related to the fraud that Madoff committed. He further stated that the bank had “plenty of reasons to be uniquely suspicious” of Madoff’s actions.
A spokesman for the bank, Joseph Evangelisti, noted that he didn’t believe any one employee knew specifically what Madoff was up to. However, he also admitted JPMorgan Chase “could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.” In his statement he also said that, “Madoff’s scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.”
However, the facts show that JPMorgan wasn’t as duped as they’d like the public to believe. Throughout the multi-year F.B.I. investigation, it was found that in 1998, when an arm of the bank was considering a business deal with Madoff’s firm, there were too many red flags for the bank to proceed. However, this information was never shared with the necessary people to flag Madoff as suspicious.
Another bank even pulled out of dealing with Madoff and did alert authorities. That bank came to JPMorgan with their concerns. But JPMorgan continued to work with Madoff.
Prosecutors noted two occasions in 2007 and 2008 when red flags were raised by JPMorgan’s internal computer systems that both went completely ignored by employees.
It is apparent that Bharara is indeed correct that the bank would have been given plenty of reason to suspect Madoff of illegal activities. As a result, the bank will pay the $1.7 billion in penalties as a result of two felony violations of The Bank Secrecy Act. The bank will also have a two-year period before they could be indicted, so long as the bank overhauls its protections against money-laundering, a rare deal offered by prosecutors.
Despite the government pursuing a criminal case and subsequent penalties put against the bank, many critics feel that more could be done. Following the sentiment that guns don’t kill people, people kill people, Dennis M. Kelleher, a head of ad advocacy group feels that, “Banks do not commit crimes; bankers do.”
As evidenced by the trail of negligence from JPMorgan employees, this appears to be true.
Amid all the controversy surrounding the bank following Madoff’s arrest, JPMorgan has started making efforts to win back its image. As Reuters’ Jill Priluck states, “The financial industry is facing a sea change in electoral politics. It is increasingly operating in a polarized political system that has placed a premium on accountability.” As JPMorgan is emerging from a case where their accountability was in extreme question, they have a lot of work to do before politics will be on their side.
In an effort to boost their accountability earlier in 2013, the bank failed embarrassing with a social media campaign titled “Ask JPMorgan.” The campaign brought out questions of whether it was ok to outright lie, cheat and steal.
They are starting anew in 2014 by announcing a multi-city, $250 million investment in job training. However, it remains to be seen how the bank can truly move on from this. When dealing with other people’s money, ignorance, whether feigned or real, is absolutely no excuse. Though those harmed by Madoff’s actions will receive the penalty money that JPMorgan Chase will be paying, it’s likely not enough to help their image.
JPMorgan Chase by no means is going to disappear overnight; they continue to report profits. But they’ll always be a shell of their former self, and that, as well as backlash, might wear them down over time.