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Bank Agrees to Massive Fines in Ponzi Scheme Case

At this point, most readers are quite familiar with the facts of Bernard Madoff's $64 million Ponzi scheme. While Mr. Madoff insisted that he acted entirely alone, federal prosecutors have continued to pursue evidence that others were directly involved or complicit in the crime.

One recent investigation has been over the involvement of banking giant JPMorgan Chase, which acted as Mr. Madoff's primary financial institution for the duration of the time during which he carried out the Ponzi scheme.

Prosecutors say that they amassed evidence that indicates that the bank turned a blind eye to conduct that was clearly criminal in nature and, as a result, allowed the scheme to continue for many years. The bank also profited from having Mr. Madoff as a customer, which prosecutors say was a factor in the failure to comply with reporting requirements.

The bank says that no employees knowingly participated in the fraud, citing a lack of communication between areas of the bank about the overall activities of Mr. Madoff. Still, evidence presented by federal prosecutors encouraged the bank to accept a total of $2.6 billion in fines and a two-year deferred-prosecution agreement. The agreement allows the bank to avoid criminal charges if it complies with a series of requirements for the next two years.

Officials say that the money recovered in this case will go directly to the victims of the Ponzi scheme.

A lot of readers might not have realized that standing by while a scheme unfolded could be considered a crime in itself. Many may also be surprised to learn that a corporate entity can be charged with a crime. In this case the bank was under specific reporting obligations via federal law. Based upon the bank's actions or failure to report Madoff, the U.S. Department of Justice opened a criminal investigation that could have resulted in the bank being charged with federal felonies.

The bank avoided all criminal charges by paying a fine and entering the deferred prosecution agreement. The Department of Justice often uses deferred prosecution rather than seeking to convict major companies. Individual employees, officers and directors can still be prosecuted even if the company for whom they acted makes a deal.

Source: CNN Money, "JPMorgan's $2.6 billion Madoff reckoning," Aaron Smith, Jan. 8, 2014

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