jpmorgan bernie madoff ponzi scheme sentencing
Stephen Chernin/Getty ImagesFinancier Bernard Madoff arrives at Manhattan Federal court in March 2009 for a sentencing hearing.
By Brett Wolf and Aruna Viswanatha

U.S. regulators plan to fault JPMorgan Chase, which served as Bernie Madoff's main bank for two decades, for failing to conduct adequate due diligence and report suspicious activity, according to a person familiar with the matter.

The Office of the Comptroller of the Currency is expected to issue a cease-and-desist order against JPMorgan, which will require the largest U.S. bank to put an end to the alleged failures in its anti-money laundering practices.

The timing of the order is uncertain but could come later this year, the source said. A fine isn't expected. If the OCC isn't satisfied with JPMorgan's response, it can take harsher action against the bank, including financial penalties.

OCC spokesman Bryan Hubbard declined comment, as did JPMorgan spokeswoman Jennifer Zuccarelli.

Madoff was arrested in December 2008, pleaded guilty in 2009 to running a massive, decades-long Ponzi scheme, and is serving a 150-year prison sentence.

Irving Picard, a trustee for Madoff's victims, has accused JPMorgan Chase & Co. (JPM) of ignoring warning signs that Madoff's business was a fraud and has attempted to sue the bank. A judge has tossed out all but $425 million of Picard's $19.9 billion lawsuit against JPMorgan. Picard is in the process of appealing the ruling.

JPMorgan has said there was no evidence showing that anyone at the bank knew of Madoff's elaborate scheme. The bank did file a suspicious activity report in London two months before Madoff was arrested, describing his investment performance as "too good to be true," according to Picard's lawsuit.

The OCC will fault JPMorgan for treating Madoff and his related entities as low-risk customers, and find that the bank failed to heed red flags, such as funds being shuffled between accounts without clear business purpose, said the person familiar with the matter. As a result, "suspicious" transactions weren't reported to authorities, said the source, who wasn't authorized to speak publicly about the matter.

The OCC in January ordered JPMorgan to tighten its risk controls and improve its anti-money laundering compliance. But the regulator separated that order from any action related to Madoff's accounts, in a dispute with the bank over which documents it had to turn over as part of the inquiry.

The inspector general of the Treasury Department, which houses the OCC, has since ordered JPMorgan to work with regulators in the Madoff inquiry and rejected the bank's argument that certain documents were protected by attorney-client privilege.

"The matter is still pending," said Richard Delmar, counsel to the Treasury's watchdog office.

JPMorgan has a recent history of tense relations with the OCC. A report released last month by a Senate investigative panel revealed frequent clashes between the regulator and the bank over its $6 billion "London Whale" trading losses.

In a letter to shareholders last Thursday, JPMorgan CEO Jamie Dimon said he expected more regulatory action against the bank in the coming months. "We received regulatory orders requiring improved performance in multiple areas, including mortgage foreclosures, anti-money laundering procedures and others. Unfortunately, we expect we will have more of these in the coming months," Dimon said.

"We need to and will do all the work necessary to complete the needed improvements identified by our regulators," he said.

U.S. authorities have stepped up efforts to police illicit money flows, and have ordered banks such as Citigroup (C) and Germany's HSH Nordbank to improve their controls.

In December, HSBC agreed to pay a record $1.9 billion in civil and criminal fines, largely to resolve charges that it failed to detect money from drug trafficking which was flowing from Mexico into the United States.

And in one of the first bank mergers to be publicly impacted by money-laundering concerns, M&T Bank Corp. (MTB) on Friday said its proposed purchase of Hudson City Bancorp Inc. (HCBK) will probably take more time to close because the U.S. Federal Reserve had identified concerns with M&T's anti-money laundering systems.

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The Corporate state has defeated the liberal state and is now running for the doors(Cayman's, British Virgin Is.) with all the cash they can carry and there is no one to stop it. The money that the corporations and wealthy, around $32 trillion, has been taken out of circulation to use to buy governments for tax breaks and favorable regulations. There is no one standing between you and the corporate state their banksters. Hooverville, next stop, everyone off, it's the end of the line.

April 16 2013 at 3:07 PM Report abuse rate up rate down Reply

Everyone seems to be losing sight of who really is to blame - the Congress is to blame as they are the real stewards of the economy and regulation of/implementation of rules to counter these very actions. The "Crash of 1929" should have served as a warning, blueprint and track record of what not to do! The fail-safes implemented should have been left in place and strengthened, but greed prevailed! The greed and abusive derelection of duties to and for the people paints the TEA-Republicans as they protect the top 1% from equalization by enhancement of taxes on their earnings from all sorces. There should be no discussion on just how radical and extreme this fringe movement has become. There is no give and take, no conversation or discussion and no compromise! Combative and confrontational, my way or the highway, scorched earth, call it what-you-may, these radicals must be removed from office locally, at the state level and nationally for their continuous exploiting of the laws of the land and using their skewed mental challenges and use of specific portions of the Constitutional amendments or their own warped versions to practice politics. This is the reality the TEA-types must face as they try to morph themselves nationally, but prove otherwise in local and state elections. They have hijacked the respected values and the (R), when in fact they should have used their own (T). The once proud party of Abraham Lincoln and Teddy Roosevelt has been bastardized at the very least! If you are tired of the stalemate in Washington, get involved, get registered and be sure to vote! Make yourself noticed in 2014, 2016 and 2018 by pushing voters to the polls. The 2014 Mid-term is a-coming! Get registered and V.O.T.E.(Vote Out The Encumberances)

April 16 2013 at 2:18 PM Report abuse rate up rate down Reply
2 replies to radsenior's comment

I agree with you radsenior! Those Tea types are nothing but greedy business people who just want to "rape and pillage.' It high time we get them to pay their "fare share" and believe that 75% would be a good start. We also need to push for universal unionization, so all workers would be protected and paid accordingly. I thing a starting wage of $80,000 per year would be adequate. If the business object they could just raise their prices. So, lets get organized to vote the Nazi's out of office. POWER to the PEOPLE !!!

April 16 2013 at 2:43 PM Report abuse -1 rate up rate down Reply
1 reply to my2sence's comment

Your a lun.

April 16 2013 at 4:05 PM Report abuse rate up rate down

Tax reform, yet it is never addressed. Even the POTUS paid less than the average taxpayer.

April 16 2013 at 4:07 PM Report abuse rate up rate down Reply

Regulation bad! Business Good! Laissez faire good! What a crock.

"I believe that banking institutions are more dangerous to our liberties than standing armies."

"Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains."

Thomas Jefferson

April 16 2013 at 1:13 PM Report abuse -3 rate up rate down Reply

Put the blame where it belongs. It is the job of the SEC to discover these frauds. They were told by numerous people that Madoff was a fraud and they chose to ignore it. They examined his books and were too stupid to find anything amiss. Now the heat is on and they have to pass the buck to someone else. This typifies our government in action. This is where your tax dollars are going, to finance incompetents.

April 16 2013 at 1:05 PM Report abuse +3 rate up rate down Reply

Shut the front doors.

April 16 2013 at 12:50 PM Report abuse rate up rate down Reply

CHASE you are a very corrupt Banking Institution
Do I feel sorry for you?? No Penalties for this participation??
Just keep overcharging the Little Guy Misc. Bogas Fees, you maggot !!!!!!!!!
It's to bad Obama thinks your TO BIG TO FAIL.

April 16 2013 at 11:34 AM Report abuse +1 rate up rate down Reply

seems to me the regulators need to do there job better.

April 16 2013 at 11:02 AM Report abuse +5 rate up rate down Reply