FORTUNE -- Federal regulators may have missed warnings that Bernard Madoff was running a giant Ponzi scheme because they lacked expertise, but prosecutors won't be letting that story fly from America's biggest bank.
On Tuesday, federal prosecutors struck a settlement with JPMorgan that suggests that the bank turned a blind eye to Madoff's scam, which caused investors to lose billions of dollars. JPMorgan (JPM) was Madoff's bank for more than two decades, and during that time, his scheme was "conducted almost exclusively" through accounts held at the bank, prosecutors said in Manhattan federal court.
As part of the settlement, JPMorgan will pay $2.6 billion to resolve criminal and civil allegations that the bank failed to stop Madoff -- a sum Manhattan U.S. Attorney Preet Bharara described as "the largest bank forfeiture and also the largest ever Department of Justice penalty."
That may be noteworthy, but what's most interesting about the settlement is that it requires JPMorgan to acknowledge that it didn't have the right systems in place to catch Madoff and that whatever safeguards it had were flawed. The bank received several red flags, but they never put Madoff behind bars (in 2008, his sons turned him in).
This sounds rather similar to results of a 2009 government investigation into why the Securities and Exchange Commission never caught onto Madoff. Despite several complaints dating back to as early as 1992, the SEC missed the warning signs -- partly because, as the report found, the agency essentially lacked the expertise to figure out what Madoff was really up to.
Was JPMorgan really in a similar boat? It's hard to say, but compared to the SEC, it's incredibly unlikely that JPMorgan has had a shortage of financial experts capable of detecting Madoff's Ponzi scheme. It is possible -- and perhaps likely -- that those experts did not recognize any powerful incentive to take a long, hard look at the bank's long-time client. JPMorgan did not respond to a request for comment.
As Tuesday's settlement highlighted, the bank received red flags from employees inside various divisions from the late 1990s to 2008, but those were essentially ignored. For instance, a JPMorgan trading analyst in London wrote a lengthy internal email in 2008 that raised concerns about Madoff's investment returns, but those were never reported to U.S. authorities, nor did the bank make any "meaningful effort" to investigate its relationship with Madoff's firm.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," Joseph Evangelisti, a spokesman for JPMorgan, said Tuesday in an e-mailed statement to the media. "We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme."
Madoff has sung a different tune, at least during his 2011 jailhouse interview with the Financial Times: "JPMorgan doesn't have a chance in hell of not coming up with a big settlement," Madoff said, adding that "there were people at the bank who knew what was going on." No individual employees were penalized as part of the agreements announced Tuesday.
A plan that could stiff Social Security recipients to pay down U.S. debt isn't just stupid. It's downright Madoffian.
FORTUNE -- Do you think it would be a good idea for the federal government to act like Bernie Madoff? To take money from people for decades, only to say, "Sorry, I'm out of cash," when it comes time to pay them what they're owed?
It's hard to imagine anyone who would think MOREAllan Sloan, senior editor-at-large - Sep 27, 2013 5:00 AM ET
The latest insider trading investigation is focusing on the new hub of Wall Street information: independent research networks that pay so-called experts for information on public companies.
What is it with Wall Street these days that it won't let a record stand for the usual amount of time? First, Marc Dreier gets one-upped by Bernie Madoff. Then, Bear Stearns gets bested by Lehman Brothers. And now the Galleon insider trading MOREDuff McDonald, Contributing Editor - Nov 22, 2010 11:49 AM ET
No, we're not talking about an overnight in federal lockup. These are Bernie's actual shoes, or at least his slippers.
The U.S. Marshal's Service next month will auction off more than 400 pieces of personal property from Bernie and Ruth Madoff, via both a live and online process. Among the available items:
A diamond engagement ring (10.54 carats!)
A Steinway & Sons grand piano (don't worry, bench is included)
One pair of velveteen slippers, MORE
The investment industry is still paying dearly for Bernie Madoff's crimes, and if SIPC is to be believed, there may be no end in sight.
Last week, an editor sent me out on what I thought was a fool's errand—a story that might engender sympathy for a Wall Streeter. The surprise answer: he was right.
The CEO of a relatively small broker-dealer had run into said editor and mentioned how angry he MOREDuff McDonald, Contributing Editor - Sep 22, 2010 1:46 PM ET
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