FORTUNE -- The ghosts of financial crises past continue to haunt JPMorgan.
Just months after the bank settled with federal authorities over allegations that it turned a blind eye to Ponzi-schemer Bernie Madoff, the bank is facing fresh accusations that it failed to do anything about yet another, albeit much smaller, Ponzi scheme. The fraud was perpetrated by William Wise, a Canadian citizen who advertised yielding certificates of deposits online and used the money he received to fund his lavish lifestyle. Wise pleaded guilty in 2012 to 18 counts including mail and wire fraud but has yet to be sentenced.
According to a complaint filed Thursday in federal court in Missouri on behalf seven plaintiffs who claim to have been defrauded by Wise, he opened accounts at Washington Mutual Bank (WaMu) and used those accounts to deposit the money given to him by his victims. From these accounts, according to the complaint, Wise then funneled money into offshore accounts and to his friends and relatives.
Wise's scheme went on for five years, between 2004 and 2009, during which he defrauded investors of anywhere between $68 million and $200 million. Most of this occurred while Washington Mutual functioned as an independent bank, but it continued after it was put into receivership by the FDIC and sold to JPMorgan (JPM) in the fall of 2008. A previous class action suit on this matter was dismissed in March 2012 on the grounds that JPMorgan was not liable for fraud committed by WaMu before it purchased the bank. A spokesperson for JPMorgan declined to offer comment.
Thursday's complaint unearths new documents, however, including an investigative report filed by JPMorgan on Oct. 8, 2008, which the plaintiffs argue shows that JPMorgan was aware of suspicious activity after its purchase of WAMU in the fall of 2008 but did nothing to stop it. According to the complaint, between October 2008 and March 2009, when the SEC shut down the scheme, roughly $16 million passed through the bank, and "ended up in overseas accounts beyond the reach of U.S. law enforcement authorities."
The complaint also includes a declaration from Casey Stein, a compliance manager at JPMorgan, who testified that he was aware by mid-February 2009 of suspicious activity going on in William Wise's Washington Mutual account. "The unusual activity ... involved rapid movement of funds and international wire transfers to countries with an increased risk of potential money laundering. Further, a large portion of the funds that were deposited into [Wise's] account were being redistributed to Wise, [his employee] Hoegel, and their apparent relatives," Stein said in a declaration included in the complaint. Though Stein's statement accurately describes the fraud, it contradicts the timing described in JPMorgan's investigative report, which suggests that the bank may have been aware of the fraudulent activity as early as October 2008.
Meanwhile federal regulations require that when banks are aware of "violations that require immediate attention" like money laundering schemes, the bank is supposed to immediately contact an appropriate law enforcement authority and the OCC by telephone, in addition to filing the sort of investigative report that was included in the complaint. The complaint alleges that JPMorgan never took this step, a claim that is backed up by the fact that the SEC didn't shut down the scheme until six months after the initial report was filed.
Compared to the SEC, it's incredibly unlikely JPMorgan has had a shortage of financial experts capable of detecting Madoff's Ponzi scheme. The bank received several red flags but they went nowhere.Nin-Hai Tseng, Writer - Jan 8, 2014 5:00 AM ET
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
|Delinquent IRS employees paid bonuses by the agency|
|Court quizzes Aereo: Do TV streams break the law?|
|How women can narrow the 'confidence gap'|
|Gun silencer sales are booming|
|China factories extend slump|