JPMorgan on Brink of bn Bernie Madoff Fed Fine (Photo: Reuters)
JPMorgan on Brink of bn Bernie Madoff Fed Fine (Photo: Reuters)

JPMorgan is set to stump up $2bn to resolve a case with the Federal Reserve over suspicions that the bank ignored signs of Bernard 'Bernie' Madoff's Ponzi scheme.

According to a number of unnamed sources cited by the New York Times, JPM's civil and criminal settlements would also involve a deferred prosecution agreement. The bank would also avoid an indictment as long as JPM acknowledged wrongdoing, the facts of the case from the Fed, and agreed to change its behaviour.

The $2bn (£1.2bn, €1.5bn) fine is set to be split across a number of prosecutors. The sources say that more than $1bn will go to Manhattan prosecutors and the remainder to the Office of the Comptroller of the Currency (OCC) and a unit of the Treasury Department that has investigated the Wall Street giant.

In turn, the government entities are planning to use some of the fine to pay back some of Madoff's victims.

If JPM settles over the Madoff case for $2bn, it would have paid around $20bn to resolve government investigations over the last 12 months.

Bernard Madoff masterminded a Ponzi scheme worth $65bn in 2008, but five years later the courts are still being kept busy by a raft of lawsuits.

In 2009, Madoff pleaded guilty and was sentenced to 150 years in prison for controlling the biggest Ponzi fraud yet detected. His brother Peter Madoff also pleaded guilty in 2012 to his part in the fraud and was sentenced to 10 years' jail.

Meanwhile, JPM has been aggressively fighting regulators' requests for information over the last few weeks concerning its role as Bernard L Madoff Investment Securities' (BLMIS) primary banker.

That included contesting an administrative subpoena issued earlier this year by the Treasury Department Inspector General's office.

In a 2011 interview with the Financial Times, Madoff predicted JPM would have to pay a big settlement because there were "people at the bank who knew what was going on".

JPM, which was Madoff's banker for two decades, has consistently and strenuously denied any knowledge of Madoff's true activities.

Elsewhere, Irving Picard, the trustee acting for the Madoff victims and by the US attorney's office in Manhattan, has so far clawed back $13bn, or 74% of the money that vanished from the Ponzi scheme. A $2.35bn victim fund is also being distributed.