J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff (Dec 2013)

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Source: WSJ – J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff

Notable excerpts:

J.P. Morgan Chase is expected to pay more than $1 billion in penalties to the Justice Department to end a criminal probe into whether it provided adequate warnings about Bernard L. Madoff.

The deal, which would also include a deferred-prosecution agreement with U.S. Attorney Preet Bharara, could be wrapped up by the end of year, said others close to the case. Prosecutors have been looking for whether the bank failed to alert regulators despite numerous red flags. A central component of the case is why the bank didn’t provide a formal report raising concerns about Mr. Madoff in the U.S. despite filing such a document with authorities in the U.K.

Mr. Madoff had a two-decade-long relationship with J.P. Morgan before his arrest in December 2008.

The largest U.S. bank is also expected to pay an additional set of fines to U.S. regulators relating to inadequate warnings around Mr. Madoff as well as other control weaknesses, said the person close to the situation. That amount, which would go in part to the Office of the Comptroller of the Currency, hasn’t yet been communicated to the bank, this person added.

An OCC spokesman and a J.P. Morgan spokesman couldn’t be reached for comment. A spokesman for Mr. Bharara declined comment.

Separately, in the trial in New York of five former Madoff employees, a defense attorney for a former employee of Mr. Madoff sought to undermine a key government witness by alleging the witness had a 30-year career as a “confidence man” and sophisticated liar.

The witness, Frank DiPascali, a lifetime employee of Mr. Madoff who eventually rose to become his lieutenant, faced his first day of cross-examination Wednesday from a lawyer of one of the five former employees facing trial for their alleged roles in the Ponzi scheme.

Mr. DiPascali occasionally looked down and took long pauses as he answered questions from Larry Krantz, a lawyer for former Madoff employee George Perez.

Mr. Krantz on several occasions raised Mr. DiPascali’s admitted history of lying to customers, fellow Madoff employees and regulators in his role perpetuating the $17 billion fraud.

At one point, Mr. Krantz asked Mr. DiPascali if he thought of himself as a “con man.”

After an extended silence, Mr. DiPascali answered: “I did indeed violate the trust of many people during my time with Madoff. I’m not in a position to grapple with that question and assign myself that title.”

Until Wednesday, the former Madoff lieutenant had faced five full days of questioning from federal prosecutors in Manhattan federal court. Mr. DiPascali, a Queens, N.Y., native with a high-school education, is seen as the government’s star witness in its case against the five Madoff employees.

The employees are Mr. Perez, Daniel Bonventre, Annette Bongiorno, JoAnn Crupi, and Jerome O’Hara. They have denied the charges.

Mr. DiPascali’s testimony has offered the most detailed picture to date of the daily activity within the fraudulent investment firm, which collapsed with Mr. Madoff’s arrest five years ago Wednesday. He has pleaded guilty to criminal charges and faces up to 125 years in prison.

In earlier testimony, Mr. DiPascali said he worked closely with the five defendants to produce the fake records that helped continue the Ponzi scheme. In his questioning, Mr. Krantz sought to undermine those claims by questioning Mr. DiPascali’s credibility and portraying his current cooperation with the government as motivated by a desire for a more lenient sentence.

In particular, Mr. Krantz seized on what he portrayed as a discrepancy between Mr. DiPascali’s guilty plea in August 2009 and testimony that he has given at the current trial. In 2009, Mr. DiPascali told a federal judge that he learned about the fictitious trades that sustained the Ponzi scheme in the early ’90s, the defense lawyer said. But at the current trial, Mr. DiPascali said he learned of the bogus trades much earlier in his career, in the late ’70s.

“What happened was I developed a fuller understanding of the extent of what was going on,” Mr. DiPascali explained.

Mr. Krantz asked the former Madoff employee to read aloud a transcript of lengthy testimony he gave to the Securities and Exchange Commission years before the Ponzi scheme was uncovered.

One piece of the testimony concerned a trading platform at the firm called MA 206. In a steady, flat voice, Mr. DiPascali read a pages-long description of the platform, which involved a complex series of stock-and-options trades.

Despite the lengthy statement, MA 206 never existed.

“As you were giving this testimony, did you ever stop and think that what you are doing is quite extraordinary?” Mr. Krantz asked.

“It was not extraordinary to me . . . because the [fictitious platform] had been talked about and worked on for many, many years,” Mr. DiPascali said.

At a different point, Mr. Krantz asked: “How did it feel to commit perjury before the SEC?”

“It did not feel wonderful,” Mr. DiPascali said.

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