8-KOther EventsExhibits & Filings

JPMORGAN CHASE & CO 8-K Report, Corporate Update (Jan 7, 2014)

Filed January 7, 2014For Securities:JPMJPM-PCJPM-PDJPM-PKJPM-PLJPM-PMJPM-PJAMJBVYLD

Summary

JPMorgan Chase & Co. (JPM) filed an 8-K on January 7, 2014, detailing significant settlements by its bank subsidiaries to resolve investigations and litigation related to the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud. The core of the announcement is the Deferred Prosecution Agreement (DPA) entered into by JPMorgan Chase Bank, N.A. with the U.S. Attorney's Office for the Southern District of New York. Under the DPA, JPMorgan Chase Bank agreed to forfeit $1.7 billion to the U.S. government, a non-tax-deductible payment intended for distribution to victims of the Madoff fraud. The bank also admitted to failures in its anti-money laundering program and its reporting of suspicious activity concerning BLMIS. The DPA allows for the dismissal of charges after a two-year compliance period, provided the bank meets its obligations. In addition to the DPA, JPM's subsidiaries consented to substantial civil money penalties from the Office of the Comptroller of the Currency ($350 million) and the Financial Crimes Enforcement Network ($461 million), with the FinCEN penalty being satisfied by the forfeiture payment.

Key Highlights

  • 1JPMorgan Chase Bank, N.A. entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney's Office for the Southern District of New York.
  • 2The bank agreed to forfeit $1.7 billion to the U.S. government as a non-tax-deductible payment to victims of the BLMIS fraud.
  • 3JPMorgan Chase Bank admitted to violations of the Bank Secrecy Act, including failure to maintain an adequate anti-money laundering program and failure to file a Suspicious Activity Report (SAR) related to BLMIS.
  • 4The DPA involves a two-year deferral of prosecution, with potential dismissal of charges if the bank complies with its obligations.
  • 5JPM subsidiaries agreed to pay a $350 million Civil Money Penalty to the OCC for Bank Secrecy Act/Anti-Money Laundering deficiencies.
  • 6JPMorgan Chase Bank agreed to a $461 million Civil Money Penalty from FinCEN for failing to detect and report suspicious transactions related to BLMIS, which is satisfied by the $1.7 billion forfeiture.
  • 7The firm also reached settlements with the BLMIS trustee and class action plaintiffs, agreeing to pay a total of $543 million ($325 million to the trustee, $218 million to class plaintiffs) plus legal fees, subject to court approval, to resolve related civil claims.

Frequently Asked Questions

The total value of the settlements, including the forfeiture, penalties, and payments to the trustee and class action plaintiffs, amounts to approximately $2.6 billion. JPMorgan Chase expects to add approximately $400 million (pre-tax) to litigation reserves in the 2013 fourth quarter for amounts not already reserved. The estimated total impact on fourth quarter net income is a reduction of approximately $850 million due to the non-tax-deductible nature of some settlement payments.

JPMorgan Chase Bank, N.A. consented to the filing of an Information charging it with failure to maintain an adequate anti-money laundering program and failure to file a Suspicious Activity Report (SAR) in the United States in October 2008 with respect to BLMIS, in violation of the Bank Secrecy Act.

The Deferred Prosecution Agreement (DPA) allows for the deferral of prosecution for two years, with the potential for dismissal of charges if JPMorgan Chase Bank complies with its obligations. While this resolves significant governmental investigations and civil litigation related to Madoff, the bank will be under scrutiny for the duration of the DPA. The settlements also involved substantial financial penalties and admissions of regulatory violations.

The $1.7 billion forfeiture payment made by JPMorgan Chase Bank to the U.S. Attorney's Office for the Southern District of New York is intended to be distributed to victims of the Bernard L. Madoff Investment Securities LLC fraud through the U.S. Attorney's remission process.