JP Morgan Chase just agreed to pay another $1.7 billion to the government as part of a criminal settlement agreement. So what was Chase’s alleged crime this time around? The government alleges Chase violated the Bank Secrecy Act by failing to file a “suspicious activity report” for certain “suspicious transactions” in Bernie Madoff’s bank account. (Source: WSJ.) I find this absolutely hilarious, given that the Securities and Exchange Commission (SEC) did absolutely nothing to stop Madoff, even though a Wall Street Analyst named Harry Markopolos did all of the SEC’s work for it, mathematically proved that Madoff was running a ponzi scheme, notified the SEC repeatedly in writing, and begged the SEC to put a stop Madoff’s then ongoing crimes.
In response to Markopolos’s work, the SEC did nothing—either because it chose not to, or, as Markopolos has asserted, because it didn’t understand basic financial mathematics that are taught at the undergraduate level. But now, despite the government’s refusal (or inability) to acknowledge (or detect) Madoff’s fraud even after Markopolos spelled it out and literally hand-delivered the evidence, the government is punishing Chase for not reporting “suspicious activity.” That, quite simply, is a joke.
I realize that Chase brought much of its legal woes on itself, and that a big part of its problem is growth: the conglomerate is just way too big to be managed effectively—or at all. I also realize that this is a business decision. Chase’s stock price keeps rising, and the shareholders sit back and raise a glass every time Chase resolves another one of its legal issues for a mere billion or two. Quite frankly, this latest settlement barely affects the bottom line. But, these government payoffs have to stop sometime, don’t they?
Instead of paying the $1.7 billion-plus in a settlement, how about paying me $1.7 million—a mere fraction—to defend Chase against this nonsense? My opening statement would be the shortest (and possibly the most effective) in the history of so-called complex litigation:
Ladies and gentlemen of the jury, the government is going to bore the hell out of you for the next three to four months with lifeless witness after lifeless witness, meaningless document after meaningless document, and so-called expert after so-called expert. In fact, you might see me nodding off from time to time during the next few months.
Now, I could take up another three or four months of your life with my own reports and statistics, but those would just be more meaningless words and numbers. The bottom line is this: a guy named Harry analyzed Madoff’s operation from top to bottom. Harry spelled out in incredible detail how Madoff was breaking the law. Harry then repeatedly sent this information to the government—not to Chase Bank, but to the government. And year after year after year, the government said that everything with Madoff was on the up-and-up. All the government had to do was read Harry’s report to see that something was wrong, but it didn’t. Had the government done its job, Bernie Madoff’s operation would have been shut down years before he confessed.
Now, to cover up its own incompetence, the government is coming after Chase. Chase didn’t have the benefit of seeing Harry’s detailed reports outlining Madoff’s fraud. Chase only maintained a bank account for Madoff.
So, you can blame Madoff. You can blame the more financially literate of Madoff’s investors—that group of people knew that you can’t get ten percent returns year after year after year without something illegal going on. You can blame the government for not listening to Harry. But you can’t blame Chase. The blame-game has to end. The government needs to take responsibility for failing the unsophisticated Madoff investors. And even if it won’t do that, you cannot convict Chase for the government’s incompetence.
Four months later: “not guilty.”