(Reuters) - JPMorgan Chase & Co
The newspaper said federal prosecutors and representatives of the bank had held preliminary talks about a deferred prosecution agreement.
Under such an agreement, the government would suspend criminal charges against JPMorgan in exchange for fines and an acknowledgment that the bank could face charges if it misbehaves.
The newspaper said people briefed on the federal inquiry were the source of its report. It said the government has not ruled out requiring JPMorgan's national banking unit to plead guilty to a criminal violation of the Bank Secrecy Act, which mandates the reporting of suspicious activity.
A criminal charge, depending on its nature, could prompt some clients to withdraw money from JPMorgan, and at a minimum could hurt the bank's reputation.
Criminal charges are also possible against individual JPMorgan employees who did business with Madoff, the report said.
A JPMorgan spokesman declined to comment. The bank has previously said that "all of our personnel acted in good faith" in handling the Madoff accounts.
In 2011, a civil lawsuit brought against JPMorgan and other banks by Irving Picard, the trustee seeking to recover money for Madoff victims, cited internal emails in alleging that bank employees ignored "red flags" of fraud, often to win more fees and commissions.
The lawsuit was dismissed by an appellate court, which said the trustee lacked legal standing to pursue the claims.
The government investigation of JPMorgan in the Madoff matter is separate from a tentative $13 billion deal the bank is trying to conclude over its liability for faulty mortgage securities sold in the run-up to the financial crisis.
In morning trading, JPMorgan shares were down 43 cents at $52.32 on the New York Stock Exchange.
(Reporting by David Henry and Jonathan Stempel in New York; Editing by John Wallace)