By Emily Flitter and David Henry
NEW YORK (Reuters) - A U.S. Treasury Department watchdog tried to examine whether JPMorgan Chase & Co (JPM) interfered with a regulatory probe into its relationship with convicted felon Bernard Madoff but the largest U.S. bank was able to nip the inquiry in the bud, a government official said on Monday.
The U.S. Treasury Department's Office of the Inspector General was examining whether JPMorgan interfered with the Office of the Comptroller of the Currency's attempts to probe the bank's relationship with Madoff, Rich Delmar, counsel to the inspector general, said in an email to Reuters.
Madoff had also separately told U.S. authorities that JPMorgan - the bank he had used during his decades-long investment scam - had tried to stop the OCC from getting information about their relationship, Delmar said.
"The OIG sought to obtain information from the bank on this issue, in order to test Madoff's assertions," Delmar said.
He added that his office tried to subpoena the bank for information, but JPMorgan contested the subpoena and the U.S. Justice Department decided not to enforce the subpoena. The OIG dropped the inquiry.
A source briefed on the situation said JPMorgan invoked attorney-client privileges to refuse to turn over the documents the OIG sought. The Justice Department agreed with the bank, the person said.
Bryan Hubbard, a spokesman for the OCC, declined to comment. Jerika Ricahrdson, a spokeswoman for U.S. Attorney Preet Bharara, where the investigation into JPMorgan's dealings with Madoff is taking place, also declined to comment.
JPMorgan is nearing a settlement of the Madoff case that would include $2 billion in penalties with regulators in Washington and Bharara's office in New York, several sources told Reuters last week.
The settlement would fault the bank for turning a blind eye to warning signs about Madoff's firm, which was revealed in December 2008 to be the operator of a massive Ponzi scheme.
(Reporting By Emily Flitter; Editing by Bernard Orr and Andrew Hay)