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Its shares fell 68 cents to $58.32 in trading Tuesday.
The deal was similar to one reached in late 2012 with the British bank HSBC, which agreed to pay $1.9 billion to settle claims it laundered money for Iran, Libya and Mexico's murderous drug cartels.
Madoff, 75, pleaded guilty and is serving a 150-year prison term.
When his scam unraveled, account statements for thousands of his clients showed $60 billion in assets. In reality, the roughly $17.5 billion in principal they gave him was almost gone.
A court-appointed trustee has recovered more than $9.78 billion — including a portion of the JPMorgan civil payout — to redistribute to clients that invested directly with Madoff. The $1.7 billion criminal forfeiture and will go to a second victims' pool, already with $2.35 billion, that is processing claims from clients of so-called "feeder funds" that also invested heavily with Madoff.
The JPMorgan settlement is the latest in a series of major deals it has made to resolve its legal troubles. In November, the bank agreed to pay $13 billion over risky mortgage securities it sold before the financial crisis - the largest settlement to date between the Justice Department and a corporation.
JPMorgan still has several lawsuits pending against it related to the high-risk mortgage bonds that soured after the housing market collapsed in 2007. There's also an ongoing criminal investigation the U.S. attorney in Sacramento, Calif.
The more than $2 billion that JPMorgan is paying is about 10 percent of the bank's $21.3 billion net income reported for 2012. It already has set aside $23 billion this year to cover settlement and litigation costs — including the $13 billion it agreed to pay in November in a settlement with the Justice Department over its sales of risky mortgage securities before the financial crisis struck.