JP Morgan Chase & Co – When The Fine Is A Crime

  • SumoMe

REGULATORS from Britain and American are expected to soon gather behind podiums on either side of the Atlantic and solemnly shake their heads as they announce what is already well known: that JPMorgan Chase lost a vast amount of money—$6.2 billion—in what has become known as the “London whale” trades, which happened during 2012 and early 2013 in an ill-fated attempt to hedge risk. As punishment for these losses, the regulators will say, the bank must lose still more—this time in the form of fines of more than $800m (Update (September 19th, 3pm GMT): The bank agreed to pay $920m). Offstage, other regulators are negotiating still stiffer penalties.

JP Morgan Chase- Sky Lobby, The American Dream...

JP Morgan Chase- Sky Lobby, The American Dream…

It is not only JPMorgan Chase’s shareholders that have already suffered. A dozen senior employees have lost their jobs. Past bonuses have been clawed back. The trader at the heart of it all, Bruno Iksil, was spared prosecution in exchange for extensive co-operation. He contributed to criminal charges against two other employees, Javier Martin-Artajo, a supervisor, and Julien Grout, another trader, for falsifying records to hide hundreds of millions of dollars in losses. Both have pleaded not guilty and will presumably argue the securities involved were hard to value. Jamie Dimon, JPMorgan Chase’s boss, had not only his own bonus cut, but apologised for the incident, acknowledged initially underestimating its impact and imposed extensive new controls.

The indictments filed by the federal prosecutors and the related complaint by the Securities and Exchange Commission against Messrs Martin-Artajo and Grout make clear that JPMorgan Chase was deeply concerned about the suspect trades, and far from being complacent. It had ratcheted up scrutiny as problems became evident. It has also been forthcoming about what occurred. It would be a surprise if any of the justification for the fines given during their announcement goes beyond what JPMorgan Chase has already said. What is unlikely to be mentioned is the fact that the losses were entirely contained within JPMorgan Chase itself, with the bank continuing to produce record profits.

All of this raises a question about whether losing money itself has become a crime—and whether that is a reasonable approach. Ordinarily, advancing this view would be JPMorgan Chase’s job, but America’s large banks are now increasingly subject to broad and vague regulations. There is little doubt that the bank had little choice but to settle. In addition to the whale case, it has recently been hit by a series of other investigations.

Many of JPMorgan Chase’s competitors privately believe that the actions against the bank are less retribution for any legal offense the bank might have committed than punishment for Mr Dimon’s willingness to attack the deluge of rules as counter-productive. And then, they say, there is the bank’s ability to afford stiff fines. If so, these fines truly are a crime.



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