From today’s NYT DealBook Blog:
More than a year after a group of traders at JPMorgan Chase caused a multibillion-dollar loss, government authorities on Thursday imposed a $920 million fine on the bank and shifted scrutiny to its senior management.
Extracting the fines and a rare admission of wrongdoing from JPMorgan Chase, the nation’s largest bank, regulators in Washington and London took aim at a pervasive breakdown in controls and leadership at the bank. The deal resolves investigations from four regulators: the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.
But the bank has struggled to settle with another regulator, the Commodity Futures Trading Commission, which is investigating whether the bank’s trading manipulated the market for financial contracts known as derivatives. JPMorgan Chase disclosed on Thursday that the agency’s enforcement staff had recommended the filing of an enforcement action.
The regulators who did settle with JPMorgan cited the bank for “deficiencies” in “oversight of the risks,” assessment of controls and development of “internal financial reporting.” The group at JPMorgan tasked with double-checking the traders’ estimated profit and losses was so “under resourced” and “unequipped,” authorities said, that it consisted of a single employee.
The regulatory orders attributed much of the blame to JPMorgan’s senior management, who failed to elevate concerns about the losses to the bank’s board.
Read the entire article here.
The Securities and Exchange Commission signaled it was taking a harder line on Wall Street’s rampant problem with fraud by extracting its first admission of wrongdoing from Philip Falcone, CEO of Harbinger Capital Partners.
Falcone admitted to market manipulation and as part of a settlement will pay $18 million in fines in addition to being banned from trading for five years. He was accused in June 2012 of manipulating the market by improperly using $113 million in fund assets to pay his own taxes and to favor some customer redemption requests secretly over others.
The deal comes a month after the SEC overruled its own enforcement staff to reject an earlier settlement last month. The original agreement called for a two-year ban from raising new capital and no admission of wrongdoing and did not include an injunction against committing fraud in the future. According to reports the SEC’s new chairwoman Mary Jo White said people were increasingly frustrated with the agency because of its lax oversight and punishments.
The new agreement reflects a wider policy change in the Obama Administration, which has been criticized for failing to go after market manipulators and to tackle the problem of fraud on Wall Street. The DOJ announced last week it was filing criminal charges against two JPMorgan Chase traders who lost $6 billion last year from risky derivatives trading. Monday’s agreement between Falcone and the SEC sets a precedent for future cases including those involving JPMorgan Chase and the hedge fund SAC Capital Advisors.
The Department of Justice announced it will not bring civil or criminal charges against investment bank Goldman Sachs, despite its probable violations of various banking and securities laws that precipitated the financial collapse of 2008. In a statement it released yesterday, investigators said they “ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time.”
On the same day Goldman Sachs also revealed that the Securities and Exchange Commission was ending its investigation into a $1.3 billion subprime mortgage deal without bringing charges.
Given the close ties between Goldman Sachs and the government, the timing of these announcements raises red flags about the adequacy of banking and financial regulations and signals a lack of political will to hold large banks accountable for creating our present economic mess.
These announcements are surely disappointments to millions of mortgage holders, consumers, and taxpayers who are shouldering the costs of Goldman Sachs and other large banks’ complicated and ill-conceived banking practices. Although the Justice Department and SEC claim there is insufficient evidence to prosecute, these announcements in no way exonerate the large investment bank from its share of responsibility in creating and sustaining America’s largest financial disaster since the Great Depression.
Despite election year rhetoric pinning America’s economic problems on President Obama’s shoulder the real problem appears to be lax Congressional oversight, impotent laws, and regulatory agencies with cozy ties to their friends in the banking industry. Without the political will in Congress to write stronger laws to regulate this industry, mortgage holders, consumers and taxpayers alike are unlikely to see any substantial relief from the financial and political corruption that is rife in this country.
A recent New York Times investigation of Securities and Exchange Commission (SEC) cases involving fraud by some of the nation’s biggest banks discovered dozens of instances over the last decade in which banks were charged with violating anti-fraud laws but were never punished because they “promised” not to violate the law again.
For example, Citigroup agreed last month to pay $285 million to settle civil charges that it defrauded customers during the housing meltdown. They promised not to violate the law again, even though they had made this same promise in settling similar charges in July 2010 and several other instances going back to 2000.
An analysis of enforcement actions during the past 15 years found at least 51 cases in which the SEC concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms, including Citigroup, Bank of America, Goldman Sachs, JP Morgan, and Morgan Stanley.
Critics of the SEC and big banks are urging Congress to take action against the agency and force it to do the job it is intended to do as the nation’s watchdog and enforcement agency for financial and banking laws. Sen. Carl Levin (D-MI) is calling for an investigation into the agency’s enforcement practices. When asked why none of the banks had been charged with contempt of the law for repeatedly violating promises not to break anti-fraud laws, the SEC could only respond that it had not brought any contempt charges in the last decade despite repeated violations.
The cozy relationship between banks and politicians is primarily to blame for the failure of both markets and market oversight in this country. If the SEC is unwilling to enforce the law’s it is charged with enforcing, then Congress and the Obama Administration have the duty to force a turnover in that agency and appoint regulators who will do their job. When regulators don’t do their job, private actors are encouraged to make poor and risky economic decisions that adversely impact the rest of us. It’s time Congress put teeth into the regulation the financial and banking industries. Otherwise, it is not a question “if” there will be another financial collapse but “when.” ::KPS::
NYT analysis of repeat Wall Street offenders.