An outside observer might be forgiven for thinking JPMorgan Chase isn’t so much a bank as it is a criminal enterprise with a bank attached to it. Even before the London Whale scandal, Chase's documented list of crimes included repeated fraud, perjury, forgery, bribery, and violations of laws against trading with Iran and Syria.
It also shot a man in Reno just to watch him die.
Okay, that last statement isn’t true. But the rest of the crimes on that list, and a number of others, are well-documented. And yet, remarkably, not a single senior executive at the bank has been indicted – or, to our knowledge, even been the subject of a criminal investigation. The bank just agreed to pay nearly a billion dollars in fines over the “Whale” case. And the SEC finally ending its practice of allowing criminal banks to "neither admit nor deny wrongdoing" when paying for their misdeeds. Chase admitted its guilt as part of the settlement.
In an even more dramatic break with recent practice, the Justice Department is pursuing criminal prosecutions in this case. But it’s not clear that the indictments against two low-level employees will even lead to a trial.
We have written extensively about JPMorgan Chase’s crime spree, but we have tried to be scrupulous about avoiding assumptions of guilt or innocence on the part of the bank’s senior management. And in all fairness, the bank’s leaders may not be involved in any criminal activity. They may simply be incompetent managers, incapable of ending criminal and reckless behavior among the employees for whom they are responsible. In that case the Board should step in and relieve them of a burden they’re clearly incapable of carrying.
But fair is fair: At least theoretically, Chase’s executives may be trying to run an honest bank. And Tony Soprano may just be running a waste management company. But our outside observer would also be forgiven for concluding that crime is part of Chase’s business model.
Sound harsh? A report on JPM’s lack of proper risk management controls, appropriately entitled “Out of Control,” documented a list of crimes which, as David Dayen noted, “reads like a rap sheet.” Dayen helpfully summarized the offenses documented in the report, and you’re encouraged to read his list in full. Even this heavily abridged version will have you wondering why the police dispatcher hasn't sent officers to the scene:
"Bank Secrecy Act violations; money laundering for drug cartels; violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor; executing fictitious trades where the customer … was on both sides of the deal; misrepresentations of CDOs and mortgage-backed securities; violations of the Servicemembers Civil Relief Act; fraudulent sale of unregistered securities; auto-finance deceptions; violations of state and federal ERISA laws; filing of unverified affidavits for credit card debt collections; energy market manipulation that triggered FERC lawsuits; “artificial market making” at Japanese affiliates; shifting trading losses on a currency trade to a customer account; fraudulent sales of derivatives to the city of Milan, Italy; and obstruction of justice (including refusing the release of documents in the Bernie Madoff case)."
And the list excerpt above is by no means complete. It leaves out Chase’s central role in bribing officials in Jefferson County, Alabama to rig municipal bonds, and overlooks the “Burger King kids” – college-age youngsters hired by the bank to mass-generate foreclosure filings (so named by fellow bank employees because of their propensity for eating take-out fast food while generating the court documents they reportedly falsified).
JPMorgan Chase was one of five banks which agreed to pay billions in fines to settle charges stemming from massive and systematic foreclosure fraud.
Twenty-four states have enacted some version of the “three strikes” rule, which requires a jail sentence for anyone convicted of a third felony. And yet, as this chart shows, JPMorgan Chase has committed a total of four violations on one count alone, “Purposeful or negligent fraud in interstate commerce,” which violates section 17(a) of the Securities Act of 1933.
Connecticut’s Office of Legal Research clearly summarizes the penalties which individual bankers may face for violating the Securities Act and its companion legislation, the Securities Exchange Act of 1934:
“Corporate directors, officers, and others who violate these laws are subject to criminal penalties, administrative fines, civil penalties, cease and desist orders, injunctions, disgorgement (an equitable remedy to provide restitution to defrauded members of the public), private lawsuits, and orders barring them from acting as officers or directors of public companies.”
Pop quiz: How many senior executives at JPMorgan Chase have faced criminal prosecution for the bank’s serial crimes? How many have been personally fined, served with cease and desist orders, or been barred from acting as officers and directors of public companies?
Instead, bank executives have been allowed to “settle” these crimes by paying large fines with other people’s money – specifically, shareholders who may have been deceived in the bank’s latest “London Whale” case. It’s almost as if the bank’s senior executives lead charmed lives – or have very well-placed friends.
Even as the “Whale” legal crisis was exploding, Chase CEO Jamie Dimon appeared at the Davos financial “summit” sporting FBI cufflinks. Was he trying to tell the world something?
Now the government’s issued “Whale” arrest warrants for two relatively low-level Chase bankers. That’s encouraging, especially after so many years of inaction – but their choice of targets is not. Both indicted bankers are foreign nationals who may or may not be extradited under current agreements.
Yves Smith has an excellent overview of the state of play in the Whale investigation. The bottom line is this: Of all the targets the government might have pursued, these two bankers are among the hardest to locate and “turn” into witnesses against more highly-placed executives.
And it’s far from clear there will be a government appetite for doing that. JPMorgan Chase CEO Jamie Dimon is a major contributor to political campaigns. Senior bankers were Attorney General Eric Holder’s primary clients in his lucrative private law career. The same is true for SEC head Mary Jo White.
Good for them for finally taking more aggressive action. But the burden of proof is still on them, and especially Holder, to demonstrate that they will pursue bank crimes aggressively. That means picking cases and targets that can be brought to justice, and finding witnesses who can be persuaded to testify in return for leniency. It’s hard to believe that there aren’t more cases like that to be found in JPMorgan Chase’s rich vein of lawbreaking.
Fairness demands that we say it again: It may very well be that the leadership team at JPMorgan Chase is shocked – shocked! – at all this criminality, and may simply lack the basic managerial skills needed to end it. But we can’t help thinking of the line from Mel Brooks’ The Producers, when the jury foreman is asked to read the verdict against Zero Mostel and Gene Wilder. “We find the defendants incredibly guilty,” intones the foreman.
JPMorgan Chase’s crimes cry out for a jury like that.