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Last month, charges were brought against two of the three traders alleged to have taken part in the London Whale scandal at J.P. Morgan Chase, while the third participant agreed to serve as a cooperating witness. No charges were filed against any executives, even though the company's failed oversight led to $6 billion in losses.
After the charges were announced, we couldn't help but wonder: how does the government expect banks to reform their practices when the only disincentive was a temporary dip in stock prices? Today, we got our $1 billion answer.
J.P. Morgan Chase's apparently inaccurate ledgers will have to absorb another $1 billion in losses after the bank came to an agreement with the Securities and Exchange Commission and a separate, unrelated resolution of a consumer protection dispute with the Consumer Financial Protection Bureau, reports The New York Times.
The terms of the settlement with the SEC include $920 million in fines to an assortment of government agencies, all because of the company's institutional failures that provided little to no oversight over the wayward traders, who falsified records to hide ever-increasing losses. The SEC also took issue with senior management, which withheld information during an internal investigation from the Board of Directors, investors, and regulators.
In a separate deal, the bank agreed to pay $80 million in fines for allegedly duping customers into buying identity theft products that never actually existed. The company was also faulted, but not fined, for using faulty documentation in credit card debt collection lawsuits.
The bank still faces enforcement actions by the Commodity Futures Trading Commission over its alleged manipulation of the market during the London Whale trading scandal.
The admission by the bank of violating securities laws in the SEC case was a break from the agency's "no admissions of fault" settlements of yore, but should not hurt J.P. Morgan Chase significantly, according to the the Times.
Though the admission in the SEC case could have collateral estoppel effect, making the issue predetermined in any private litigation, the Times notes that the company only admitted to violating the books-and-records provision of federal securities laws, an admission they also made last year, and which does not have a private right of action.
The bank did not admit to any misstatements, omissions, or fraud, which would have greatly increased their exposure to lawsuits under Rule 10b-5.
The Times also speculates that such an admission is why the dispute with the Commodity Futures Trading Commission has yet to be resolved. The Commission alleges that J.P.Morgan Chase's extensive trading manipulated the derivatives market, and inflated the price of the bank's derivates. The relevant statute for that accusation does carry a private right of action.