Column: JPMorgan gets yet another ‘sweetheart’ deal from feds for flagrant market corruption

Jamie Dimon: Chairman of a teflon bank?
(Diane Bondareff / Invision for JP Morgan Chase)

Judging from the statements put out Tuesday by federal securities regulators and the Department of Justice, JPMorgan Chase & Co. got caught in a serious, flagrant, years-long plot to rig financial markets.

The Justice Department broke the offense down into two “schemes to defraud: the first involving tens of thousands of episodes of unlawful trading in the markets for precious metals futures contracts, and the second involving thousands of episodes of unlawful trading in the markets for U.S. Treasury futures.”

Dan M. Berkovitz, a member of the Commodity Futures Trading Commission, called “the scope of misconduct and market harm ... unparalleled.


It is troubling enough to consistently grant waivers for criminal misconduct. This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers.

— SEC Commissioner Kara Stein, in 2015

The government slammed JPMorgan with a record-breaking $920 million in fines and penalties.

Pretty serious. Yet the market watchdog organization Better Markets terms the settlement a “sweetheart deal.”

Better Markets is right. This is at least the third market manipulation accusation JPMorgan has faced in recent years, including a bid-rigging scheme in the California electricity market in 2010 and 2011 for which the bank paid a $410-million penalty.

The truth is, the latest settlement is so indulgent that the bank had no trouble casting it, absurdly, as a triumph of good governance.

The traders directly responsible for the market manipulation are “no longer with the firm,” the bank’s formal statement noted. “We appreciate that the considerable resources we’ve dedicated to internal controls was recognized by the DOJ, including enhancements to compliance policies, surveillance systems and training programs.”


The toll of JPMorgan Chase’s relentless lawbreaking under Chairman and CEO Jamie Dimon may finally be getting real for shareholders.

Oct. 11, 2013

Well, sure. Great surveillance and internal controls, JPMorgan. Kudos for allowing the criminality to continue for only eight years.

As if to add insult to injury, the bank bragged that it “does not expect any disruption of service to clients as a result of these resolutions.”

The Justice Department cut this deal as a “deferred prosecution agreement,” or DPA, through which it won’t pursue harsher penalties if the bank keeps its nose clean for three years.

The problem here is that JPMorgan was already under a three-year sentence of probation imposed in May 2015 for manipulating the foreign exchange market, to which the bank pleaded guilty to a conspiracy count.

In that deal, the bank was forbidden to “commit another crime in violation of the federal laws of the United States.”

Yet the offenses at the heart of this week’s settlement date from 2008 and continued until at least January 2016, according to the prosecutors’ statement.


In other words, the alleged crimes were taking place while the earlier settlement was being negotiated and continued for seven months after the bank promised not to break the law again.

In the 2015 settlement, JPMorgan pleaded guilty to a criminal count of conspiracy and agreed to pay $550 million in fines. Four other banks — Citicorp, Barclays, Royal Bank of Scotland and UBS — also pleaded guilty and agreed to pay a combined $2 billion in fines.

Prosecutors pledged that there would be no second chances for these offenders.

Their goal was to “communicate loud and clear that we will hold financial institutions accountable for criminal misconduct,” one of the prosecutors said.

“We will enforce the agreements that we enter into with corporations,” he added. “If appropriate and proportional to the misconduct and the company’s track record, we will tear up an NPA [non-prosecution agreement] or a DPA and prosecute the offending company.”

You might think that the chairman and CEO of a major bank that had just pleaded guilty to a federal felony charge and has paid out more than $20 billion in legal settlements in recent years would show a little humility.

May 29, 2015

Yet here we are, five years later and with a charge of “unparalleled” wrongdoing, and the penalty is just rolled over to another three years’ probation.

Some regulators have found this prosecutorial indulgence to be objectionable. In 2015, then-SEC Commissioner Kara M. Stein pointed out the “recidivism” of JPMorgan and the other banks.

All should have been automatically deemed ineligible for “well-known issuer status,” a benefit conferred by the SEC that allows issuers lucrative, streamlined access to the capital markets when managing stock issues for client companies.

All received waivers from the automatic disqualification as part of the settlement — but all had received multiple waivers already. JPMorgan, Stein noted, had received five such waivers since 2008.


“It is troubling enough to consistently grant waivers for criminal misconduct,” Stein wrote. “This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers.”

In the latest case, CFTC Commissioner Berkovitz objected to granting JPMorgan dispensation from the “bad actor” provisions of securities laws, which raise obstacles to securities issuances by persistent wrongdoers.

Advocates of greater accountability for executives in the banking sector cheered this week when Wells Fargo Chairman and Chief Executive John Stumpf lost both his jobs.

Oct. 14, 2016

Despite the egregious nature of JPMorgan’s conduct, Berkovitz complained, the CFTC was unable to impose the “bad actor” disqualifications itself because that was deemed to fall under the SEC’s authority, with the CFTC permitted only to issue an advisory opinion to the SEC with “no legal effect.”

By absolving JPMorgan of the automatic discipline and putting off further prosecution for at least three years, the Justice Department, SEC and CFTC have meted out what I’ve previously termed “enforcement by cashier’s check.”

The sum of $920 million may sound large, but for a bank the size of JPMorgan Chase & Co. it isn’t, really.

The money doesn’t come out of the pockets of the wrongdoers or even Chairman and Chief Executive Jamie Dimon, who has presided over his institution’s scofflaw ways for nearly 15 years. It comes out of the pockets of shareholders. On the other hand, they’re not suffering either — last year alone, the bank repurchased $24 billion of their shares.


Better Markets points out that at least a portion of the penalties will be covered by insurance and a tax deduction, assuaging the pain considerably. More to the point, the bank recorded $36.4 billion in profits last year, making its settlement sum worth a mere 2.54% of its profits, or a bit more than nine days of profits.

“Once again, JPMorgan Chase will be allowed to use shareholders’ money to pay a fine,” Better Markets observes, “de facto buying get-out-of-jail-free cards for its executives.”

It’s often been said that what’s scandalous about the American system of justice isn’t what’s illegal, but what’s legal. What’s truly scandalous, however, isn’t what’s illegal, but how easily those wearing white collars get away with it.