JPMorgan Chase & Co., the largest U.S. bank, has agreed to pay nearly $1-billion (U.S.) to regulators on both sides of the Atlantic to settle multiple probes into its "London Whale" trading disaster.
That's a whopper of a fine – but don't be distracted by the big numbers in the settlement.
The real news here is that JPMorgan has admitted that it broke securities laws. That marks a major departure from past civil settlements involving financial institutions, which often ended with a kind of gentleman's agreement: banks would agree to pay a hefty fine but they would neither admit nor deny the charges levelled by regulators.
Mary Jo White, a former federal prosecutor who took the helm at the U.S. Securities and Exchange Commission in April, has said that in certain cases she will seek to end the incongruity of regulators imposing settlements in the hundreds of millions of dollars but failing to require an admission of wrongdoing.
Today's JPMorgan settlement shows what it looks like when that happens. The bank admitted that:
– the internal reviews of the "London Whale" trades were so troubling that senior executives expressed reservations about endorsing the bank's first-quarter financial statements
– the bank's senior management failed to tell board members of such concerns ahead of the announcement of the quarterly results
– the accounting controls in the unit responsible for the "London Whale" trades were "woefully deficient"
In this case, regulators have not just extracted a sum from JPMorgan's considerable treasury but forced the bank to make a public proclamation of misconduct. And that, in turn, has focused the bank on remedying those problems in very visible ways.
For instance, in a lengthy memo to JPMorgan's staff sent earlier this week, chief executive Jamie Dimon wrote that ensuring the bank complies with regulations is "priority #1." He then proceeded to outline the "unprecedented effort" the bank has initiated to make that happen.
One wonders what the outcome might have been had the SEC adopted a tougher stance earlier in its enforcement efforts – for instance, if Goldman Sachs Group Inc., had been pushed to admit wrongdoing when it paid a $550-million fine over charges it defrauded investors in a complicated mortgage-backed security.
Meanwhile, JPMorgan isn't quite out of the woods yet. Today's settlement does not include an ongoing probe by one U.S. regulator – the U.S. Commodities Futures Trading Commission. And there's still a criminal investigation underway by federal prosecutors in Manhattan.
(Joanna Slater is the Globe's New York Bureau Chief.)
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