The old song and dance might be replaced with a new tune. In the not-so-distant past a bank, exchange or hedge fund would teeter near the brink of collapse or come thisclose to breaking the law, regulators would swoop in, some charges and hearings would come about and then …
Not much. The “guilty” party would pay a fine to the regulator with the proviso that they neither admit nor deny any wrongdoing. If you don’t believe me, lets Google "admit no wrongdoing" plus "regulators" and we can find 72,000 results in 0.25 seconds.
[Guess what? High-frequency trading inside Goldman Sachs is a mess.]
But the SEC's new sheriff appears to be changing this. Despite her long ties with mainstream investment firms, SEC Chief Mary Jo White is pushing for JP Morgan Chase to reach a settlement with the US government with the proviso that they cannot state that they didn’t commit any wrongdoing.
JPMC is, as expected, fighting this condition. Silver fox chairman and CEO Jamie Dimon knows how big of a mess his out of control trader in the London office - hence the nickname London Whale - but to admit this is a true form of embarrassment and shame for the chastened CEO. Not only did Dimon have to fight to keep both job titles from the understandably fuming board of directors of JPMorgan Chase, he had to testify before Congress about this spectacularly egregious lack of oversight that ultimately cost the investment bank an estimated $6 billion.
(Thank heavens Dimon's testimony was a tongue bath where flummoxed senators and representatives proved that they didn’t know anything about modern capitalism and actually asked his advice on what to do about the then fairly newish Dodd-Frank Act. Saint Jamie said it should be weakened for the good of, you know, the economy.)
While no laws appear to have been broken outright in the case of the London Whale, there are some appearances of bad behavior inside JPMorgan. As the NYTimes DealBook reports:
As the S.E.C. inquiry progresses, a parallel criminal investigation is also ramping up. The F.B.I. and federal prosecutors in Manhattan, after uncovering internal e-mails and phone recordings, are examining whether the traders knew the losses would amount to more than the $2 billion estimate the bank initially provided to investors on May 10, 2012, say the people briefed on the matter, who spoke on the condition of anonymity.
When federal investigators met this spring with Jamie Dimon, the bank’s chief executive and chairman, some of the e-mails enraged him, said people briefed on the meeting. Mr. Dimon, who is not suspected of any wrongdoing, told investigators that he was unaware traders were obscuring the losses when he held the May 10, 2012, call.
Of course, JPMC, Dimon and everyone around the London Whale Bruno Iksil are to be considered innocent until proven guilty but the SEC's actions could have a bracing effect on Wall Street, inside hedge funds and exchanges and beyond. After almost comically minor regulatory fines handed out during the previous Bush administration, a new era of stiff fines with no moral escape clauses like "admits no wrongdoing" might make traders think twice before going rogue, bending the rules or trading while stupid.
[Hackers to Exchanges: You’re next!]
Here’s an idea: Add a zero to the old fines so that a $1 million fine becomes $10 million and the parties involved lose their trading licenses. If we can disbar attorneys and strip doctors of their medical license and make sure truly bad teachers never step foot in a classroom again, maybe a lifetime or partial ban for traders could do the trick.
You’ll never do right unless you admit you did something wrong.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio