Another day, another Wall Street mea culpa.
JPMorgan (JPM), which cannot seem to get out of the headlines, is admitting that its employees behaved recklessly and will pay $100 million to resolve the CTFC’s investigation of whether the London Whale trades manipulated markets. The agreement comes after what The New York Times portrayed as a standoff during which the bank initially resisted admitting wrongdoing, prompting the CFTC to prepare to file a lawsuit. They eventually worked something out.
The one person most responsible for the newfound push for Wall Street admissions of guilt may be SEC Chairman Mary Jo White, who seems to have triggered a competition among regulators for who can be the toughest. “We are going to in certain cases be seeking admissions going forward,” White said at a conference in June. “To some degree, it can turn on how much harm has been done to investors, how egregious is the fraud. So I think you will see going forward some change in that space.”
Typically, SEC settlements have included much-maligned “neither admit, nor deny” language, based on the assumption that forcing companies to admit guilt would make it much harder to resolve cases before they go to court. In 2011, a respected Federal District Court Judge, Jed Rakoff, started questioning settlements that didn’t include acknowledgements of wrongdoing. In one instance, he said the policy was ”a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C.”
In January, the SEC said that it would require defendants to admit culpability in cases where they had already done so in parallel criminal cases. Soon after White took over as Chairman in April, the agency said that it was reviewing cases in its pipeline to figure out where to apply the new requirement. Hedge fund impresario Philip Falcone, of Harbinger Capital Partners, was the first one to test the new policy when he acknowledged that he’d behaved “recklessly” in resolving a market manipulation case, and agreed to an $18 million fine and a five year ban from the securities industry. As the guilt-momentum has grown over the last few months, White’s name has come to elicit awe, and resentment, on Wall Street.
JPMorgan has already paid $920 million to resolve other regulatory actions related to the London Whale trades, $200 million of which went to the SEC. JPMorgan reached that settlement by “admitting the facts underlying the SEC’s charges,” according to the SEC’s order, and by “publicly acknowledging that it violated the federal securities laws.”
