JP Morgan Admits Wrongdoing in SEC Settlement

September 26, 2013 by Thomas F. Burke, P.C.

As part of the $920 million agreement with regulators in the U.S. and U.K.,, including the U.S. Securities and Exchange Commission ("SEC"), New York-based JP Morgan Chase & Co. ("JP Morgan") admitted that it violated federal securities laws when it failed to catch traders hiding losses in 2012 relating to the "Whale". In settling claims with JP Morgan, the SEC began fulfilling its pledge to force wrongdoers to admit guilt.

Under SEC Chairman Mary Jo White, 65, the enforcement division has shifted its long-standing policy of allowing defendants to settle matters without admitting or denying any wrongdoing. The practice had been thrown into question when U.S. District Judge Jed Rakoff rejected a settlement with Citigroup Inc. in part because the bank didn't admit to any misconduct.

Bloomberg reported that not all SEC commissioners supported the settlement, which was approved by a 2-1 vote, according to two people with knowledge of the matter. Michael Piwowar, 45, a Republican commissioner who joined the agency last month, voted against it, while Democrats Luis Aguilar, 59, and Kara Stein, 49, supported the agreement, said the people, who asked not to be identified because the matter isn't public.

White and Republican commissioner Daniel Gallagher were recused. White had previously represented the bank, according to public disclosures, and Gallagher's former law firm -- Wilmer Cutler Pickering Hale and Dorr LLP -- was lead counsel for JP Morgan in the case.

Jaret Seiberg, an analyst at Guggenheim Partners, said in a note that JP Morgan's admission of wrongdoing will help the bank restore its public image. "Bank executives can rightly say they have taken responsibility for what went wrong," Seiberg said.

As a result of failing to oversee the Whale trades, senior managers and traders at JP Morgan were fired. The trades losses had no public costs but cost JP Morgan shareholders over $6 billion in losses.

Senator Carl Levin, a Michigan Democrat who headed a subcommittee investigation that concluded that JP Morgan senior executives misled investors, criticized the SEC for failing to hold individual managers accountable. The Senate investigation "showed that senior bank executives made a series of inaccurate statements that misinformed investors and the public as the London Whale disaster unfolded," Levin said in a statement. "Other civil and criminal proceedings apart from this settlement are continuing, so there is still time to determine any accountability on that matter."

Senator Charles Grassley, an Iowa Republican, also criticized the SEC's decision not to sanction individual managers. "The SEC says it's still investigating individuals in this case," Grassley said in a statement. "Maybe we'll see more enforcement action on how the bank communicated with investors."

But the SEC action is not the only problem that JP Morgan has with government agencies. State and Federal attorneys are also conducting investigations into JP Morgan activities. The New York Times reported that at least seven federal agencies are conducting investigations. JP Morgan has reportedly been talking about settling the matters for $11 billion dollars, but even if the settlement comes to fruition, no one is giving any guarantees that criminal actions will not follow.