JPMorgan Fined $920M in Carefully Crafted London Whale Deal
The U.S. Securities and Exchange Commission and other regulators have wrested a $920 million fine and an admission of wrongdoing from JPMorgan Chase & Co. over last year's "London Whale" trading debacle, which cost the bank more than $6 billion in losses. Wall Street critics were pleased to see JPMorgan admit in Thursday's deal that a breakdown in controls and leadership caused the losses, but the SEC still came under fire for accepting a carefully worded admission and for letting high-ranking execs off the hook.
The SEC outlined the deal in a 39-page order instituting a settled administrative proceeding. JPMorgan will pay approximately $700 million in penalties to U.S. regulators. Of that $700 million, $200 million will go to the SEC, $300 million to the Office of the Comptroller of the Currency, and $200 million to the Federal Reserve. JPMorgan also agreed to pay $200 million to a U.K. regulatory body, the U.K. Financial Conduct Authority, bringing the total cost of fines to about $920 million.
As expected, JPMorgan and its lawyers at Wilmer Cutler Pickering Hale and Dorr also stipulated to certain facts. For one thing, the bank admitted it didn't have sufficient controls in place to monitor Bruno Iksil, the former JPMorgan trader nicknamed "the London Whale" because of his outsized derivative bets, and his colleagues. The bank also acknowledged that senior management failed to alert its audit committee about the extent of the London Whale woes.
Based on those factual admissions, the SEC wrote in Thursday's order that "JPMorgan violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act." Those sections create strict liability for companies making inaccurate SEC filings. However, because Section 13 doesn't require a showing of fraud or even negligence, JPMorgan's admission may be of limited value to shareholders pursuing a class action lawsuit over the London Whale losses in U.S. district court in Manhattan. Sullivan & Cromwell represents JPMorgan in that case, squaring off against Bernstein Litowitz Berger & Grossmann and the other plaintiffs' firms.
Some commentators, including Michael Santoro of The New Yorker, were disappointed to see no individual JPMorgan executives hit with fines of their own. The SEC seemed to think there was blame to go around. In a press release, the SEC's co-director of enforcement said JPMorgan senior management "broke a cardinal rule of corporate governance" by failing to inform the bank's audit committee.
JPMorgan's liability for the scandal could grow. The bank is still being probed by the U.S. Department of Justice, which charged two of its traders earlier this week. The Commodity Futures Trading Commission also is still investigating whether JPMorgan violated provisions of the Dodd-Frank Act that cracked down on market manipulation.
Harry Weiss and Howard Shapiro of Wilmer advised JPMorgan on the SEC settlement. Shapiro wasn't immediately available for comment.