Just weeks after announcing a $13 billion settlement over its involvement in mortgage security shenanigans, JPMorgan Chase (JPM) is apparently set to pay $2 billion in penalties over its involvement with Bernie Madoff. According to the New York Times and other sources, the mega-bank is being faulted for “turning a blind eye” to Madoff’s gigantic Ponzi scheme.
According to the Times, “The agreement to deferred prosecution would also list the bank’s criminal violations in a court filing but stop short of an indictment as long as JPMorgan pays the penalties and acknowledges the facts of the government’s case. In the negotiations, the prosecutors discussed the idea of extracting a guilty plea from JPMorgan, the people said, but ultimately chose the steep fine and deferred-prosecution agreement, which could come by the end of the year.”
In other words, rather than going through a lengthy and expensive trial they may not win, regulators are willing to accept a simple apology and a campaign-friendly headline payout. As should be clear by now, the word “settlement” has a flexible definition when it comes to prosecuting Wall Street.
“As long there’s money they’ll go after (JPMorgan)” notes Jon Najarian of optionMONSTER. JPMorgan being a bank there will always be money available for government payouts. The problem from the perspective of punishing evildoers is that the cash in question doesn’t actually belong to the alleged criminals. “What’s insidious about what’s going on here is that this isn’t Jamie Dimon’s personal stash, this is shareholder value that (the government) is taking back apart day by day, beating them up and acting like a bully. Unfortunately just like in the schoolyard, if a bully bullies you and you give him a dollar, they’ll be back for more tomorrow and that’s the same thing that’s going on here.”
Oddly enough, shareholders of JPMorgan stock don’t seem to particularly care about the fines either. Shares are flat today and trading within pennies of where it was when JPMorgan finalized the prior payout. In fact for all the noise, headlines, Volker rules, and general abuse of CEO Jamie Dimon over the course of 2013, JPMorgan shares are actually more than holding their own against the S&P500 (^GSPC).
As has been pointed out in the this space before, JPMorgan isn’t being punished for its misdeeds. It’s barely even acknowledging having done anything wrong. Using the bank as a scapegoat has never been more brazen than it is in this instance given the who’s who of finance and regulators that managed to miss the fact that Bernie Madoff was running an $80 billion Ponzi scheme for decades.
Ironically the SEC itself reportedly refused to investigate Madoff despite a chartered financial analyst named Harry Markopolos reporting his concerns to the agency for nearly a decade. Markopolos says he came to fear for his life after his claims were repeatedly ignored. So the government had no idea what to do with the evidence it actually had against Madoff, but JPMorgan is still on the hook for not being among the people raising red flags.
JPMorgan and other financial institutions have much to answer for regarding their involvement in the financial crisis, but not having squealed on Bernie Madoff is pretty low on the list. Regulatory bodies either lack the insight to ask the right questions or the courage to pursue criminal charges against bank executives so the public has to settle for headlines rather than justice.
All the drumbeat of settlements do is prove that paying a portion of profits back to regulators and feigning contrition is just another part of doing businesses for the financial giants still ruling American. Judging by the ease with which JPMorgan is able to keep coughing up billions in settlements in exchange for a license to steal is as close as Wall Street gets to a risk free trade.
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