So as per the article "JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm". This is a failure that goes all the way to the top. Yet no one in leadership is held accountable? Can individuals not be charged for knowingly enabling this?
We're not living in a democracy. We're living in an oligarchy. Of course those at the top won't get punished. That class never gets punished. Who else is gonna fund all those old decrepit bickerers in Washington?
Please don’t take this personally, but fuck I hate this painfully common assertion. We most absolutely live in a democracy. However sometimes it’s easy to get confused as to what that means. Democrats (as opposed to autocrats or oligarchs) must behave in ways that will get them the votes they need to stay in power. Is there anyone in particular enabling this? No. If there was, they either would not get re-elected, or constituents have decided that this is not enough a transgression to vote for someone else. Maybe a case could be made for lack of knowledge or high ignorance amongst the common voter contributing to poor outcome of democratic processes, but to say we don’t have a democracy is irrational. No one forces you to vote for anyone. You don’t like someone in power? Get rid of them! You can do that here…but unfortunately one of the benefits of democracy, is you need a group to enact change and policy, not an autocratic individual.
By singling out Democrats, are you claiming that the Koch brothers and Sheldon Adelson haven’t influenced the government in ways that are beyond the scope of what citizens should be capable of?
Their influence largely comes from their ability to buy media timethrough PACs. Direct contributions to politicians is still highly regulated. You could argue that they can wield influence by threatning current politicans to fund the campaigns of competitors but at the end of the day this still happens through PACs buying media campaigns.
The influence of the Koch's or Adelson is largely hinged on the fact that Americans don't use critical thinking when consuming their media. Rather than trying to find a way to wiggle around the first ammendment when it comes to spending on speech, why not try to build an electorate capable of critical thinking? If you don't think that's possible, then what's the point of any of this?
While I can't be sure, I believe the commenter is referring to "democrats" (an actor in a democratic government) and not "Democrats" (actors within a political party in the US). Correct me if I'm wrong.
If we're being serious, I'd say we're living in a hybrid system with competing sources of power: oligarchy, indirect democracy, direct democracy, guild system, etc.
I saw a documentary on Putin's rise to power that included (others do not) coverage of how the oligarchs in Russia (seven of them) basically set or determined how Putin would govern. They wanted a democracy friendly to their interests (capitalism) as the post-Yelstin era was beginning. It was quite revealing how Putin was subject to them and it reminded me a lot of America and our leaders and how they cowar to business leaders (and Trump's association with Russians). They agreed to stay out of politics if Putin stayed out of commerce. The oligarchs then divided up various industries among themselves.
In the end, it left the impression on me that Putin is just a player or a puppet who owes a lot of people.
To be fair you can describe most governments that way, even the totalitarian. It’s always a mix but the interesting question is the current distribution which is what I believe the OP was trying to voice.
Chances are, the people you're thinking of, the very top, may very well have proof in writing they require employees not to talk abt the business on whatsapp.
I work in the same kind of company and Im baffled, I wouldnt dare say the name of a client on whatsapp and sometimes the regulated chat system is so inconvenient I have to use some personal device but we usually do it to "ping" people so they then go to the recorded system.
And that they seem to have used it for decision taking, not just random discussion at the bar, means every low level employee who ever gave a formal report or raised a formal question without resending by email is wrong. Every.low.level.employee, yes.
Burn the top all you want, but at this point maybe the SEC should directly go to our companies fucking explain people that we must record all steps in decision making, not just for discovering fraud but to protect ourselves and our clients from suspicion in the first place.
Shocked that it happened at JPM. The SEC is also wrong to say: "Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures "!!
No, EVEYONE is responsible, from the dimwit intern making coffee to the ferrari driving MD, record keeping is bank 101, this makes me boil for some reason. I d be such a pain in the ass of a big boss if I saw that where I work.
> The SEC is also wrong to say: "Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures "!! No, EVEYONE is responsible,
And you were born knowing this, or did someone have to model the proper behavior for you first?
Well JPM sure must have the same training as we do, and I cannot imagine the SEC not reinforcing this value, that compliance to regulation is the first responsibility of a bank employee, esp after the crisis where we're painted sometimes basically as the devil's spawn responsible of all of society's injustices.
So putting the blame at the top is easy, but there were lots of little hands in between who should face some reckoning imho. And I bet you the top will do nothing else than just say "dudes, for the nth time, please please please disobey orders that clearly contravene normal practice".
Talking business on whatsapp like the Mafia, what is this honestly.
> Chances are, the people you're thinking of, the very top, may very well have proof in writing they require employees not to talk abt the business on whatsapp.
So because the bosses have a rule written down somewhere, that absolves them of the responsibility to make sure their employees are actually following it?
What are the odds that the profits from these recordkeeping failures exceeded $125M? If you did this as an individual you would be in prison. As a corporation like JPMorgan a fine as a slap on the wrist.
The problem is that it's basically impossible to know. I'd imagine the vast majority of infractions were just employees improperly communicating privileged information via Whatsapp or whatever, without gaining any real advantage by doing so.
The government decided that these record keeping failures were serious enough to warrant a hundred million dollar fine. We've all seen how fines lean toward slaps on the wrist so I would be pretty hesitant to assume the multi-million dollar one here was just because someone was DMing something that needed to be sent over a secure channel.
>"The government decided that these record keeping failures were serious enough to warrant a hundred million dollar fine."
The SEC likes to go after these sorts of settlements, as they can post large dollar values without having to prove any actual harm. On the other side, these settlements are so common that they're just a cost of doing business, basically a tax.
I cannot say exactly for this one, but with the LIBOR scandal numbers were probably not that high.
LIBOR was probably manipulated by 1 basis point (0.01%), give or take. Even with $1bn notional deal, which is a very large one, the difference would be $25k for 3 month payment.
I mean, well, it's still pretty good money, but it's not like they made a couple of trillions and only paid a mere half-a-billion in fine.
I traded swaps during the period that this was happening. Keep in mind there's a LIBOR settlement every day. Also, there would be non-linear products on it, too. I'm not sure about 1B being a very large amount either. I've heard of individual traders who swung a dv01 of $20M.
And actually what matters isn't the daily libor fixing, it is the fixings used for the future expiries, 4 times a year. I believe that's the ones that were heavily manipulated (by some faction of a basis point but on huge notionals), because you hedge with a single future exposures over a number of dates.
It is rather the impact on every day borrowers that was tiny. First they would have to be unlucky enough to have their libor fixing falling on one of these 4 dates, even if it did, the impact would likely be a rounding error.
I'm not so sure. I sat on both futures and swaps desks. Certainly a lot went through the futures on those 4 dates, but the swaps business was OTC, settling every day. I could easily see someone with varying settlements pushing it conveniently their way every day. Each customer would lose a little bit but put it down to noise.
Interestingly I also did FX and people got done on that as well. There's this daily fixing that's used for a variety of products, and a big player like a bank would have a daily delta that would be very nice to nudge the right way each day. You could actually see at 1630 each day that something odd was going on, and there'd be a rumor to go along with it on the squawk box.
The first one occured before the crisis. Swap traders asking money market traders to round their libor submission "the right way". That number got averaged across multiple banks, and the impact on the final fixing was likely of the order of a basis point or perhaps a fraction (per the regulator's report). 1 basis point may be small, but is a lot of money to an individual swap trader given the sort of position they must have had on libor futures (and that's money to the trader, not necessary to the rest of the bank who may have a net position the other way).
The second manipulation occured at the height of the financial crisis and is of a different nature. Because banks contributions to libor fixing were public, investors were infering from the submissions whether a bank was struggling to fund itself. At the height of the post-lehman panic, some banks decided to lower their submission to not look weak. In this case the order of magnitude would be much higher, in the 10s of basis points. You could argue the banks had a financial gain, but not from the direct impact on libor (it wasn't clear what their position was, though banks tend to be typically net receiver of libor), rather from the perception of not being in distress to investors.
Well that was the case. Multi-bp LIBOR moves are pretty rare outside of exigent circumstances and the mechanics of doing so would be pretty tricky given that outlier submissions are thrown out. Wilmott had a good article recently on the mechanics of the manipulation [1].
Proportion of revenue is a bad measure for this reason - costs don't scale proportionally. The rent, food and utilities you're siphoning out of that 100k along with all the incidental costs on top of it don't really apply evenly as revenue increases. As someone making right around 100k I'd say that 500$ is a big enough penalty that I'll notice it but if it was a one-off (like this one was) then I'll shrug and eat it. For instance if I were getting my bathroom remodeled and wanted to install some nifty european shower head that's against code... I'd probably be alright with the 500$ surcharge.
I read the below more as the company failing to enforce a policy of employees using business accounts/devices for business communication rather than the company failing to surveil private accounts. Basically, employees should be using "official" communication channels that can be audited for business communication and save WhatsApp for friends and family.
> As described in the SEC’s order, JPMS admitted that from at least January 2018 through November 2020, its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures – used their personal devices to communicate about the firm’s securities business.
> its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures – used their personal devices to communicate about the firm’s securities business.
They have to do this by las. Part is to “run the tapes” is there is a customer disagreement, and part is records keeping for compliance purposes. (Anti-Money Laundering, making sure transactions have economic substance, etc) In the aftershock of 2008 it came to light that much of the illegal behavior happened when people switched to personal devices.
When the government imposes such pitiful fines, it really comes across more as seeming like they just want an extra cut every once in a while. It doesn't feel at all like they care if JP Morgan ends up doing things any differently.
I agree. These types of fines are relatively small potatoes on the earnings that occurred during this time. Having worked for a large US bank for a large portion of my career, everyone is typically trained yearly in an online course that covers records management practices and what to do. I know this because I was accountable for records management practices at the bank. The other question is, what happened internally? How come internal audit didn't catch this back in 2018-2019 time period?
At the end of the day, it's often more profitable, and in the shareholder's best interest to say I am sorry, vs. actually follow policy. At the end of the day, regardless if the C-level knew about it or not, they are accountable. And even if one of the largest banks in the US has to pay a relatively paltry fine like this, the CEO and the management chains that were participatory in this behavior should forgo bonuses. That will change things. Otherwise, this behavior will continue.
One of the recurring themes in comment sections around fines for banks and large businesses is that "the fine is not in proportion to the size of the business".
I guess it makes sense to ask then, do we want to have fines that are proportional to the revenue/profit/"X"-value of a business (and how might that get gamed)? Where if a small business is sued for something like this, it will only pay $100 while a larger business for the same infraction will pay $100,000,000? And if we're ok with that, are we ok then also acknowledging that we completely disincentive any sort of legal enforcement of small businesses, from a cost/benefit perspective?
I actually think the inverse is true: if the SEC has decided that the correct penalty for recordkeeping failures is $125M, it is likely a balance of proportionality to the crime, cost of enforcement, and proportion to victimhood of the crime. The question I always wonder around this is, how much of this $125M goes back towards victims (if any) and how much goes towards further agency enablement to pursue criminal activity? Is $125M enough for the SEC to open X more cases (knowing how overcapacity they and every other government agency are)?
The real problem is that the big banks break laws and regulations continuously.
If you look at how many times have they been caught, the list is very, very long.
Yet every time there are no real consequences. A fine here and there and settlement agreements written in a way that nobody gets any trouble for anything. I'm actually surprised the bank admitted to anything this time. Usually they just pay a fine, and admit to nothing.
For heaven's sake, even HSBC drug cartel money laundering scandal results in not a single person going to prison or getting fired. HSBC even violated the additional rules they were supposed to be subjected to during a probation period after settling, and yet again nothing happened, except they paid a small(ish) fine.
It’s true for all heavily regulated companies. The regulations can be difficult to interpret, exceedingly onerous, or overly verbose.
I’ve worked in banking and healthcare and it’s not unusual for the regulators to fine you for something you didn’t know about (not even your army of attorneys or compliance department), or fine you because you interpreted things differently and now they disagree. Sometimes you change your internal operations and technologies, spending big $$$, only to find you to find out about some new case law that opposes your original interpretation. Then, your faces with the question of do we go through a massive re-implementation/disruption, or do we just take the risk.
Usually, in my experience, the cost of fixing things internally far exceeds the cost of fines and so the business decisions often boil down to that simple ROI math.
> Narrator: A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one.
If the cost of the fine is less than the profit that can be made by ignoring it, it will get ignored. Especially because banks seem to have privatized profits and socialized losses. So I don’t think it should be necessarily proportional to a companies size but certainly a multiple of the cost of the externality. For example, if an oil company gets caught polluting, they should pay a big multiple of the damages so that it is ALWAYS cheaper ti invest in doing the right thing.
Also, the SEC is not a particularly popular organization and I think they have lost a lot of trust (if they ever really had any)
I think that's absolutely and cynically correct. For example: there is a concept of parking tickets with fines. The fines are set to discourage certain behaviors while also not being cruel and unusual. Some people will never park "illegally" while others consider parking tickets to be the unfortunate risk or consequence of how they live their lives and do their jobs. The same is true for all penalties, period.
This cynical calculus should be separated from how we feel about the organizations that commit things that result in fines. It's really easy to hate on banks and believe that every fine is justified and should actually be way bigger. Pitchforks and burning down the barn, ya know? But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see. But the pendulum swings both ways. China is an example of a country where if a company goes against government rules it can be dissolved, its leaders arrested and thrown in prison, based on criteria they have calibrated politically. Or in some other countries, you may be beheaded for social infractions. Not trying to reduce this to absurd (but real) logical extremes, but highlighting that this is precisely the difficult balance folks try to find, and our sense of proportionality is often affected by the current popular conception of them as an industry or as an individual company/person. I.e., just as many people hate on banks and think they should be punished higher, they turn around express complete disbelief at "unfair" fines and laws that are broken by innovators that run faster than regulations allow (read: tesla, uber, airbnb, etc). Sometimes we collectively feel fines are justified, sometimes not, sometimes too high, sometimes too low. Your calibration may vary.
> But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see.
Isn't it likely that this someone now works for a large bank and directly profits from their previous generous decisions?
Fines should be a deterrent and not just cost of business. It seems we have reached a point where large companies can do shady stuff, make lots of money, pay a fraction of that as fine and nothing else happens. So they will keep doing it.
So this isn't a fine but a settlement, so I suppose you could argue that JPM wouldn't have agreed to pay it if they couldn't afford it. Otherwise, the kind of structure you're describing is similar to punitive damages[1], which strike me as good in theory, if not practice.
Fines should have a minimum amount which should be designed to seriously cripple repeated bad actors and induce enough financial pain to force amending the fine-causing behavior.
From a cost-benefit perspective… yes it makes sense to go after bigger companies creating larger more impactful violations. No one reasonably expects a small business to be fined $125M…
What are we calling a small business? For a 1-4 person outfit, $100, combined with the administrative hassle, may just be enough to get the business to amend some process. Even the moderately wealthy usually don't intentionally leave their cars parked where they'll get a ticket, because it's annoying to have to deal with it.
I think the layperson wants the fine to be big enough that it disincentivizes the bad behavior that resulted in the fine and behavior like it. JP Morgan recorded $12.1 Billion profit in 2020, so a fine of $125 Million is about 1% of their annual profit. I doubt Jamie Dimon is sweating too much about that.
For the record here, in addition to the fines, there is an additional unreported price of legal costs to fight this and compliance costs to fulfill obligations as per settlement. It's not quite an iceberg costs, but I guarantee they hired expensive lawyers to fight this beyond usual retainers.
I'd rather see the board and executives indicted (when it can be shown they are culpable) and then have the government seize the corporation. I mean, if we're doing civil asset forfeiture, let's take it all the way, eh?
In my view mere dollar fines are insufficient when it comes to fraud.
Administrative dissolution, aka corporate death penalty. I get this would be satisfying, but I'd really rather not provide more incentive for kleptocracy.
A big business can make much more damage than a small one. Also, even relatively small fine can shake heavily a small business. So, yes, I'm totally for fines that communicate to the doer that the done is not good.
Everyone's complaining that they only had to pay $125m, but what about the part where they had to "implement robust improvements to its compliance policies and procedures"?! The amount of "recordkeeping failures" this will prevent in the future is priceless!
Using throwaway account. I work at a broker-dealer. This is part of a huge ongoing battle with the SEC. Broker-dealers under SEC rules must constantly monitor all employee communications, flagging for keywords and reviewing a large subset. These communications go to WORM storage and in practice are periodically dumped to the SEC. If an employee talks about work on a personal device that isn’t being actively monitored- huge fines like this one. You can beg your employees not to do it all you want, but ultimately there are only two ways for a company to respond to this enforcement: do all work over phone calls and not text, which the SEC is fine with, or start monitoring personal communications.
I’ll leave it to you all to decide which course of action you think JP Morgan should take.
I have a friend who works for an insurance firm. This company enforces HIPPA requirements of not saving any personally identifiable information by prohibiting any means of saving information. They aren't allowed their phones, nor paper, and the computers they use are basically kiosks without access to text editors. That made for difficulties in staving boredom and in helping people across different days (given they'd need to remember the context). That's an extreme example, but not impossible if the requirement is to be able to reproduce all communications relating to some investment instrument.
I don't doubt that some high value employees probably already have company phones. For the others, I wonder if they will have to surrender their phones to not use them during the day or to have the chat history, forfend, exported.
