It comes through loud and clear in the “London Whale” settlement by JPMorgan Chase: The bank thumbed its nose at its compact with shareholders to reveal how their money is being spent and how much they are owed in return.
Legal papers reveal misconduct involving a single trading strategy that is patently egregious. To its credit, the Securities and Exchange Commission required JPMorgan to admit to wrongdoing.
Still, for a bank that could earn $23 billion this year, $920 million in fines isn’t enough to ensure that shareholders won’t be deceived again.
The bank bypassed numerous internal controls, which all publicly traded companies must have to make sure shareholders get honest financial disclosures. The law requires multiple layers of oversight and strict rules for the disclosure of information to the lawyers and accountants who prepare a company’s quarterly filings. After the Enron Corp. scandal in 2001, Congress added yet another layer by requiring most large companies to regularly test the effectiveness of their controls.
JPMorgan and its auditor repeatedly told shareholders that its controls were airtight. Now we learn the truth. Federal prosecutors have criminally indicted two of the many bank employees who were involved. Yet Jamie Dimon, the chairman and chief executive officer, and a handful of other senior managers should also accept blame. They may not have known about the wrongdoing, but they didn’t make sure procedures were followed that might have prevented it, either.
Bloomberg News (Sept. 20)