Those days of “without admitting or denying” from financial firms for allegations set forth by the Securities and Exchange Commission seem to be a thing of the past.
Today we got a rare admission of wrongdoing from JPMorgan Chase in a settlement with the SEC related to the $US6 billion “London Whale” trading loss.
“JPMorgan Chase & Co. (“JPMorgan”) admits to the facts set forth below and acknowledges that its conduct violated the federal securities laws,” the SEC’s release stated.
The SEC said JPMorgan misstated financial results and lacked effective internal controls to detect and prevent its traders from fraudulently overvaluing investments to hide losses.
This is different from how these sorts of cases with the SEC involving investment banks were handled in the past.
Back in July 2010, Goldman paid a record $US550 million fine to the SEC to settle charges related to subprime mortgage CDO without admitting or denying the agency’s allegations. The bank did admit that it the Abacus marketing materials were incomplete though.
Then, in October 2011, Citigroup settled charges about misleading investors over CDO for $US285 million. They didn’t have to admit any wrongdoing either.
However, Judge Jed Rakoff of Federal District Court blocked that settlement and criticised the SEC’s “without admitting or denying” policy.
The SEC’s chair Mary Jo White, who was sworn in back in April, told the New York Times’ James B. Stewart this summer that she was going to start changing the that policy.
“In the interest of public accountability, you need admissions” in some cases, Ms. White told me. “Defendants are going to have to own up to their conduct on the public record,” she said. “This will help with deterrence, and it’s a matter of strengthening our hand in terms of enforcement.”
She’s been keeping her word.
Back in May, hedge fund manager Phil Falcone said in a filing that his Harbinger Capital had reached a settlement “without admitting or denying” the SEC’s allegations.
Today it’s JPMorgan admitting.
Wall Street, you’ve been warned.