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Regulators Charge JP Morgan With More Than $1 Billion in Penalties

September 19, 2013 at 12:00 AM EDT
Investment bank J.P. Morgan got hit with two sets of penalties that total over a billion dollars in fines and refunds. Judy Woodruff talks to Dawn Kopecki of Bloomberg News for details on the charges, the ongoing investigations and the larger consequences for the company.

JUDY WOODRUFF: And we return to J.P. Morgan, the huge investment bank hit with two sets of penalties today. First, SEC officials criticized the bank’s top leaders for how they handled trading losses last year that eventually topped $6 billion.

The SEC said — quote — “Senior management broke a cardinal rule of corporate governance. Inform your board of directors of matters that call into question the truth of what the company is disclosing to investors.”

No top executives were charged.

For more on this and another federal penalty, we turn to Dawn Kopecki with Bloomberg News. And she joins us from New York.

Welcome back to the NewsHour.

Dawn Kopecki, remind us what J.P. Morgan is charged with, and then what is it admitting that it did wrong?

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DAWN KOPECKI, Bloomberg News: Well, the bank has been charged with basically having such bad and lax internal controls that it led them, led executives to give shareholders, give regulators and give their own board of directors really bad information, inaccurate information.

They didn’t correct the information in a timely way, and basically misled, you know, very important, you know, regulators and shareholders that are investing in their company.

JUDY WOODRUFF: And the bank, in, I gather, what is taken as unusual in these kinds of arrangements, J.P. Morgan is admitting that it broke the law.

DAWN KOPECKI:  It’s something new that the Securities and Exchange Commission is trying to force companies to do, because investors are getting tired of banks being able to pay a large fine and then not admitting any wrongdoing.

And so what they’re doing is getting them to admit that they at least violated securities laws, but it didn’t say specifically what they violated. And so this is new. It’s new under Mary Jo White. Mary Jo White, the new chairman of the commission, had to recuse herself from this case because she used to represent J.P. Morgan in private practice, but they still came down very hard on the company today.

JUDY WOODRUFF: How does this compare, Dawn, with other penalties that have been levied against other banks in the last few years?

DAWN KOPECKI:  It’s huge. It’s tremendous.

It’s definitely in the top 10, perhaps the top five, for a single bank to absorb, and it’s not done. It wasn’t just the SEC today. It was the financial regulator in the United Kingdom. And it was the Office of Comptroller of the Currency and it was the Federal Reserve.

They got hit by four different regulators today, but there are many other people, many other agencies still investigating this. So this $900 million today is not the end of it. By the time it’s over, you may see this — you will probably see this go well over a billion dollars. The Commodity Futures Trading Commission is examining whether or not they manipulated various trading indices.

So, that’s another fine that will be probably coming down the pike in maybe a few months or so.

JUDY WOODRUFF: And I gather there’s a criminal probe still by U.S. prosecutors?

DAWN KOPECKI:  There is, yes. They’re looking at the traders involved.

And right now, they have filed charges and indictments against two of the low-level traders. Ironically, they haven’t charged the “London Whale,” Bruno Iksil, because he is cooperating with them. But in these cases, they usually start really low and try to work their way up the food chain.

So, nobody knows how high it will go. It may very well just stop at these three traders, but their goal is to try to see if they can implicate executives higher up the food chain at J.P. Morgan. So, that could be a big headache.

JUDY WOODRUFF: Is it clear why the government — as you mentioned, there’s three regulatory agencies in the U.S. and a British agency — why they went ahead and did a joint finding today, and yet there are still these other investigations under way?

DAWN KOPECKI:  Well, the Securities and Exchange Commission and the U.K. Financial Conduct Authority, I’m told they often act in unison.

And then the OCC and Fed often act in unison as well. So the company was really trying to get as many fines charged off against its third-quarter earnings, which closed on September 3, and so that’s coming up in a week or two. And so they were really rushing and probably paid more than they would have had they fought it longer just to try to get it off their books this quarter.

JUDY WOODRUFF: Now, separately, we know today it was announced that J.P. Morgan is being asked to pay hundreds of millions in refunds to customers.


JUDY WOODRUFF: Tell us about that.

DAWN KOPECKI:  Yes. They were also charged again by the Office of the Comptroller of the Currency, who was joined by the Consumer Federal Protection Bureau, who fined them $80 million together, and then forced them to refund about $300 million in charges to consumers that bought identity theft protection.

It was because the protection wasn’t really there. It was kind of a scam, a little bit of a dupe of consumers, and they got slapped for that as well today. So today cost J.P. Morgan over $1.3 billion.

JUDY WOODRUFF: Altogether, when you add it all up.


JUDY WOODRUFF: What effect, Dawn, does this have on Jamie Dimon, who has been heralded as one of the wunderkinds of bank leadership?

DAWN KOPECKI:  This puts a lot of pressure on Jamie Dimon.

He was challenged very hard last spring to keep his chairmanship. He is chairman and CEO. And there was a big push to try to get him to at least step down as chairman. I can’t imagine that investor groups won’t do that again with the next proxy season. That comes about like in April or May of next year. And so this will probably put more pressure on him.

I know investor groups are not happy with him still. And so this is really going to make it difficult for him to keep his chairmanship. I don’t know about his CEO position. Some people have called for resignations, but it’s kind of early for that.

JUDY WOODRUFF: Dawn Kopecki watching it for us tonight, thank you, with Bloomberg News. Thanks.

DAWN KOPECKI:  Thank you.