What's Missing From the Whale Settlement
The settlements between JPMorgan Chase & Co. and regulators are out. The total bill: $920 million, which includes deals with the Securities and Exchange Commission, as well as U.S. and U.K. banking regulators.
Per the SEC's new approach for certain high-profile cases, JPMorgan admitted to a long list of facts. The company also said it "acknowledges that its conduct violated the federal securities laws," which I guess is an improvement over the SEC's normal neither-admit-nor-deny boilerplate.
One nagging question: Which federal securities laws did JPMorgan admit to violating? The bank didn't say. It's as if the lawyers for the SEC and JPMorgan were going out of their way to frustrate any outsider who was trying to read and understand the document's contents.
The SEC, which fined JPMorgan $200 million as part of an administrative proceeding, clearly specified which laws it accused JPMorgan of violating. Those included Section 13(a) of the Securities Exchange Act of 1934, which sets requirements for companies' disclosures to investors.
Why couldn't the SEC get JPM to admit exactly what laws it violated? Beats me. The agency should have had the company over a barrel. Once again, the SEC has demonstrated that requiring defendants to admit to violations of specific rules or laws is the third rail of U.S. securities regulation. The SEC simply won't go there and won't touch it. Instead, the commission is content to say that JPMorgan agreed to admit "wrongdoing," which is a spinmeister's term that has no precise meaning.
It's understandable why companies would prefer not to admit liability with particularity. Plaintiffs suing them in private securities litigation would use those admissions against them. What has never made sense to me is why the SEC should care. That's the defendants' problem. It shouldn't be the SEC's. Surely it's easier for the agency to get settlements and keep their caseloads moving when they don't require fulsome admissions of liability. Yet this policy mainly serves the defendants' interests, not the public interest.
We don't let small-time crooks walk into court and enter vague guilty pleas in criminal cases without admitting which laws they broke. Why should it be any different with civil and administrative cases at the SEC?
The commission needs to show it can go all the way. It didn't do that with its London Whale settlement.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)