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Truthiness is Next to Lawlessness: It’s Time to Enforce Sarbanes-Oxley in the JP Morgan CIO Scandal

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By Michael Crimmins, who has worked on risk management and Sarbanes Oxley compliance for major banks

As more news comes to light about JPMorgan’s inadequate supervision of its CIO desk, the source of its multi-billion-dollar losses, it’s clear an investigation of violations of Sarbanes Oxley (SOX) is warranted.  At a minimum, Congressmen and the public should demand that the SEC and/or the DOJ owe it to us to pursue a SOX-related enforcement action. SOX was passed in the wake of Enron to end the all-too-common “I’m the CEO and I know nothing” defense, and the CIO operation is looking more and more Enron-like with every passing day.

By way of background, here’s the certification that’s at the heart of Sarbanes-Oxley. A false certification carries civil penalties against the signators and criminal penalties if the certification is fraudulent.

JPMorgan’s SOX Certification for 2011.

Management has completed an assessment of the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2011. In making the assessment, management used the framework in “Internal Control — Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria.

Based upon the assessment performed, management concluded that as of December 31, 2011, JPMorgan Chase’s internal control over financial reporting was effective based upon the COSO criteria. Additionally, based upon management’s assessment, the Firm determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2011.

The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2011, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Signed Jamie Dimon, CEO and Douglas Braunstrein CFO

The certification also contains this qualifier.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

At first glance the qualifier looks like fair warning that the inherent limitations in designing an internal control framework may not work perfectly. But JPM has designed its internal control system to meet the COSO standards, which are pretty comprehensive, There shouldn’t be much risk  that internal control inadequacies can be attributed to poor design (or they would not have met the COSO criteria, making the certification invalid) so the disclaimer should be considered boilerplate.

What Risk Management Failures Should the SEC Investigate?

People Risks

One key element of an effectively operating internal control system is having the people and systems in place to operate the controls. There were some critical staffing gaps in the CIO group at the time the 2011 certification was signed, which should make the SEC skeptical that the internal control processes dependent on these people were operating effectively.

The head of the CIO group was working from home, the CIO treasurer’s office was vacant (a fact which hadn’t been publically disclosed), limits procedures and controls were reportedly revised by staff that normally wouldn’t have that authority. The unit was apparently exposed to the classic ‘Key man risk’ problem we witnessed with Jon Corzine at MFGlobal. If the risk committee didn’t acknowledge this particular risk and design a process to mitigate it then the risk committee’s role in the internal control framework is also up for review. The fact that the former AIG risk head was a member of JPM’s risk oversight committee raises some eyebrows. Given that in 2011 the CIO contributed over 20% of the bank’s profit, that meant it was a significant operation and warranted close monitoring.  It would constitute an egregious internal control breakdown, NOT an egregious ‘mistake’ if any of these people risks were not adequately mitigated.

Modeling Risks

There has been a lot of reporting regarding the replacement of the Value at Risk model after the disclosure of the London Whale’s position in March 2012. I’d like to focus on two areas where the VaR restatement impacts SOX.

If the model was replaced in 2011, then the adequacy of the model review process impacts  the 2011 internal controls certification. The pricing and risk model review process is a key internal control. If it turns out that the replacement model was implemented before December 31, 2011, then the controls certification will need to be reviewed in light of the events of April. Note that JPM may try to point to the disclaimer, but I’d doubt they could successfully argue that the VaR models inadequacy only came to light as a result of subsequent events, without looking incompetent.

The second issue is that VaR by design does not measure tail risk. Yet  JPM Morgan has said that the CIO’s role was hedging tail risk. Thus VaR would be incapable of measuring the riskiness of the bets the CIO was taking.  Any references to the Var for this portfolio by JPM are misleading and disingenuous. As a result it is hard to accept that publishing a VaR for the portfolio would satisfy the SEC’s risk disclosure requirements.

If JPM’s explanation that the CIO portfolio was designed to hedge tail risk is true, then the hedges against those risks would presumably be way out of the money, low volatility hedges. The risk estimation of a portfolio like that would not be captured in the VaR. The likelihood of a significant price change on the hedge would be a rare occurrence. VaR only captures the risk expected under normal market conditions.

Since the loss was announced and JPM reinstated the original model JPM has made reassuring comments that even though the old model produced a risk figure that was twice the size of the new model, none of the losses it experienced in the first quarter exceeded the VaR. However they also announced that in the first 13 days of April they experienced $2 billion of losses. If by some miracle those losses are distributed in such a way that they fall below the VaR on each day they experienced a loss, JPM may be able to avoid explaining to its investors that VaR is inherently incapable of measuring the risk of tail hedges in the CIO portfolio.

The SEC should immediately demand that JPM publicly disclose a risk estimate of the underlying tail risks these ‘hedges’ are designed to offset. Presumably these estimates are provided to the risk oversight committees, so they should be available to the regulators.

Truthiness  Risks

The overarching key control SOX imposes on corporations is honest disclosure.

Since the CIO losses were disclosed Dimon has taken a lot of liberties with the English language. He has repeatedly described these positions as hedges, yet the accounting rules JPM is obliged to use for their public reporting and disclosures emphatically define the transactions as NOT hedges. The accountants at JPM have to report these transactions as trading positions, in spite of their chief’s mischaracterizations in his public comments. Dimon’s gotten around this conflict by coining a fictional financial term, an economic hedge. I haven’t seen anyone call him on the use of this bogus term, but the SEC should be pointing out that no such term exists in their vocabulary. Doubly so since Dimon apparently interprets the Volcker rule’s hedging exemption to apply to these undefined ‘economic hedges’.

He also avoids labeling these transactions as trading positions by referring to them as ‘economic hedges’ to

manage structural and other risks including interest rate, credit and mortgage risks arising from the Firm’s ongoing business activities. ( Per the March 30, 2012. 10Q)

Yet there is no definition of ‘structural risks” anywhere in the 10Q. Again the SEC seems strangely incurious about the definition of the term even though everyone is dying to know just what risks he’s talking about.

The poor language choice that I think is going to give JPM the most trouble is Dimon’s reassuring statements to the markets that the reserves that have built up in the Investment portfolio have been and will continue to be mined to cover the losses in the CIO trading portfolio. These positions are reported in the financial statements as Investments and receive favorable accounting treatment because they are meant to provide liquidity protection for depositors in the event of a market shock.

From a SOX perspective the financials have been misstated for the entire period the firm viewed these as part of the CIO trading portfolio. From a depositor’s or regulator’s perspective the intended use of that portfolio is alarming.

 

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38 comments

  1. Scam Artists

    “(VAR, value-at-risk) is a work of rare idiocy. A model carry the implicit premise of heads, the banks win; tails, the rest of us lose. “

  2. financial matters

    “”The poor language choice that I think is going to give JPM the most trouble is Dimon’s reassuring statements to the markets that the reserves that have built up in the Investment portfolio have been and will continue to be mined to cover the losses in the CIO trading portfolio.”"

    Yes it would be interesting to get a more precise explanation of where he is going to mine those resources (taxpayers?, fraudulent servicing and foreclosures?, mismarked assets?)

  3. Aquifer

    Hmmm, even if somebody in our current excuse for a government, though can’t think who that might be, decides to put Dimon in a SarbOx, no doubt there will be enough holes punched in it to let him out relatively unscathed – e.g., for civil penalties there must be “false” certification, for criminal ones there must be “fraud”. So which do you suppose the “investigating” agency will pursue?

    One has to remember who is in charge of “investigating” ….

    Of course if we had folks in office who weren’t beholden to the likes of Dimon, it would be a different ball game …

    By a strange coincidence, I just happen to have someone in mind :) …..

  4. MichaelCrimmins

    For more on JPMs aggressive (relative to its peers) ‘investment’ and hedging of its excess deposits there’s this:
    Does JPM Take More Risk than Rivals?
    http://www.americanbanker.com/the-scan/the-scan-thursday-may-24-2012-1049598-1.html
    and this:
    JPMorgan takes more risk than rivals
    http://www.ft.com/cms/s/0/038ca6a4-a4d9-11e1-9908-00144feabdc0.html#ixzz1vnfdVfQh

    According to this the CIO is the largest risk center at the bank.

    Be sure to click through to this
    JPMorgan loss set to alter regulatory focus
    http://www.ft.com/cms/s/0/038ca6a4-a4d9-11e1-9908-00144feabdc0.html#ixzz1vnfdVfQh

    The SOX question: If the controls around its largest risk center were not designed or operating effectively, how could the CEO and CFO certify that they were? If we cannot rely on the veracity of the CEO, who can we trust? (yes, I know.. but the law exists to ensure we can take their word for it)

    The SEC is supposed to challenge the CEO and CFO if there is a doubt the certification and the entire financial reporting
    package are incorrect or fraudulently presented. It seems pretty clear to me the SEC needs to get moving, quickly and publicly on this question.

  5. Enraged

    “Since the CIO losses were disclosed Dimon has taken a lot of liberties with the English language.”

    Cute way of putting it. For the past 20 or 30 years, all the banks have taken those liberties. Remember Robot-signing? Stands for FRAUD, against which we have a statute.

    Remember those mortgage notes being… sold, assigned and transderred (three completely diffrerent legal concepts, governed by very different laws but by “bungling” it under some blanket sold/transferred/assigned one-size-fits-all, banks didn’t have to comply with ANY government agencies.

    Don’t get me started on the “securitization” either.

    At the beginning was the word… but boy did they ever trash it!!! Now, we’re forced to go back and redefine one by one every single word banks ever utilized and every concept ruling human relationships!!!

    Those guys have done more to destroy humanity as a species than anyone ever had in history. that kind of destruction deserves death penalty. nothing less.

  6. Enraged

    Come to think of it, there is such a precedent: The Tower of Babel! The race to becoming God, to go higher and higher and higher, to create an elite at the top that was going to “meet” God in person while no one at the bottom had a prayer. And we know how it ended: people couldn’t communicate anymore. End of civilization and restart from scratch.

  7. rhcaldwell

    Matt – wow, a very well-written and well- presented indictment. I agree that this is a SOX violation that is “hiding in plain sight” and am amazed it has taken so long for the powers-that-be to move on it. I suppose the sheer brazenness of JPM has had a stunning effect. Let’s hope your piece serves as a wake up call. Thanks for this fine work.

      1. WarrenCelli

        1: a respite or a time of respite from something : intermission
        2a : a scheduled period during which activity (as of a court or school) is suspended b : a period of exemption from work granted to an employee
        3: a period spent away from home or business in travel or recreation
        4: an act or an instance of vacating

  8. Chicago Skool

    Why are we no longer talking of JP’s criminality in the housing crisis? It’s a startling effort by the press inc to put it all behind us. Why? MERS still means we should be frogmarching members of the DC-Wall Street *before* they start a war with Iran. It’s called heading them off at the pass.

    1. Get a Job Realtor

      It’s being discussed right not, big Realtor (NAR mafia) is encouraged by legislation that will help “reponsible” homeowners work with predatory lenders to re-work their debt peonage. It’s tragic how bought off and subserviant Barbara Boxer and Menendez are in applying lipstick on a pig.

  9. Ms G

    What about using SOX to prosecute Corzine (of MF Global fame) — he actually helped WRITE that statute.

    The article should have discussed the failure to use SOX in the broader theme of its UN-use against a parade of obvious targets. As it stands, it gives the impression that the SOX-silence at DOJ is Dimon-specific, rather than systemic vis a vis the finance titans who essentially own/fund DOJ, SEC and the other “regulators.”

    Obviously, under an unconflicted Department of Justice and/or SEC there is no doubt that a SOX action against Dimon would have been deemed appropriate, warranted and just.

    1. MichaelCrimmins

      MS G, I wholeheartedly agree (I included Corzine in the rogues gallery in an earlier post – here http://www.nakedcapitalism.com/2012/05/michael-crimmins-why-the-cops-should-be-knocking-on-jamie-dimons-door-soon.html )

      At each stage in the crisis, I scratched my head , as each big fish of the day AIG, Bear, Leh, ML,Mozillo -for god sake- all escaped SOX charges. Indeed SOX was never even mentioned by the SEC.

      It seems that the SEC feared mentioning the name Sarbanes, as much as the terrified wizards at Hogwarts feared speaking Voldemort’s name. So there will be a sweet poetic justice in this whole scam if the SEC finally finds the courage to confront JPMs Voldemort.

      Folks seem to forget, SOX enforcement authority is supposed to be one of the most powerful weapons in the SECs armory.

      1. Ms G

        I understand. You also did a very thorough job of fleshing out the factual bases for a SOX action against JPM. Unfortunately the folks who matter are not ones who “forgot” that SOX is the most powerful tool in SEC’s arsenal. For all the reasons recited throughout the posts responding to your piece today (and many other NC pieces over the past months) SEC and DOJ are evidently working very hard to see how long they can get away with avoiding the called-for SOX prosecutions.

        As another poster pointed out, unless Robama forces Obomney’s hand by throwing Dimon (or Corzine, or others similarly-situated) under the bus now or in the next month, the “looking into” and “scrutinizing” by FBI and SEC are going to “vaporize” in a few months and end up as a page 17 2-liner that “a thorough investigation revealed no evidence of wrongdoing.”

        1. MichaelCrimmins

          Ms G

          The ‘folks who matter’, to me at least, are the one’s who should have their pitchforks on display, but keep them in the shed, as decent people do, till its too late, who’ve seen their retirement savings vanish, and their key asset (their house) devalued. They were counting on the knuckleheads at the regulatory agencies to protect them from the clever predators, who they thought might be snared in the simple and elegant SOX net.

          Alas. No

          Since they’ve been betrayed it falls to those who can speak to the despicable ‘folks who matter’ in their own language to set things right before the abused get wise and resort to pitchforks (or vote for extreme nutjobbers instead).

          That makes me a little bit sick. There are laws to protect everyone in this country who spends their life working to the right to expect that their retirement funds are reasonably secure and safe from predation by clever bankers or bucket shop oeprators. Make no mistake, JPM is now a very elegant bucket shop.

          Sox is just one powerful law that has not been enforced. At the moment it seems like THE critical law that can and SHOULD be invoked against JPM and the rest of the bankers that have wrought such devastation on the global economy and the retirement savings of its population.

          The SEC should (in a normal world of reasonable people) be appalled at its abdication of its responsibility.

          If the SEC doesn’t take aggressive action at this time of crisis then the legacy of the agency Ms Shapiro retires from will fulfill the initial expectation for the agency when it was created when Joseph Kennedy acted as its first head. He was the markets biggest crook at the beginning, Is Ms Shapiro the biggest crook at its demise?

          I hope not.

          1. Ms G

            I hope not too, but am not hopeful. The delusion that regulators or Congress (fostered by effective misinformation, of course) captured and paralyzed the world-view of at least 3 generations of Americans. Housing, non-housing consumer debt (including education), the 401(k) scam . . . The citizens took the bait. Now they are (as Skippy once said), “bag holders.”

          2. Ms G

            In first sentecen, meant to say: “The delusion that regulators or Congress (fostered by effective misinformation, of course) would be there to ensure fair-play and to protect consumers from financial/commercial predators, captured and paralyzed the world-view of at least 3 generations of Americans.”.

            Sorry about that!

  10. MichaelCrimmins

    Here’s another relevant post from todays NYT

    JPMorgan’s Deficient Disclosures
    http://dealbook.nytimes.com/2012/05/24/jpmorgans-deficient-disclosures/

    I especially like this bit:

    ‘Still, company disclosure requirements are not designed for the convenience of management, nor are they meant to protect a company’s bottom line. Instead, public companies are required to release standardized financial statements so investors have information to make independent judgments.’

    1. WarrenCelli

      Here’s another relevant post from a member of the Mennonite Church…

      Excerpt;

      “Need election boycott
      by Berry Friesen, Lancaster, Pa.

      Seven years ago, early in the second term of President George W. Bush, Goshen (Ind.) College professor John Roth called on U.S. Mennonites to “commit themselves to a five-year sabbatical from affiliations with any political party.”

      In a statement released by the college, Roth described “a new posture of aggressive political activism” among Mennonites. Notwithstanding the historic skepticism Mennonites have held toward politics, during the 2004 election campaign, Roth said, “Mennonites seemed to have been co-opted by the polarized rhetoric of radio talk show hosts, direct mail campaigns, polemical ads and website bloggers.”

      At the time, I was unenthusiastic about Roth’s proposal, partly because I had taken time off work the previous fall to campaign door-to-door for John Kerry. That was a first for me. In other ways I also fit the profile Roth lamented.

      My second objection was that a sabbatical from politics would heighten our inclination to seek purity as our highest calling. This tendency often has removed our voice from public life—a result I find difficult to reconcile with the biblical emphasis on witness.

      Now, surrounded by the drama and spectacle of another national election, I feel different. It’s time to implement Roth’s proposal with a boycott on voting in the 2012 national election. To ensure our action is understood to reflect concern for public life and not only our own righteousness, it also is time we publicly proclaim the reason for our boycott: the failure of our political
      system to give us a choice that is law-abiding and thus meets the minimum threshold of Romans 13.”

      I especially like this bit.
      Continue excerpt;

      “During the past seven years, Republican and Democrat distinctives have been eclipsed by the unity of the two major parties in their disregard for the rule of law. Examples include the refusal to prosecute Wall Street banksters who stole billions of dollars, the flagrant violation of constitutional protections related to privacy in our communications, the persecution of whistle-blowers and the violent taking of American lives based solely on secret accusations of government officials.

      In foreign affairs, the two major parties again stand together in claiming America’s right to roam the earth and do as it pleases. It matters little which political party controls the White House; both pursue war and send killing squads into other countries without Congress casting a vote. Nations that refuse to fall in line, such as Iraq, Libya, Syria or Iran, are stigmatized relentlessly by deceitful propaganda and are eventually crushed or dismembered.”

      More here…

      http://www.themennonite.org/issues/15-5/readers_says/Need_election_boycott

      Deception is the strongest political force on the planet.

      1. Aquifer

        ” ……the reason for our boycott: the failure of our political system to give us a choice that is law-abiding and thus meets the minimum threshold of Romans 13.”

        Well good news, Mr. Friesen, you don’t have to boycott because there will be a choice, outside of the duopoly, that meets your criterion!

        http://www.jillstein.org/

        There, now you can vote with a good conscience ….

        1. WarrenCelli

          Aquifer,
          Ross Perot got almost 19% of the public vote and NO electoral votes. NO POWER in government. When it was all over it amounted to a luke warm chicken fart. No residual. NADA!

          The UPP is strong on emotion but weak in detail, especially so as it pisses into the hurricane force winds of the electoral college.

          Boycott the existing scam and run the whole UPP outside the crooked electoral scam in a parallel hand counted paper ballot peoples election, and when it is all over, Jill, and all of the other candidates who run in those parallel elections, will have some solid political capital. They could even hold inauguration ceremonies. I could get behind that. The people will have dissed the scam. There will be no disappointment. They will be operating in a framework of reality not fantasy. And they will be there when it is all over to constantly shame and expose the crooked system and at the same time claim all of the frustrated no shows.

          They will also have the peace of mind of knowing that they are no longer complicit in validating and legitimizing the murders committed by the crooked system.

          Deception is the strongest political force on the planet.

          1. Aquifer

            Ross Perot was one man show – nothing to build on ….

            Greta idea, Warren, let’s have all the “kiddie parties” eat at the kiddie table and put on their party hats and play pin the tail on the donkey/elephant and blow their noisemakers while the adults take care of business – and then when they “grow up” they can play with the adults. Except that Stein has already been acknowledged in a previous contest debate as the “only adult in the room”.

            Boycott if you like, it will mean nothing, even less than nothing, just another “stay at home” – i prefer to engage ….

  11. Susan the other

    Pretend to protect the ‘investors.” (I’d like to know who, exactly they are.) And screw the confused, stupid country. i’d like to see the Volcker Rule’s hedging exemption (?) explained in express detail, please. Express is the definitive word here.

    Forget “undefined economic forces.” Please please please. There is no express definition of structural risk. Because the very foundation of the economy is crumbling. Where is the government. Where is our protection? And please add this up: How does it amount to, at the end, if losses equal the daily allowed losses, on a per year basis?

    Was the current VaR model certified, and if so, how? And what is the express protocol for its review? Any disclaimer on responsibility is a non-disclaimer by definition because, like any contract, it must first state expressly what the hell it is talking about. Duh. What are the express referents? Both past and future. This, obviously, is required to address “tail risk.” Disgusting.

  12. MichaelCrimmins

    Update:

    It looks like Fuld is off the hook, AARGh

    http://www.bloomberg.com/news/2012-05-24/sec-staff-said-to-end-lehman-probe-without-recommending-action.html

    U.S. Securities and Exchange Commission investigators have concluded their probe of possible financial fraud at Lehman Brothers Holdings Inc. and determined that they will probably not recommend any enforcement action against the firm or its former executives, according to an excerpt of an internal agency memo.

    ‘Under a heading reading “Activity in the Last Four Weeks,” the undated document reads, “The staff has concluded its investigation and determined that charges will likely not be recommended.”’

    Yet there’s this

    “As the chairman said, it’s still under review and no final decision has been made,” Nester said in an e-mail.

  13. Nowhuffo

    Yves I love your site, and all you do. Seriously however,
    does anyone actually believe there will be any sort of sanctions against JD or JPM? Based on what has happened in the last four years why would you think that?

  14. F Libertarians!

    “But JPM has designed its internal control system to meet the COSO standards, which are pretty comprehensive, There shouldn’t be much risk that internal control inadequacies can be attributed to poor design (or they would not have met the COSO criteria, making the certification invalid) so the disclaimer should be considered boilerplate.”

    Good article, Michael. I agree that, perhaps for PR purposes, the DOJ and SEC should at least try to enforce SOX even if ultimately it fails in criminal court (and I think prosecution under SOX will not hold up in court – legal scholars please feel free to correct me if I am wrong). Do you really think that the argument that this qualifier is a “boilerplate” will hold up in court and help to prove Dimon’s guilt beyond a reasonable doubt? COSO is only a standard and does not guarantee that zero control risk is present in an entity’s internal controls. If Dimon can provide a compelling case (which I think he can given the fact he can hire the best lawyers) that he abided by the “standard” but that, ultimately, the internal controls failed because of “rogue subordinates who covered up their crimes leaving the CEO unaware of what was going on”, he’ll walk just like Healthsouth CEO Richard Scrushy walked after the first attempt at enforcing SOX against a CEO. In addition, Morgan’s external auditor has to attest to Dimon’s management assertions regarding Morgan’s internal controls which apparently they did. So in all likelihood, that attestation is going to further bolster Dimon’s defense against any accusations of fraud or perjury. This case is similar to a medical malpractice lawsuit. All the defendant doctor has to show in order to escape liability in court is that he abided by the standard of care. Even if the patient dies, the doctor walks if the jury believes that defense. Also, medical malpractice is a civil case which is based on preponderance. Criminal prosecution of Dimon needs to prove guilt beyond a reasonable doubt which places a higher burder of proof on the Government. I am not so sure that the Government can surmount that hurdle in a SOX enforcement case. If you also want to pursue a case that Dimon perjured himself by “knowingly” signing a false certification, good luck! How hard is it to prove perjury beyond a reasonable doubt against the best lawyers money can buy (i.e. Barry Bonds)?

    We probably need to face the fact that SOX Section 302 is a weak law in terms of eliminating the “I was the CEO but knew nothing defense”. It’s probably about as worthless as Dodd-Frank with respect to financial regulation. These laws are steps in the right direction, but they are only baby steps in a journey of a thousand miles. That means that their passage is meaningless when viewed against the broader context of a dysfunctional political, banking, financial, and regulatory system. The big bank CEOs undertand this. Rich big bank CEOs who can buy the best lawyers in the world and hire the most well-connected lobbyists in the world implicitly know that SOX and Dodd-Frank are weak laws. Hence, they will not be scared off if, in the most improbable event, one hot shot CEO like Dimon is prosecuted. They probably won’t even be scared if an enforcement action is brought against them because they know that the government will be willing to settle for peanut restitution because the Government also knows that SOX and Dodd-Frank are joke laws. These laws really are nothing more than PR so that politicians can fool voters into believing that they are doing their jobs in passing needed reforms when in fact the status quo essentially remains unchanged. It’s sad to think that so many voters are indeed misled by these laws into thinking that real progress has been made when in fact it’s all just a scam. So my point is that we need better and stronger laws (first start with real, not fake, campaign finance reform). Until then, the financial markets are business’ equivalent of the Wild, Wild West.

    With respect to MF Global and Corzine, SOX will probably also not hold up in court if enforced against Corzine. What will hold up is Corzine’s order (as recorded on an internal memo) to use client investment funds to backstop one of MF Global’s loans which is a clear violation of the Commodities Exchange Act which is far more of a black-and-white law compared to the highly grayish SOX Section 302 provision. A Commodities Exchange Act enforcement action against Corzine can hold up in court and it is absolutely infuriating that the SEC and DOJ have not brought charges against or have even arrested Jon Corzine under probable cause.

    http://www.nytimes.com/2012/03/13/opinion/nocera-is-mf-global-getting-a-free-pass.html

    1. MichaelCrimmins

      I got to the second paragraph and stopped. Sorry.

      You are arguing the banksters position and you helpfully point out all the technical weaknesses, but we’re past all that.

      I’m happy to rebut you point by point, but not tonight.

      In the meantime, you are right that the courts may not uphold the law. I just think that abuses of the law have been so egregious that those fine legal distinctions that protected Fuld et.al. won’t hold post Jamies ‘egregious’ flaunting of the spirit and the specifics of the law. His abuses undercut all of his predecessors arguments. He probably won’t be able to cite them in his defense,so previous case law may work against JPM. Ideally it should reopen (the not actually closed -per Schapiro case against Dick Fuld).

      Thanks for your comment.

      1. F Libertarians!

        Thanks for your article. I would be happy to read your rebuttals. But please don’t get me wrong. I am most certainly not on the banksters side. I hate them. Like you, I believe they should all be in jail. My point is that the laws on the books (SOX in particular) may not be strong enough to successfully prosecute Dimon. They may be strong enough to obtain indictments in the court of public opinion, but, in court, it seems like the cup has too many holes to hold any water. Given that, perhaps, my argument resembles that of the banksters because, after all, it is the banksters who lobbied (and now as the evidence shows successfully) to weaken those laws (i.e. JOBS Act – I really wish facebook investors the best of luck obtaining a judgment on their behalf in their lawsuit in the wake of the JOB Act because that act is really bad). I do however look forward to reading any other legal developments or perspectives you may offer as to how SOX can be used to prosecute Dimon (perhaps another post or article from you is warranted? I would read it). After all, it would not hurt for us to sharpen each other’s knowledge and contentions regarding the egregious acts presently occurring on Wall Street.

        1. Aquifer

          I suspect Mr. Crimmins is correct that Dimon’s abuses certainly would qualify as violations of extant laws – in any rational system. But in a country where the highest court in the land can produce a Citizens United decision, what can one reasonably expect from our “system” …

          It’s always nice to be surprised though …

  15. freedomny

    “Does anyone actually believe there will be any sort of sanctions against JD or JPM?”

    Nowhuffo – I couldn’t agree more. But no action has been taken against Johnny C. either- which I feel is completely ridiculous. He has been laying very low…completely out of the media because he “knows” what he did and wants to deflect all media attention. Dimon’s biggest problem is that he has a big mouth and craves media attention … so the powers that be will have to “pretend” to investigate. But, in the end, nothing will change. At least the way it is now….

  16. freedomny

    BTW – Jamie Dimon was declared CEO of JPMorgan Chase in December 2005. I worked there at that time and he immediately crowed how he was going to raise the stock to levels never seen before. I believe the highest it ever went was in the mid to high 40′s. Feel free to correct if I am wrong.

    In November of 2005 JPMorgan stock was at $37 a share.

    Today it is at $35.

    He got paid 24 million dollars last year for his stellar performance. I’m thinking he got paid this amount….for “NOT” losing more money??

  17. masaccio

    Zerohedge reports on abandonment of the stock market by retail investors. My personal broker confirms this from his customer experience.

    1. Aquifer

      Yay! Now if we can only shrink it down to the size where it can be drowned in the bathtub ….

    2. Ms G

      Retail investors must be shedding their delusions: encouraging fact.

      The word should be spreading far, wide and loud. None other than David Stockman (architect of Regan’s “trickle down” scheme) publicly announced a few months ago that he wouldn’t touch the equity or bond markets with a 100 foot pole.

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