The effort by JPMorgan Chase’s chief executive, Jamie Dimon, to resolve a host of Justice Department cases will most likely result in a multibillion-dollar fine and the usual promises not to violate the law again. Simply paying money to get rid of investigations raises questions about whether the bank should be viewed as a recidivist, and if so how the law should treat it.
In just the last two months, JPMorgan agreed to pay $410 million in penalties and forfeited profits to the Federal Energy Regulatory Commission for manipulation of energy markets by one of its subsidiaries. To settle inquiries into the “London Whale†trading that caused the bank to lose more than $6 billion, it paid regulators a total of $920 million even without resolving investigations by the Justice Department and Commodity Futures Trading Commission.
DealBook reported that Mr. Dimon met with the attorney general, Eric H. Holder Jr., last Thursday for nearly an hour to try to settle investigations into the bank’s sales of residential mortgage-backed securities and shoddy mortgages, some of which involve conduct by Bear Stearns before its acquisition in 2008.
Yet a settlement with the Justice Department is only one seemingly small step in dealing with a multitude of cases that seem to pop up like weeds for the bank. The most recent inquiry involves possible violations of the Foreign Corrupt Practices Act related to the hiring of the children of powerful government officials in Asian countries. And looming on the horizon is the broad investigation into manipulation of Libor and other benchmarks that is likely to ensnare several large banks.
It is not as if JPMorgan’s entanglements with government agencies is a recent event. Over the last decade, the bank has settled enforcement cases with the Securities and Exchange Commission for its role in:
As part of the settlement of the Enron case, the court issued a broad injunction, sometimes called a “sin no more†order, prohibiting any future violations of the federal securities laws by the bank.
If an individual had committed this many violations, a sentencing judge would probably “throw the book†at the person by imposing a higher sentence for any subsequent violations. The “Three Strikes and You’re Out†laws that authorize substantial prison terms for repeat offenders are just one example of how punishment of recidivists has been increased.
But large publicly traded corporations are treated much differently because it is difficult to ascribe the same type of criminal mentality to an organization as one can to an individual. JPMorgan has 260,000 employees and engages in many different lines of business in more than 60 countries, which means that multiple violations are almost bound to occur.
Unlike the person who engages in a series of crimes, determining when a company has crossed the line into being a recidivist is much harder to assess. Should a violation of distinct laws by separate divisions or subsidiaries be ascribed to the entire company, and what time frame should be used to â€" 10 years, or perhaps 20?
An even greater challenge is figuring out how to punish repeat offenders. The federal sentencing guidelines increase a company’s “culpability score†for violations that occur within 10 years for similar misconduct, so a judge can impose a higher fine on companies the engage in multiple violations. But few cases involving public companies come within these guidelines because most investigations these days are settled without a criminal conviction but instead through a deferred or nonprosecution agreement that does not require any judicial oversight of the penalty.
Misconduct that also violates an injunction previously imposed on a company in a securities case could authorize the S.E.C. to pursue either a civil or criminal contempt case, but these are also of limited utility. A finding of civil contempt can result only in a fine or other penalty designed to compel the violator to comply with the terms of the injunction but not as a punishment. That means the S.E.C. would have to prove a continuing violation, and not just one that occurred in the past.
The S.E.C. could pursue a criminal contempt finding that can result in a punishment for a violation, a proceeding it could initiate on its own without needing the participation of the Justice Department. But criminal contempt requires showing a willful violation of the injunction, which would be difficult to do for a company the size of JPMorgan.
The settlement Mr. Dimon is trying to secure with the Justice Department is unlikely to make any reference to other JPMorgan cases. And I doubt the size of the fine will reflect consideration of whether prosecutors view the bank as a recidivist, even though the London Whale case included an admission of misconduct.
Each case seems to be treated like a separate silo, with no connection to other violations. That gives the impression that companies will pay the penalty and move on, much like one would handle a speeding ticket.
Dealing with corporate recidivism presents a challenge to the government to figure out how to make sure an organization tries to change its culture. The S.E.C. and other regulators do not have the authority to pursue higher penalties for repeat offenders, something they may want to seek from Congress.
Corporate monitors were one way the Justice Department sought to ensure companies improved their compliance as part of deferred and nonprosecution agreements. These have largely fallen by the wayside but could be a means to improve the commitment to following the law to prevent future violations when a company seems to violate the law repeatedly.
There is no realistic prospect of a corporate “Three Strikes†law, however, because large organizations are not held to the same standard as individuals, and most likely cannot be. But tying past violations to the resolution of current investigations would send the message that recidivism is something that has caught the government’s attention.
