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JPMorgan Admits to Widespread Recordkeeping Failures, Agrees to Pay $125M
- VWWHFSfQ 5y agoSo the question is how much money they concealed by those widespread recordkeeping failures. I'm assuming it's more than 125 mil
- onemoresoop 5y agoYou bet, 125 mil is just cost of doing business.
- alexfromapex 5y agoI'd like to know why they get these small slaps on the wrist too. $125 million for them is like a person with average wealth being fined $20.
- AlexTWithBeard 5y agoJPMorgan's annual net income is about $30bn. $125 million is roughly 0.5%, which is equivalent to $500 fine for a person making $100k per year. It's probably still a slap, but I'd say a pretty significant one.
- munk-a 5y agoProportion of revenue is a bad measure for this reason - costs don't scale proportionally. The rent, food and utilities you're siphoning out of that 100k along with all the incidental costs on top of it don't really apply evenly as revenue increases. As someone making right around 100k I'd say that 500$ is a big enough penalty that I'll notice it but if it was a one-off (like this one was) then I'll shrug and eat it. For instance if I were getting my bathroom remodeled and wanted to install some nifty european shower head that's against code... I'd probably be alright with the 500$ surcharge.
- AlexTWithBeard 5y agoApplying human measures to corporations is a bit of a stretch in any case. That being said, as a government you want to milk this cow, not slaughter it.
- bidirectional 5y agoThe problem is that it's basically impossible to know. I'd imagine the vast majority of infractions were just employees improperly communicating privileged information via Whatsapp or whatever, without gaining any real advantage by doing so.
- munk-a 5y agoThe government decided that these record keeping failures were serious enough to warrant a hundred million dollar fine. We've all seen how fines lean toward slaps on the wrist so I would be pretty hesitant to assume the multi-million dollar one here was just because someone was DMing something that needed to be sent over a secure channel.
- nickff 5y ago>"The government decided that these record keeping failures were serious enough to warrant a hundred million dollar fine." The SEC likes to go after these sorts of settlements, as they can post large dollar values without having to prove any actual harm. On the other side, these settlements are so common that they're just a cost of doing business, basically a tax.
- AlexTWithBeard 5y agoI cannot say exactly for this one, but with the LIBOR scandal numbers were probably not that high. LIBOR was probably manipulated by 1 basis point (0.01%), give or take. Even with $1bn notional deal, which is a very large one, the difference would be $25k for 3 month payment. I mean, well, it's still pretty good money, but it's not like they made a couple of trillions and only paid a mere half-a-billion in fine.
- delaaxe 5y agoI can't believe for one second that LIBOR was only manipulated for one bip at a time.
- bidirectional 5y agoWell that was the case. Multi-bp LIBOR moves are pretty rare outside of exigent circumstances and the mechanics of doing so would be pretty tricky given that outlier submissions are thrown out. Wilmott had a good article recently on the mechanics of the manipulation [1]. [1]: https://wilmott.com/the-libor-fix/ https://wilmott.com/the-libor-fix/
- cm2187 5y agoThere was two distinct manipulations. The first one occured before the crisis. Swap traders asking money market traders to round their libor submission "the right way". That number got averaged across multiple banks, and the impact on the final fixing was likely of the order of a basis point or perhaps a fraction (per the regulator's report). 1 basis point may be small, but is a lot of money to an individual swap trader given the sort of position they must have had on libor futures (and that's money to the trader, not necessary to the rest of the bank who may have a net position the other way). The second manipulation occured at the height of the financial crisis and is of a different nature. Because banks contributions to libor fixing were public, investors were infering from the submissions whether a bank was struggling to fund itself. At the height of the post-lehman panic, some banks decided to lower their submission to not look weak. In this case the order of magnitude would be much higher, in the 10s of basis points. You could argue the banks had a financial gain, but not from the direct impact on libor (it wasn't clear what their position was, though banks tend to be typically net receiver of libor), rather from the perception of not being in distress to investors.
- paulpauper 5y ago$125m is a like parking ticket for them
- vamega 5y agoI think this practice is widespread in finance. I'll not be surprised if other firms get fined next!
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- mensetmanusman 5y agoWups, sorry about that, here is a week’s earnings.
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- kyruzic 5y agoIts not even a single day's earnings. They had a net income of 11.6 Billion in Q3 2021 which averages out 127 million a day (including weekends). https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/quarterly-earnings/2021/3rd-quarter/3983239a-3b6f-4e6b-a52f-6ce651dfd70f.pdf https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chas...
- goopthink 5y agoOne of the recurring themes in comment sections around fines for banks and large businesses is that "the fine is not in proportion to the size of the business". I guess it makes sense to ask then, do we want to have fines that are proportional to the revenue/profit/"X"-value of a business (and how might that get gamed)? Where if a small business is sued for something like this, it will only pay $100 while a larger business for the same infraction will pay $100,000,000? And if we're ok with that, are we ok then also acknowledging that we completely disincentive any sort of legal enforcement of small businesses, from a cost/benefit perspective? I actually think the inverse is true: if the SEC has decided that the correct penalty for recordkeeping failures is $125M, it is likely a balance of proportionality to the crime, cost of enforcement, and proportion to victimhood of the crime. The question I always wonder around this is, how much of this $125M goes back towards victims (if any) and how much goes towards further agency enablement to pursue criminal activity? Is $125M enough for the SEC to open X more cases (knowing how overcapacity they and every other government agency are)?
- dwater 5y agoI think the layperson wants the fine to be big enough that it disincentivizes the bad behavior that resulted in the fine and behavior like it. JP Morgan recorded $12.1 Billion profit in 2020, so a fine of $125 Million is about 1% of their annual profit. I doubt Jamie Dimon is sweating too much about that.
- goopthink 5y agoFor the record here, in addition to the fines, there is an additional unreported price of legal costs to fight this and compliance costs to fulfill obligations as per settlement. It's not quite an iceberg costs, but I guarantee they hired expensive lawyers to fight this beyond usual retainers.
- wand3r 5y agoI think it comes back to Fight Club: > Narrator: A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one. If the cost of the fine is less than the profit that can be made by ignoring it, it will get ignored. Especially because banks seem to have privatized profits and socialized losses. So I don’t think it should be necessarily proportional to a companies size but certainly a multiple of the cost of the externality. For example, if an oil company gets caught polluting, they should pay a big multiple of the damages so that it is ALWAYS cheaper ti invest in doing the right thing. Also, the SEC is not a particularly popular organization and I think they have lost a lot of trust (if they ever really had any)
- ChrisArchitect 5y agoInteresting/implications because of the nightmare of BYOD and general user laziness/UX hurdles that many of you are all too familiar with I'm sure.
- Nzen 5y agoI have a friend who works for an insurance firm. This company enforces HIPPA requirements of not saving any personally identifiable information by prohibiting any means of saving information. They aren't allowed their phones, nor paper, and the computers they use are basically kiosks without access to text editors. That made for difficulties in staving boredom and in helping people across different days (given they'd need to remember the context). That's an extreme example, but not impossible if the requirement is to be able to reproduce all communications relating to some investment instrument. I don't doubt that some high value employees probably already have company phones. For the others, I wonder if they will have to surrender their phones to not use them during the day or to have the chat history, forfend, exported.
- odiroot 5y agoI would also like to pay just, let's say, 10€ whenever I break the law.
- kahrl 5y ago...by stealing 20€.
- dgs_sgd 5y agoSo as per the article "JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm". This is a failure that goes all the way to the top. Yet no one in leadership is held accountable? Can individuals not be charged for knowingly enabling this?
- p0wn 5y agoWe're not living in a democracy. We're living in an oligarchy. Of course those at the top won't get punished. That class never gets punished. Who else is gonna fund all those old decrepit bickerers in Washington?
- CoastalCoder 5y agoIf we're being serious, I'd say we're living in a hybrid system with competing sources of power: oligarchy, indirect democracy, direct democracy, guild system, etc.
- tigerlily 5y agoSounds much like a plutocracy.
- emodendroket 5y agoI agree, though the relative strength of these factions seems different from a few decades ago.
- triactual 5y agoSo oligarchy-dominant?
- datavirtue 5y agoI saw a documentary on Putin's rise to power that included (others do not) coverage of how the oligarchs in Russia (seven of them) basically set or determined how Putin would govern. They wanted a democracy friendly to their interests (capitalism) as the post-Yelstin era was beginning. It was quite revealing how Putin was subject to them and it reminded me a lot of America and our leaders and how they cowar to business leaders (and Trump's association with Russians). They agreed to stay out of politics if Putin stayed out of commerce. The oligarchs then divided up various industries among themselves. In the end, it left the impression on me that Putin is just a player or a puppet who owes a lot of people.
- samaman 5y agoYou'd have thought that that Quorum blockchain would prevent such things..
- teawrecks 5y agoEveryone's complaining that they only had to pay $125m, but what about the part where they had to "implement robust improvements to its compliance policies and procedures"?! The amount of "recordkeeping failures" this will prevent in the future is priceless!
- JaimeThompson 5y agoThey should put their enhanced record keeping on the blockchain!
- mcguire 5y agoIn Sep. 2021, JPMorgan had $738.57B cash on hand.
- hammeiam 5y agoWell now they've only got $738.45B on hand, that'll show 'em!
- xyst 5y ago$125M can be found in-between the couch cushions at JPM offices
- ushakov 5y agoi bet they're still in profit
- evanpw 5y agoA company being fined for failing to surveil employees' personal email and text messages would get very different comments here if it wasn't a bank.
- AlexandrB 5y agoI read the below more as the company failing to enforce a policy of employees using business accounts/devices for business communication rather than the company failing to surveil private accounts. Basically, employees should be using "official" communication channels that can be audited for business communication and save WhatsApp for friends and family. > As described in the SEC’s order, JPMS admitted that from at least January 2018 through November 2020, its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures – used their personal devices to communicate about the firm’s securities business.
- nerdponx 5y agoFalse equivalence. > its employees often communicated about securities business matters on their personal devices, using text messages, WhatsApp, and personal email accounts. None of these records were preserved by the firm as required by the federal securities laws. JPMS further admitted that these failures were firm-wide and that practices were not hidden within the firm. Indeed, supervisors, including managing directors and other senior supervisors – the very people responsible for implementing and ensuring compliance with JPMS’s policies and procedures – used their personal devices to communicate about the firm’s securities business.
- mathattack 5y agoThey have to do this by las. Part is to “run the tapes” is there is a customer disagreement, and part is records keeping for compliance purposes. (Anti-Money Laundering, making sure transactions have economic substance, etc) In the aftershock of 2008 it came to light that much of the illegal behavior happened when people switched to personal devices.
- davesque 5y agoWhen the government imposes such pitiful fines, it really comes across more as seeming like they just want an extra cut every once in a while. It doesn't feel at all like they care if JP Morgan ends up doing things any differently.
- bshipp 5y agoI'm glad this point has been made. $125 million is pretty much the bonus allotment for the janitorial staff at JC Morgan.
- lars-b2018 5y agoI agree. These types of fines are relatively small potatoes on the earnings that occurred during this time. Having worked for a large US bank for a large portion of my career, everyone is typically trained yearly in an online course that covers records management practices and what to do. I know this because I was accountable for records management practices at the bank. The other question is, what happened internally? How come internal audit didn't catch this back in 2018-2019 time period? At the end of the day, it's often more profitable, and in the shareholder's best interest to say I am sorry, vs. actually follow policy. At the end of the day, regardless if the C-level knew about it or not, they are accountable. And even if one of the largest banks in the US has to pay a relatively paltry fine like this, the CEO and the management chains that were participatory in this behavior should forgo bonuses. That will change things. Otherwise, this behavior will continue.
- datavirtue 5y agoAgreed. There is never a whiff of mention about revoking a banking charter.
- throwaway837282 5y agoUsing throwaway account. I work at a broker-dealer. This is part of a huge ongoing battle with the SEC. Broker-dealers under SEC rules must constantly monitor all employee communications, flagging for keywords and reviewing a large subset. These communications go to WORM storage and in practice are periodically dumped to the SEC. If an employee talks about work on a personal device that isn’t being actively monitored- huge fines like this one. You can beg your employees not to do it all you want, but ultimately there are only two ways for a company to respond to this enforcement: do all work over phone calls and not text, which the SEC is fine with, or start monitoring personal communications. I’ll leave it to you all to decide which course of action you think JP Morgan should take.
- lmg643 5y agoam i the only person looking at this as - where is the business opportunity here? silicon valley created all these amazing tools for communication, people want to use them, and they don't play nicely with business requirements almost like the only safe tool is email because it is so old they know how to handle it. seems like an opportunity for better solutions?