Office of the Comptroller of the Currency

No SEC charges for J.P. Morgan execs, really?

August 9, 2013: 3:29 PM ET

The SEC needs to make it clear that the rules apply to all directors and officers of public companies they regulate. No exceptions.


FORTUNE -- Purported actions coming soon from the SEC may be clever but unwise. According to numerous reports published on Thursday, the SEC does not plan to charge individual J.P. Morgan (JPM) executives or traders related to alleged false disclosures in the London Whale fiasco. Instead, they hope to win over the gullible crowd by asking J.P. Morgan to admit that its actions were negligent.

Well, if such reports prove true, whoop-de-doo for what that's worth. Exactly who will that deter from misleading the public going forward?

Any SEC action that would play tough but ultimately absolve J.P. Morgan execs offers hope for those corporate executives who misstate or shade the facts in written reports and on calls with analysts. But for small fry, that confidence would likely be misplaced.

True, the J.P. Morgan case suggests that executives can easily acquire a get-out-of-jail-free card if they invoke the magic incantation that we "acted in good faith and never had any intent to mislead anyone." But executives would do well to exercise caution against this line of thinking -- unless, of course, they are executives of one of the largest, most connected corporations in the world.

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The New York Times reported Thursday that J.P. Morgan CEO Jamie Dimon "is not suspected of wrongdoing." But the Times does not explain who precisely has released Dimon of such suspicions. The Times itself, perhaps? On April 13, 2012, when Jamie Dimon told analysts the London Whale was merely a "tempest in a teapot," there were already over $700 million of losses embedded (or hidden, if you prefer) on page 12 of the April 13 earnings presentation. (This was prior to the bank's first-quarter restatement -- and any number of other accounting moves later on that might arouse natural curiosity.)

The Senate Permanent Subcommittee on Investigations' examination of J.P. Morgan's disclosures certainly voiced its doubts about Dimon. Its report devoted 50 pages to a section entitled "misinforming investors, regulators and the public," explaining that when Dimon said that the Whale was just "a tempest in a teapot," evidence indicated that "Mr. Dimon was already in possession of information about the SCP's [synthetic credit portfolio's] complex and sizeable portfolio, its sustained losses for three straight months, the exponential increase in those losses during March, and the difficulty of exiting the SCP's positions."

The subcommittee's report states that in January 2012 Dimon had already approved an increase to a bank-wide risk limit after it was breached four days running due to SCP trading -- and that he was informed that a new risk model implemented thereafter would cause reported (versus actual) risks to decrease dramatically (i.e. be nearly halved). As trading losses increased at the end of January, Dimon ordered staff to stop giving reports to its regulator, the Office of the Comptroller of the Currency, according to the subcommittee report. Ina Drew, who reported to Dimon at the time as J.P. Morgan's chief investment officer, set up daily calls with Dimon in the run-up to the April 13 quarterly analyst call, due to mounting losses and media attention, the report states. For multiple reasons, the report did not find Dimon's Congressional testimony in June on the London Whale losses to be forthright and candid.

Maybe the Times believes that the FBI and the SEC do not suspect Dimon of wrongdoing. In response to whether this was an SEC position, SEC spokesperson John Nester wrote me in an email, "We are not commenting."

Has the SEC even interviewed Dimon about his role in the lapses alleged in the Senate report? Surely, we are not in for a repeat of the John Mack-Pequot affair, when current SEC Chair Mary Jo White intervened during that insider trading matter and the SEC never questioned Mack, who went on to become CEO of Morgan Stanley (MS).

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Let's hope the news reports are wrong. If public disclosures are to have any meaning at all, we need the SEC to enforce the obligation and make it clear the rules apply to all directors and officers of public companies they regulate. No exceptions.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (, a board education and advisory firm.

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