I have railed before at how the big banks have been able to escape serious consequences for their acts that threw the global economy into turmoil and caused hardships for so many. While they have had fines levied against them, the Department of Justice and the Securities and Exchange Commission, the agencies entrusted with maintaining accountability, were satisfied to simply levy fines on the banks without threatening the senior executives with jail time, which would be the best way to deter future malfeasance. The fines themselves, even though large by normal standards, were usually just a few days’ profits for the banks that they could absorb as the cost of doing business.
What was worse was that those settlements did not even require the banks to admit wrongdoing. But the uproar of letting the banks get off so easily (judges were beginning to balk at signing off on such settlements) seems to have partially paid off. The government has just settled the ‘London whale’ case with JP Morgan Chase in which the bank agreed to pay a fine of $920 million (which makes up about thirteen days profits) but also admitted wrongdoing. This is a first, and a welcome development.
Next step: Let’s see some top executives being threatened with jail.
Remember when cigarette companies finally admitted nicotine is addictive and causes cancer? It happened because one company -- the smallest -- finally caved under the pressure of a lawsuit. The rest quickly followed suit.
Now if only that could be repeated….
“Sir, excuse me, your slap on the wrist is ready…”
“WHAT?! I agreed to a fitting punishment, not such abuse!”
“Officially it’s a ‘slap’ sir, but really it’s more like a ‘pat’…”
“Oh, that’s acceptable.”
“Yes, and the Attorney General has come to deliver it personally.”
“Of course.”
“His aide suggests that perhaps it would be better if it was on your buttocks.”
“What, like a ‘pat on the ass’??”
“Yes, sir.”
“Send him in.”
The government has just settled the ‘London whale’ case with JP Morgan Chase in which the bank agreed to pay a fine of $920 million
They’ve probably shorted their own stock pending the announcement, and will make it all back (and then some) more or less instantly.
And apparently this case is not just a one-off with regard to settlements that allow the defendent to admit no fault. If the report I heard on NPR was accurate, then this is now SEC policy to no longer accept settlements that allow offenders to pay and admit no wrong-doing. This lifted my heart, because for a long time this has been a sore point with me: companies paying a fine which for them is a slap on the wrist, and in exchange no public admission of wrong doing and sealing of records, which allows them to contain damage to their reputation. A small step on a long journey in the right direction.
It’s not immediately clear why admitting wrong-doing is any big deal. After all, it’s just words. But what I think is important is that it enables the establishment of a public record that can’t be denied. Over time a pattern of wrong-doing should lead to more serious consequence, or a substantial erosion of the reputaition of firms and institutions repeatedly being officially punished for explicit offenses. In the long run, a big firm’s reputation of reliability and competence is more economically valuable than a few million here or there. If no wrong doing is admitted it creates doubt. It allows the general public, who may not be familiar with details, to think that perhaps there are two sides to the story, perhaps the company didn’t do anything wrong and was just paying to squelch annoying false accusations.
If the company officially admits to offenses, this kind of cumulative whitewashing of a corporate brand or reputation is harder to get away with. People who only watch the headlines and might otherwise be inclined to give the benefit of the doubt can be more certain that real enduring blame should be assigned to offending companies.
Admission of wrong-doing opens them up to civil suits from shareholders and other investors. It’s a big deal -- it’s not just words.