More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
The past year was a tough one for JPMorgan Chase: The bank had to fork over close to $20 billion in penalties that were levied by various regulators.
The most recent one actually came this January, when JPMorgan Chase was required to pay $2.6 billion to victims of the Bernie Madoff Ponzi scheme as part of a settlement reached with U.S. federal prosecutors.
Under that settlement agreement, JPMorgan admitted that it violated the Bank Secrecy Act and that the bank’s anti-money laundering policies were inadequate to detect Madoff’s massive scheme, which ended up costing investors nearly $20 billion.
JPMorgan Chase faced a double-whammy fine last September when as part of a coordinated global settlement, the bank had to pay $920 million to settle trading losses related to the London Whale case. As part of that settlement, JPMorgan had to fork over $200 million to the SEC for misstating financial results and lacking effective internal controls, and $720 million to the U.K. Financial Conduct Authority, the Federal Reserve and the Office of the Comptroller of the Currency.
The bank also agreed to admit guilt in the charges brought by the SEC that it failed to detect and prevent its traders from fraudulently overvaluing investments to conceal hundreds of millions of dollars in trading losses.
The next fine levied during September 2013 came from the Consumer Financial Protection Bureau, which ordered Chase Bank USA and JPMorgan Chase Bank to pay a $20 million penalty for charging credit card customers for services they weren’t receiving. On top of that CFPB fine, the Office of the Comptroller of the Currency ordered both Chase entities to pay a $60 million civil penalty.
The bank refunded about $309 million to customers as part of the CFPB action.
The heftiest fine of $13 billion was levied last November, when JPMorgan agreed to pay to settle charges of selling bad mortgage bonds ahead of the financial crisis.
Have all of these faux pas damaged the bank’s reputation? Apparently not. JP Morgan’s share price has risen more than 25% over the last 12 months. While its fourth-quarter earnings dropped 7.3%, the bank still reported a profit of $5.28 billion, or $1.30 a share, for the quarter. Revenue dropped 1.1% to $24.11 billion.
But JPMorgan has had to dish out more dough for legal expenses related to its regulatory blunders. In early October, the bank reported its first loss under CEO Jamie Dimon, as it took a $7.2 billion after-tax charge to cover legal and regulatory costs. In the past year or so, the bank has racked up an estimated $14.7 billion in such expenses, according to estimates compiled by Tiburon Strategic Advisors.
Madoff and JPMorgan Chase
The Madoff-related charges revealed that the bulk of Madoff’s business was conducted via JPMorgan Chase accounts.
JPMorgan said in a statement after the settlement terms were reached, “We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time. We filed a Suspicious Activity Reports (SAR) in the U.K. in late October 2008, but not in the U.S.”
The settlement agreement in the Madoff-related case includes a deferred prosecution agreement with New York U.S. Attorney Preet Bharara, which states that criminal charges against the bank for BSA violations will be delayed for two years pending the payments to Madoff victims and reforms of JPMorgan’s AML policies.
Federal prosecutors state in the settlement documents that from about October 1986 until the time that Madoff was arrested in December 2008, the Madoff Ponzi scheme was conducted “almost exclusively through a demand deposit account and linked cash and brokerage accounts” held at JPMorgan Chase.
During that time period, the document goes on to say, “virtually all client investments were deposited into the primary Madoff Securities account” at JPMorgan Chase, and that “virtually all ‘redemptions’ were paid from a linked disbursement account, also held by Madoff Securities” at JPMorgan Chase.
In its statement, JPMorgan Chase said that the firm is making “significant efforts to strengthen” its Bank Secrecy, AML and Know Your Customer practices “across the board to be best-in-class.”
Said the JPMorgan statement: “We do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme.”