A new book entitled "JPMadoff" explores the bank's relationship with the infamous Bernie Madoff, as well as its other ethical failures. Its authors listed many of JPMorgan Chase's frauds in a letter to the US Department of Labor. Those offenses, along with the ones documented in a 2013 investors' report, include:
"Violations of the Bank Secrecy Act; money laundering for drug cartels; violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor; misrepresentations of CDOs and mortgage-backed securities; violations of the Servicemembers Civil Relief Act; fraudulent sale of unregistered securities; auto financing deceptions; violations of state and federal ERISA laws; filing of unverified affidavits for credit card debt collections; energy market manipulation (which is also what Enron did); bribery of state officials in Alabama; fraudulent sales of derivatives to the city of Milan, Italy; and obstruction of justice (including refusing to release of documents in the Madoff case)."
That's quite a rap sheet -- and its not a complete one.
As for Madoff, the authors found that JPMorgan Chase failed to report his suspicious (but profitable) activities for two decades. As Lawrence Kotlikoff of Forbes Magazine notes, the bank "had an obligation to know its customer (Madoff) and to report suspicious activity to the federal government. Yet, the Bank said nothing to United States authorities until after Madoff confessed and was arrested " And, surprise, surprise, no one at JPMC has been criminally prosecuted."
Adds Kotlikoff: "The shareholders have effectively been hit by huge fines for the crimes of some of JPMC's officers. But these officers didn't even have to disgorge their bonuses."
If the purpose of Wall Street's "business model" is to help bank executives get rich without personal risk or penalty, there is no question that fraud is at its heart. Senior bankers at our too-big-to-fail institutions have made a lot of money from fraudulent activities, but other people always seem to pay when those activities come to light. The American people bail them out, and bank shareholders pay the fines.
And let's be clear: the evidence for bank fraud is overwhelming. Bank executives would not have paid $204 billion to settle fraud charges if it was not. (In fact, it would have been a violation of their fiduciary responsibility to shareholders to do so.) These fines and settlements were usually great deals for the banks, which is why their stock prices often rose after they were announced.
It's true that banks operate in many lines of business (too many, in fact, which is why we need a 21st-century version of the Glass-Steagall Act) and that not all of those lines depend on fraud. But banking is a competitive business run by competitive people. Fraud isn't just a sideline. It gives bankers a much-needed edge.
Play by the rules? For bankers, Rule #1 is "win at any cost." As long as they can commit fraud without suffering personal consequences, fraud will be the business model for Wall Street.
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