Criminal histories are, apparently, no barrier to running a stock exchange in the United States to the deeply conflicted way of thinking of the Securities and Exchange Commission (SEC), which issued its approval to operate the exchange on May 5.
Investors in the new stock exchange are some of the most serially-charged Wall Street banks, including JPMorgan, Goldman Sachs, and UBS, along with the hedge fund, Citadel Securities. BlackRock, which is up to its neck in the Federal Reserve’s deeply conflicted bailout programs, is also an investor, as is the high-frequency trading firm, Virtu Financial, and others.
JPMorgan Chase has been criminally investigated by the U.S. Department of Justice at least four times in the past seven years. A criminal probe in 2013 looked at how the bank had used bank depositors’ savings to gamble in exotic derivatives in London, eventually losing $6.2 billion. That case was known as the London Whale and ended in the bank paying $900 million in fines. No criminal charges were brought against the bank.
In 2014, JPMorgan Chase was charged with two criminal felony counts for how it mishandled the business account of Ponzi mastermind, Bernie Madoff. JPMorgan’s compliance staff looked the other way at screaming red flags of money laundering in the Madoff account for decades. Bank employees told authorities in the U.K. that it thought Madoff might be running a Ponzi scheme. It filed no such concerns with U.S. regulators. The bank pleaded guilty to both felony counts.
In 2015, the Justice Department brought another criminal felony count against the bank, this time for engaging with other banks in rigging foreign exchange markets. The bank again pleaded guilty. In both the 2014 and 2015 cases, JPMorgan Chase was given a deferred prosecution agreement by the Justice Department.
On September 16 of last year, the Justice Department indicted two current and one former precious metal traders at JPMorgan Chase on criminal RICO charges, a charge typically leveled at organized crime members. The traders were charged with running a racketeering enterprise out of the precious metals trading desk at JPMorgan Chase. The bank has indicated in an SEC filing that the bank itself remains under a criminal probe in the matter.
In July of this year, Goldman Sachs settled a criminal indictment against it in Malaysia for $3.9 billion over its involvement in a bribery and kickback scandal known as 1MDB. According to a Bloomberg report in December, the U.S. Department of Justice also has an ongoing criminal investigation of the firm related to the same matter.
According to the 10-K (Annual Report) that Goldman filed with the SEC on February 21, it is cooperating with the Department of Justice in the 1MDB case but the resolution “could result in the imposition of significant fines, penalties and other sanctions against the firm, including restrictions on the firm’s activities.” Let’s hope that not being allowed to own a stock exchange is one of those restrictions.
UBS, the powerful Swiss bank with a heavy presence on Wall Street, received a deferred prosecution agreement from the U.S. Justice Department in 2012 for its role in engaging with other banks to rig the international interest rate benchmark known as LIBOR. In exchange for not getting prosecuted, UBS agreed to not commit any more criminal acts. But according to the Justice Department, it didn’t keep its word:
“UBS engaged in deceptive FX [forex] trading and sales practices after it signed the LIBOR non-prosecution agreement, including undisclosed markups added to certain FX transactions of customers. UBS traders and sales staff misrepresented to customers on certain transactions that markups were not being added, when in fact they were. On other occasions, UBS traders and sales staff used hand signals to conceal those markups from customers. On still other occasions, certain UBS traders also tracked and executed limit orders at a level different from the customer’s specified level in order to add undisclosed markups. In addition, according to court documents, a UBS FX trader conspired with other banks acting as dealers in the FX spot market by agreeing to restrain competition in the purchase and sale of dollars and euros. UBS participated in this collusive conduct from October 2011 to at least January 2013.”
As a result of its breach of its agreement, in 2015 the Justice Department charged UBS with a felony for its actions pertaining to LIBOR. UBS pleaded guilty.
Following the 1929 stock market crash, the U.S. Senate conducted three years of hearings into the self-dealing and rigged trading by the major Wall Street banks. The hearings generated front page headlines for years. The public outrage that ensued from those headlines led Congress to pass the Securities Exchange Act of 1934, which created the Securities and Exchange Commission and empowered it to register, regulate and oversee brokerage firms, clearing agencies, and stock exchanges.
The 1934 Act specifically cited the national interest in explaining why stock exchanges had to be Federally regulated. It reads in part:
“Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities which:
“(a) cause alternately unreasonable expansion and unreasonable contraction of the volume of credit available for trade, transportation, and industry in interstate commerce,
“(b) hinder the proper appraisal of the value of securities and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and
“(c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System.
“(4) National emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and sudden and unreasonable fluctuations of security prices and by excessive speculation on such exchanges and markets, and to meet such emergencies the Federal Government is put to such great expense as to burden the national credit.”
Given the critical role that honest and fair dealing stock exchanges play in the economy of the United States, should admitted felons and serial miscreants be allowed to own such an enterprise? If you think not, please call your Senators and House rep today.
This article first appeared on Wall Street on Parade.