Along with paying $2.6 billion to settle criminal and civil
charges for having “failed, and failed miserably” to notify the SEC of warning
signs that could have short-circuited Bernie Madoff’s $17 billion Ponzi
operation, J.P. Morgan Chase only had to acknowledge that its actions were
improper.[1] No criminal prosecution ensued. The electronic evidence
against Madoff's operation was too damning for JP Morgan Chase to have missed
it. Indeed, according to USA Today, “JPMorgan had suspicions about
Madoff’s operation as early as December 1998, when a bank fund manager warned
the investment returns were ‘possibly too good to be true.’”[2] Without
submitting any “suspicious activity reports” to the U.S. Government as required
by law, the bank had pulled $275 million of its own “feeder funds” from
Madoff’s fund two months before Madoff’s financial services
firm collapsed.[3] In other words, the bankers connected the dots well
enough for the bank's financial interest and perhaps even their own, yet
strangely enough no one at the bank could manage to let the outside
world know, even though federal law mandated reporting the suspicions to
the SEC. and responsibility urged it.
Does being strenuously pressured into making a public
acknowledgement of impropriety accomplishes any internal improvement
in a bank's corporate culture, including the pervasive attitude toward
responsibility relative to profits? JPMorgan Chase had to acknowledge the
impropriety of the bank's failure to keep the SEC informed, but this admission
does not, in itself, mean that the bankers came to realize a sense of
responsibility to the other investors (and potential ones) so they would not
continue in Madoff's scheme. A formal acknowledgement is external, and all to
amenable to business, whereas a sense of responsibility is internal; it is
either there or its not. It is not something that a person can get by attending
a training class. I'm always amazed, by the way, when a supervisor tells a
customer that an employee's attitude can be "retrained," as if all
the values and beliefs that a person has acquired even from upbringing can
suddenly be changed by attending a workshop on proper employee attitude.
In fact, it is not clear to me whether a corporate
acknowledgement of guilt or failure even makes sense. Stated in terms of
organizational theory, I want to challenge the popular presupposition that an
organization itself can admit to criminal or improper actions. If so, must we
assume that a firm is more than the sum of its parts and that this more has
human attributes? Just because human beings are members of organizations does
not mean the organizations are themselves human in some respect, such as in
having a sense of responsibility.
Anthropomorphism, the projection of human characteristics or
attributes onto non-human animals or things including collectives such as a
company, government, or religious organization, is the underlying problem
behind the justice in this case being insufficient. Did JPMorgan acknowledge
that its actions were improper? Can it even be said that a
bank has actions, since only people can act. You might retort that a bank has
people who act for the bank, but this is not the same as the bank having acted.
Did JPMorgan have suspicions? Human minds have suspicions. An
organization does not have a mind (and thus not a memory). In spite of the
legal fiction of “personhood,” a company made up of people and
things such as money and buildings has neither a consciousness nor
mind.
J.P. Morgan hitting a man. Was he demonstrating that criminal law applies to human beings in organizations? Image Source: Wikimedia Commons
Dennis Kelleher (of Better Markets) answered the JPMorgan settlement by observing, “Banks do not commit crimes; bankers do.”[4] Kelleher made the dogmatic statement in support of his criticism of the lack of charges against the bank managers who decided to, and went along with, keeping their suspicions from the SEC and thus the outside world. Who decided to pull the money in the bank’s feeder funds from Madoff’s fund two months before Madoff himself informed government officials? Were those JPMorgan employees aware of the refusal to inform the SEC? If so, they, not "the bank," had some explaining to do, and from that perhaps some external accountability was needed. Ironically, five former Madoff employees charged with aiding that fraud were on trial at the time.
To be sure, it could also be asked whether the SEC should have needed to depend on reports from suspicious institutional investors such as JPMorgan to discover Madoff's scheme? It was so big that the SEC came off looking rather badly. If that regulatory agency has suffered from inadequate staffing (or experience, do to the higher compensation on Wall Street), part of the larger problem is that political contributions and lobbying from financial institutions convince elected and appointed officials of the federal government to keep the SEC too lean to do any damage to those particular institutions. Of course, damage to the financial system itself, or even the wider economy, as occurred in the financial crisis of 2008, is apparently not within the purview of responsibility. Again, the outsiders be damned, or, insiders at the expense of others. The lack of sense of responsibility in the bank thus mirrored that of the politicians and their paymasters. It is an inner circle of power and money that forsakes the public good.
1. This was according to Manhattan U.S. Attorney Preet Bharara.Tim Mullaney and Kevin McCoy, “JPMorgan to Pay $2.6 billion in Madoff Case Settlements,” USA Today, January 8, 2014.
2. Ibid.
3. Ibid.
