The line between risk-taking and following the rules on Wall Street has always been fuzzy.
Maybe it can be broken down into a financial equation: profits versus fines. Of course that's oversimplifying it. But it's worth revisiting now that the Securities and Exchange Commission has levied a fine of almost a billion dollars against JPMorgan (JPM) for the bank's conduct in the "London Whale" debacle (to review, JPMorgan's chief investment office lost more than $6 billion on one giant trade gone wrong and then misled investigators.) Has the landscape changed for banks on Wall Street in light of this settlement?
Donald Langevoort, a professor at Georgetown University School of Law, told The New York Times: “None of these big banks really want compliance people causing traders and investment bankers to second-guess themselves too much because that gets in the way of making money. No one will say this, but it’s more effective to run the risk of noncompliance and pay a few fines, which is just a cost of doing business.”
Even though the bank led by Jamie Dimon has lost at least $7 billion on the "London Whale" trade, it's still just a drop in the bucket for a company with a market cap close to $200 billion.
So here's the real question for investors: Is the SEC really tougher than ever?
Yes, says Neil Irwin, columnist at The Washington Post. He tells The Daily Ticker that he thinks the SEC is sending a signal to mega-banks that they will pay for mistakes.
"They want to have heads roll... if you're in corporate America it makes you nervous. It makes you think if we screw up we're really gonna pay a higher price than we thought we would." Watch the video above to see more about SEC 2.0.
And for more reviews of the SEC's enforcement of JPMorgan, see Francine McKenna's great piece about the possibility of prison time for bank executives: Nothing SOx-y About SEC's JP Morgan "Whale" Settlement.
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