This week brought news that five large global banks had admitted to felonies and agreed to pay $5.6 billion in fines to the U.S. Treasury for colluding to rig global currency markets. The amount of the fines captured headlines but the amounts are actually relatively small.
For scale, let's pick on JP Morgan Chase, the largest bank in America by assets and one of the five banks that admitted to criminal acts. Its market capitalization is $247 billion. That means that it could, if it wanted, cover the fines for all five banks by handing the Treasury 2% of its outstanding shares. Over the last four quarters, JP Morgan cleared profits of $31 billion.
This was really a big story because the banks admitted to crimes. In the past, companies have been allowed to settle criminal cases without admitting wrongdoing. That practice has come under increasing criticism over the years, most notably from U.S. district judge Jed Rakoff. The arrangements never really made sense. A company would pay a fine but admit nothing while agreeing to never again commit the acts that it never admitted committing in the first place. From the standpoint of shareholders, it s a truly bum deal. If management believes the company is innocent of wrongdoing, then management should fight to protect shareholder assets. Of course, these absurdities exist because it's all theater.
Forcing the companies to admit to criminal acts is supposed to take the theater out of it. But it's still theater because there are no consequences to the admission beyond the relatively small fines. Even SEC rules that would prevent companies that have committed felonies from running mutual funds or issuing stocks for public investment have been waived in this case.
The Daily Beast asked me to take another look at Martha Stewart's five month jail sentence handed down in 2004 through the lens of the slap on the wrist that the Department of Justice called a victory this week. You might recall that Martha Stewart stood accused of insider trading in order to avoid $45,000 in losses on ImClone stock. But that's not why she went to jail. The government never came close to proving insider trading. They didn't have the goods. Instead, they nailed her for obstruction of justice. She lied to investigators about the insider trading that investigators couldn't prove in the first place.
The inescapable conclusion, I think, is that in the eyes of the law, it's way better to be a bank than it is to be a person.