The arrogance of the captured Wall Street regulators in Washington grows exponentially with each passing day.
The only Wall Street bank which has admitted to three criminal felony charges – all coming within the past three years – has been allowed to send one of its trading executives to head a key post at Wall Street’s top cop – the Securities and Exchange Commission (SEC). Failing up continues to be the business model in the nation’s capitol.
The Trump administration, in its continuing Swamp-filling mandate from the billionaires behind the dark curtain, has elevated Brett Redfearn as Director of the Division of Trading and Markets at the SEC. Redfearn has worked at JPMorgan Securities from November 2004 to October 2017 when he was named to the new SEC post.
In 2014 the U.S. Justice Department slapped JPMorgan with two criminal felony counts related to its banking relationship with Ponzi schemer Bernie Madoff. JPMorgan admitted to the charges and received a deferred prosecution agreement.
On January 7, 2014, FBI Assistant Director-in-Charge George Venizelos had this to say about the criminal charges: “J.P. Morgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards. Today, J.P. Morgan finds itself criminally charged as a consequence. But it took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for J.P. Morgan to alert authorities to what the world already knew. In order to avoid these types of disasters in the future – we all need to be invested in making our markets safer and more equitable. The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”
When the Madoff criminal charges went down, Redfearn held the position of Head of Market Structure Strategy for the Americas at JPMorgan. He was in that position for five years and nine months according to his LinkedIn profile, meaning that he could have or should have heard the rumors all over The Street that Madoff was running a Ponzi scheme while his own bank was handling the primary business account for Madoff for decades without seeing any of the tens of billions of dollars leaving the account going to pay for the options trades that Madoff was supposed to be doing for his clients. According to prosecutors, Madoff never actually made any trades for his clients but simply issued fake client statements showing the trades. (See our full report: JPMorgan and Madoff Were Facilitating Nesting Dolls-Style Frauds Within Frauds.)
One year after the Madoff-related felony counts were filed against JPMorgan, it admitted to yet another criminal felony count filed by the U.S. Justice Department for its involvement in the rigging of foreign currency trading. In addition to the Justice Department’s charges, the U.K.’s Financial Conduct Authority (FCA) detailed a wide scale breakdown of management failures and risk controls and stated that JPMorgan’s front office was actually “involved in the misconduct.” The FCA wrote:
“Pursuant to its three lines of defence model, JPMorgan’s front office had primary responsibility for identifying, assessing and managing the risks associated with its G10 spot FX [foreign exchange] trading business. The front office failed adequately to discharge these responsibilities with regard to the risks described in this Notice. The right values and culture were not sufficiently embedded in JPMorgan’s G10 spot FX trading business, which resulted in it acting in JPMorgan’s own interests as described in this Notice, without proper regard for the interests of its clients, other market participants or the wider UK financial system. The lack of proper controls by JPMorgan over the activities of its G10 spot FX traders meant that misconduct went undetected for a number of years. Certain of those responsible for managing front office matters were aware of and/or at times involved in the misconduct.”
Another trading fiasco that raises serious questions about the SEC’s selection of a trading executive from JPMorgan to serve in a Federal watchdog capacity is the 2012 “London Whale” scandal. JPMorgan was using hundreds of billions of dollars of deposits from its insured depository bank, Chase, to allow traders in its London office to trade in exotic, high risk derivatives. As a result of the crazy bets, JPMorgan Chase lost at least $6.2 billion, paid over $1 billion in fines, and was pummeled in a 306-page report from the U.S. Senate’s Permanent Subcommittee on Investigations. Senator Carl Levin, Chair of the Subcommittee at the time, said JPMorgan “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”
Americans will not likely draw comfort that a long-term executive from a Wall Street bank with this kind of history is policing trading on Wall Street.