A woman passes by the London office of JP Morgan, where the London Whale trade scandal caused regulators to force JP Morgan to admit wrongdoing and face a $920 million fine. (Image Source: Reuters)
Today, regulators in both the United States and the United Kingdom fined big bank JP Morgan 920 million dollars and forced them to admit they violated securities laws after making shady trades. These particular trades, known as the "London Whale" trades, drove up investor and JP Morgan losses to more than $6 billion. However, despite the scandalous amount of money wasted in what were already known as shady trading, nobody at JP Morgan is currently facing jail time at the moment, with only two former traders facing criminal charges, despite what was obviously a top-down scheme.
First, let us explain what the "London Whale" trades were. Named after a trader in JP Morgan's London office, Bruno Iksil, the London Whale trades were a form of trading so-called derivatives, which are a form of contract where two groups agree to trade a certain item at a specific price on a specific time. Essentially, derivatives trading is very specifically like gambling, in that groups make bets in their trades in determining the value of a specific item. These types of trades were primarily responsible for the Great Recession of 2008, as well as the European debt crisis that never seems to end. In the case of the London Whale, these trades were continually being made by people acting like gambling addicts, with the traders racking up losses while lying to JP Morgan and regulators about the size of the trades.
While this kind of criminal behavior should register shock and awe to the average passerby, Wall Street yawned at the settlement: JP Morgan's stock dropped only a single percent upon the news. Everybody on Wall Street knew a settlement was coming, and JP Morgan even saved up some money to pay off the authorities. The Securities and Exchange Commission, rather than taking a decent approach of actually fining them an equal amount in losses or, shock, actually working with the FBI to file criminal charges against traders and executives likely involved in the London Whale scheme, continues its disgusting policy of deferring to JP Morgan's "better judgment" and slaps on the wrist, though admitting wrongdoing is a step up from before.
Meanwhile, outside Wall Street, more than 8,000 people have been arrested for protesting these very actions as part of the Occupy Wall Street movement over the last two years. Since that time, not a single trader, investor, or executive at JP Morgan or any other major big bank has been held accountable for their actions from 2007 onward, nor has anyone been jailed. Just pitiful fines and written denials of responsibility. The London Whale scandal is seen as a joke to Wall Street, and that's a larger problem than any loss.