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Wednesday, January 8, 2014

Bankers at JPMorgan Escape Criminal Prosecution as Five Madoff Employees Are Tried

Along with paying $2.6 billion to settle criminal and civil charges for having “failed, and failed miserably,” according to Manhattan U.S. Attorney Preet Bharara, to notify the SEC of warning signs that could have short-circuited Bernie Madoff’s $17 billion Ponzi operation, J.P. Morgan Chase had to acknowledge that its actions were improper.[1]  The electronic evidence was too damning. 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 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 and perhaps even themselves, yet strangely no one could manage to do so for the outside world even though federal law mandated it and responsibility urged it.

A scholar in business might study empirically whether being strenuously pressured into making a public acknowledgement of impropriety accomplishes any internal improvement both in terms of the corporate culture, including the pervasive attitude toward responsibility relative to profits, and institutional practice, including policies and procedures. As a prerequisite to this inquiry, I address here the underlying problem of whether a corporate acknowledgement of guilt or failure even makes sense. In other words, I want to put the major premise under the microscope. 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? But I digress, for my aim here is to analyze whether particular managerial or non-supervisory employees at JPMorgan should have been criminally charged, with the bank remaining subject to civil damages.

Anthropomorphism, which is the projection of human characteristics onto non-human animals or things, including collectives such as a company, government, or religious organization, is, I submit, the underlying problem rendering the justice insufficient in the case at hand. To render the affliction transparent for all, I submit the following questions for your consideration. Did JPMorgan acknowledge that its actions were improper?  Did JPMorgan have suspicions? Human beings acknowledge and act. An organization can do neither, for, as an abstraction and in some cases having achieved only a legal fiction of “personhood,” a company of people has neither a consciousness nor mind—not to mention any bodily limbs. This fact is apt to be slighted or ignored outright in a society whose population (i.e., real persons!) overwhelmingly values business and thus wants to feel a stronger affinity to the abstractions.

J.P. Morgan hitting a man as if to demonstrate that criminal law applies to human beings rather than organizations. Image Source: Wikimedia Commons

Fortunately, a “flesh and blood” person in the vaulted business world by the name of Dennis Kelleher (of Better Markets) answered the JPMorgan settlement by observing, “Banks do not commit crimes; bankers do.”[4] Kelleher made the paradigmatic statement to support his criticism of the lack of charges against bank employees, whether managerial or non-supervisory. After all, five former Madoff employees charged with aiding the fraud were on trial at the time. Which employees at JPMorgan played major roles at least in keeping the suspicions under wraps by illegally failing to notify government officials? Who decided to pull the money in the bank’s feeder funds from Madoff’s fund two months before Madoff informed government officials?

Moreover, must we depend on the guilty to announce themselves? In the case of the SEC and Madoff, it was not as if the financial regulators would discover the fraud, even in stumbling over it. It is reasonable to conclude, therefore, that government officials were relying on the legal obligation of counterparties to report suspicious activity as a backup. If human beings, rather than organizations themselves, make decisions and act, then the leverage that Wall Streeters have over members of Congress and the White House should not keep Bharara from going after the criminals rather than only their cover.




1. Tim Mullaney and Kevin McCoy, “JPMorgan to Pay $2.6 billion in Madoff Case Settlements,” USA Today, January 8, 2014.
2. Ibid.
3. Ibid.
4. Ibid.