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The enforcement challenges facing JPMorgan Chase---and the speed at which they arose---are nothing short of phenomenal, putting it in league with the likes of Bank of America and Goldman Sachs at the peak of their enforcement woes. JPMorgan Chase has every incentive to settle these cases quickly, taking the financial hits now. But it will not be easy.

It may be that the bank has little intention of actually going to trial to contest the many charges it faces. But that hardly means that settlements will come easy. The SEC's inquiry into the London Whale fiasco at the bank has been heating up, and the bank reportedly will be ready to strike a deal as early as this fall. The goals of the bank are likely to prevent any executives from being personally charged, to pay a reasonable (relatively speaking) amount and to avoid admitting fraud of any kind.

As of now, the wildcard is the admission or not of guilt. Recall that the SEC has been roundly criticized for its policy of agreeing to settlements without requiring the defendant to admit that they did anything wrong, which begs the question: if they didn't do anything wrong, why are they paying so much to settle?

Federal district Judge Jed Rakoff in New York has led the charge in opposing these deals, though he has not always been upheld on appeal.

Still, the SEC has intimated recently that it will seek more admissions of guilt, which will not be easy. At the same time, a criminal investigation is also proceeding. This is going to get very tricky for the bank, which has faces no less than eight federal inquiries.

For more:
- here's a Washington Post article

Read more about: JPMorgan, Enforcement Action
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2. SAC pondering layoffs

By Jim Kim

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3. More enforcement action against JPMorgan?

If the goal of prosecutors is to put SAC Capital out of business, prosecutors have been making gains. They have successfully prompted many limited partners to cut their ties. And it's only a matter of time before the others follow.

Despite their loyalties to a firm that racked up such huge gains over the years, they know the game is up as of now. They all have constituents to answer to, and it is getting increasingly difficult to stay invested.

The enforcement actions against ex-employees and then the firm itself left Steven Cohen's company with a mere $1 billion in external funds as of a week ago. The fund firm is now at the point that it has begun talking about voluntarily returning capital to outside investors and effectively becoming a firm that manages inside money only.

Most of that money belongs to Cohen. As for the rest, even insiders will at some point seek the return of their funds.

At the same time, the government and the company have agreed to rules that prevent the firm form transferring out money and from somehow reducing the value of the funds. "Called a protective order, the deal says that SAC must maintain a certain percentage of its assets across its various funds, an amount that equals about $5 billion, according to a person briefed on the case. If assets fall below that threshold, SAC must replenish them by the next month," notes DealBook.

The SEC's civil complaint seeks "any and all" of SAC's assets. It's possible as well that the government could go after Cohen's personal money. Many questions remain up in the air.

While you can't really call this the "death penalty," a term that makes prosecutors squeamish these days, the effects is not dissimilar.

For more:
- here's the article

Read more about: Layoffs, SAC
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By Jim Kim

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4. Are analysts again part of the banking team?

The blizzard of enforcement action targeting JPMorgan Chase doesn't appear to be letting up. The latest news is that U.S. prosecutors are seeking to arrest two former traders at the bank who were key players in the London Whale fiasco, which cost the bank so dearly financially and reputationally.

The ex-employees are Javier Martin-Artajo, who oversaw the controversial trading strategy, and Julien Grout, a low-level trader. According to media reports, it's entirely possible that the two men could be extradited to the United States. At the same time, it's possible that neither man will be located quickly, as they are citizens of other European countries.

The arrests continue the pattern of lower-level employees being personally charged, while their supervisors go unpunished. At least that's how some will see it. Prosecutors may have been emboldened by the victory by the SEC in the trial of Fabrice Tourre, the low-level Goldman Sachs executive civilly charged---and found guilty---of misleading investors in a CDO deal. Some may find it odd that the London Whale himself, Bruno Iksil, has apparently maneuvered well enough to avoid charges completely. Iksil, who worked in JPMorgan's chief investment office in London, has been cooperating with government investigators, according to Reuters. That cooperation was key reportedly to the government's move to arrest the two former executives. He likely has proven a valuable witness in regard to other enforcement actions.

All this is playing out as JPMorgan prepares to settle civil charges related to the London Whale incident. That settlement just might call for it to actually admit guilt, which has been unheard of as of late.

For more:
- here's the Reuters article

Read more about: Enforcement Action, JPMorgan Chase
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By Jim Kim

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5. SAC Capital employees getting antsy

Has anything really changed when it comes to analysts and IPOs?

Recall that in the dot.com days, Internet stock analysts essentially became part of the investment banking team. The client could rest assured that the underwriter's analysts would be on their side, making clear to the world what a great investment the company would make. It got way out of hand, and when the bubble burst, banks agreed to a "global settlement" that imposed some restrictions that sought to keep the analysts objective and erect some walls between research and underwriting.

But the global settlement has expired, and some wonder if banks are up to their old tricks. DealBook reports that analysts interviews are once again part of the solicitation process.

"Today, companies routinely interview analysts when selecting bankers to underwrite their I.P.O.'s. During these meetings, the analysts say, they increasingly feel pressure to say the right things to curry favor with a company's management and owners. They also see themselves as participating in their banks' efforts to win business, a potential breach of government regulations," DealBook reports.

"Interviewing analysts as part of the process of going public has become more prevalent, several analysts said, with the proliferation of so-called I.P.O. advisers, firms that advise companies in the early stages of an offering. These firms are paid to help companies and, often, their private equity owners screen banks vying to take companies public. Among other things, they arrange for meetings between companies and the Wall Street analysts and bankers."

Banks tell the publication that "their analysts are supposed to discuss only broad industry trends at these meetings and not pitch the bank's underwriting services. If asked about specific views on a company, like earnings models or potential I.P.O. pricing, they are supposed to refer those questions to bankers."

It gets a little murky but you can bet that an analyst who speaks in a way that doesn't necessarily dovetail with the mission to sign the client will be dealt with.

In any case, Finra is apparently taking a look. It has sent an inquiry to several firms, seeking information.

For more:
- here's the article

Read more about: analysts, IPOs
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By Jim Kim

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