J.P. Morgan Chase & Co.’s mea culpa on Thursday was a rare break from white-collar custom. But the company’s admission of wrongdoing in its settlement with regulators was no smoking gun, according to legal scholars. They say it was crafted in a way that minimized the bank’s exposure to class-action litigation.
In agreeing to pay about $920 million in fines over actions tied to its 2012 “London Whale” trading debacle, J.P. Morgan conceded that it had been sloppy with its books and lacked internal controls over financial reporting.
“We have accepted responsibility and acknowledged our mistakes,” J.P. Morgan CEO James Dimon said in a statement Thursday.
But the candor, largely limited to questions of record-keeping, was contained. J.P. Morgan never said it misled or deceived anybody.
The settlement may seem like a clean win for the Securities and Exchange Commission, which has faced criticism from some judges and lawmakers for its “no-admit” boilerplate settlements with companies and individuals accused of misconduct. But legal scholars said the fine print still works out fine for J.P. Morgan.
None of the admissions opens the door to lawsuits from private parties. The company, for instance, admitted that it ran afoul of a provision of the Securities Exchange Act that requires public companies to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”
Any potential securities class-action would still have to show that J.P. Morgan made a reckless misstatements that had real financial consequences.
“In terms of financial consequences, it doesn’t make a lot of difference,” University of Michigan law professor Adam C. Pritchard, who teaches corporate and securities law, told Law Blog.
A spokesman for J.P. Morgan didn’t immediately respond to a request for comment. The SEC declined comment. The co-director of the SEC’s Division of Enforcement, George S. Canellos, said earlier that the company “failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses.”
Should shareholders sue, the company’s admission at most could function as a “building block” to help demonstrate recklessness, Mr. Pritchard said.
The limited liability fallout makes sense, said Duke University law professor Samuel W. Buell, an expert on white-collar crime. “One would expect J.P. Morgan to structure a settlement that leaves them with running room on any private lawsuit,” he told Law Blog.
That doesn’t mean J.P. Morgan is feeling comfortable. An ongoing criminal probe remains a wildcard. But this appears to be a watered-down watershed moment.
“We still don’t have an example of someone admitting securities fraud liability,” said Mr. Buell.
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