I mentioned yesterday that, as a condition of their probation, all the banks that pled guilty to a conspiracy to rig foreign-exchange rates have to send sad little “Disclosure Notices” to their clients. Here, for instance, is JPMorgan’s disclosure notice, which on a cursory glance seems to be identical to the one attached to its plea agreement. It’s an interesting little document. There’s an introductory paragraph, and then a paragraph of contrite moaning that “conduct by certain individuals has fallen short of the Firm’s expectations,” specifically by being a massive antitrust conspiracy.
Then there are three bullet points describing other naughtiness that does not rise to the level of antitrust conspiracy. Those bullet points begin:
“We added markup to price quotes using hand signals and/or other internal arrangements or communications.”
“We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders.”
“We made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders.”
You might read these sentences as admissions of guilt, or disclosures of crimes, or even apologies. In context — in the context of a disclosure notice sent to clients as part of the bank’s probation for a felony conviction, one paragraph after the apology for the massive antitrust conspiracy — that’s kind of what they look like. And in the banks’ plea agreements, the practices described in those bullet points are listed as “other relevant conduct” for the criminal conspiracy. So Iread the bullet points as confessions yesterday, and was puzzled because, while they seem like sharp practices, they don’t quite seem like crimes.
But those bullet points are actually introduced by the phrase, “The Firm has engaged in other practices on occasion, including:.” These are not crimes, just “practices.” And the disclosure notice just describes them. It stops after the bullet points. It never says “and those practices were wrong.” Or “and we’re sorry we did those things.” Or even: “and we’ll stop doing them.”
Because they won’t! Here’s another letter that JPMorgan is sending to its clients along with the disclosure notice. This one is not a condition of its probation. Here’s how it starts:
The purpose of this letter is to clarify the nature of the trading relationship between you and the Corporate & Investment Bank at JPMorgan Chase & Co. and its affiliates (together, “JPMorgan” or the “Firm”) and to disclose relevant practices of JPMorgan when acting as a dealer, on a principal basis, in the wholesale spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.
So: That does not sound like an apology. That sounds downright feisty. The disclosure notice, which JPMorgan has to send, starts with an apology and then goes on to list some things that JPMorgan did in the past. The client letter, which JPMorgan wants to send, starts with a defiant “no ambiguities or misunderstandings” and then goes on to list some things that JPMorgan will keep doing in the future.
Did you guess that they’re the same things? Of course you did! (Minus the antitrust conspiracy of course.)
So the Justice Department didn’t like that JPMorgan, and most of the FX-manipulating banks, “added markup to price quotes using hand signals and/or other internal arrangements or communications.” So JPMorgan has to say to clients:
In certain instances, certain of our salespeople used hand signals to indicate to the trader to add markup to the price being quoted to the client on the open telephone line, so as to avoid informing the client listening on the phone of the markup and/or the amount of the markup.