By MICHAEL SMALLBERG
At the height of the bailout, Goldman Sachs earned the nickname "Government Sachs" thanks to the legions of former Goldman executives who landed jobs at the Federal Reserve and Treasury Department.
Now it looks like JPMorgan is giving Goldman a run for its money.
Lee Fang at Republic Report noted this week that the staff director of the Senate Banking Committee—which is preparing a series of hearings to investigate JPMorgan’s $3 billion trading loss—is none other than Dwight Fettig, a former lobbyist who represented JPMorgan before Congress as recently as 2010. Fettig has also lobbied on behalf of Freddie Mac and the American Bankers Association, among other financial industry clients.
Before he became a lobbyist, Fettig was a legislative director for Senator Tim Johnson (D-SD), the current Chairman of the Senate Banking Committee. According to his bio, Fettig had a “particular focus” on legislation such as the Gramm-Leach-Bliley Act, which repealed many of the Glass-Steagall provisions that had required a separation of commercial banks, investment banks, and insurance companies. (The final report by the Financial Crisis Inquiry Commission cited several regulatory officials who noted that Gramm-Leach-Bliley created an “obstacle that prevented each [regulator] from obtaining a complete understanding of the risks assumed by large financial firms.”)
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As it turns out, the revolving door between JPMorgan and Washington doesn’t end with Congress. JPMorgan has also hired or retained former senior officials from the Securities and Exchange Commission (SEC) when faced with SEC investigations and enforcement actions.
Bloomberg reported this week that the bank has retained former SEC enforcement director William McLucas to help respond to inquiries from the SEC and other regulators concerning the massive trading loss. (A recent report by the SEC Office of Inspector General (OIG) found that a former SEC enforcement director—later identified as McLucas—played a big role in convincing the agency not to bring fraud charges against a previous client, Allied Capital.)
And who is JPMorgan’s in-house general counsel? Another former SEC enforcement director, Stephen Cutler, who previously worked alongside McLucas at WilmerHale. (An SEC OIG report found that then-enforcement director Linda Thomsen provided Cutler with important information about the SEC’s investigation into Bear Stearns right before JPMorgan acquired the firm, contributing to a “perception within the SEC that certain members of the legal defense bar have influence within Enforcement.” In addition, POGO’s SEC revolving door database includes four statements filed by Cutler indicating he intended to represent clients before the agency within two years of leaving.)
Last year, JPMorgan entered into a widely criticized settlement with the SEC for structuring and marketing a complex mortgage securities deal just as the housing market was starting to plummet, without informing investors that the hedge fund Magnetar had essentially created the deal and bet against it. In that case, JPMorgan retained several former SEC officials and the former enforcement chief at FINRA for legal assistance.
Even when it is charged with sanctions, JPMorgan has often been successful at reducing the punishment. The New York Times recently reported on the waivers and exemptions that JPMorgan and other firms have obtained from the SEC allowing them to enjoy certain benefits that are normally set aside for well-behaving companies:
JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.”
One of JPMorgan’s waiver requests highlighted in the Times piece was submitted by WilmerHale’s Stephanie Avakian, who, according to POGO's SEC Revolving Door Database, is a former counsel to SEC Commissioner Paul Carey. This waiver allowed JPMorgan to enjoy certain privileges that would have otherwise been unavailable to the firm after it was charged with fraudulently rigging nearly 100 municipal bond transactions.
It remains to be seen whether the ongoing investigations by Congress and financial regulators related to JPMorgan’s recent trading loss will result in any serious consequences for the firm. But with its former lobbyist working on the key Senate committee, and former SEC officials on the payroll and on retainer, JPMorgan is poised to reap the benefits of the revolving door yet again.
Michael Smallberg is a POGO investigator.
Image via Thomas Hawk.