Citigroup, JPMorgan Chase And Others Fined $1.2 Billion Over FX Trading (#GotBitcoin?)
Traders at Barclays, Citigroup, JPMorgan Chase, Mitsubishi UFJ Financial Group and the Royal Bank of Scotland engaged in anti-competitive behavior, the European Commission found. Citigroup, JPMorgan Chase And Others Fined $1.2 Billion Over FX Trading (#GotBitcoin?)
The European Commission said Thursday that it had fined Barclays, Citigroup, JPMorgan Chase, Mitsubishi UFJ Financial Group and the Royal Bank of Scotland a combined 1.07 billion euros, about $1.2 billion, for their roles in foreign exchange trading cartels.
The penalty followed billions of dollars in fines that various government regulators levied on major banks in 2014 and 2015 over their participation in the manipulation of the foreign currency market.
The commission’s action stemmed from what it deemed to be anti-competitive practices by two cartels that operated from 2007 to 2013. Previous related investigations by the Justice Department, and by regulators in the United States, Britain and Switzerland, examined criminal misconduct and civil violations and had increased scrutiny of currency trading desks.
“Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day,” Margrethe Vestager, Europe’s commissioner for competition policy, said in a statement on Thursday. “The behavior of these banks undermined the integrity of the sector at the expense of the European economy and consumers.”
Individual traders from each of the five banks traded large amounts of currencies including the euro, the pound, the yen and the United States dollar for major companies, pension funds and asset managers.
Although the traders were direct competitors, the commission’s investigation found that they had exchanged trading plans, shared sensitive information — including details of their customers’ orders and evidence of their identities — and even coordinated strategies during chats on Bloomberg terminals.
“Some of the traders created the chat rooms and then invited one another to join, based on their trading activities and personal affinities, creating closed circles of trust,” the commission said in a news release.
One of the fines levied by the commission, which covered communications by traders in three chat rooms, will cost Barclays; the Royal Bank of Scotland, or RBS; Citigroup; and JPMorgan about €811 million altogether.
The groups, which went by the names “Three way banana split,” “Two and a half men” and “Only Marge,” operated from December 2007 to January 2013, the commission said.
How Much Alcohol Can You Drink Safely?
Why Working Till Whenever Is a Risky Retirement Strategy
James Charles, From ‘CoverBoy’ to Canceled
A second fine involved a chat room known as “Essex Express ‘n the Jimmy” because the traders involved, except for one named James, lived in Essex, a county northeast of London. The members would meet on a train to the city, the commission said.
The Essex chat room and one called “Semi Grumpy Old Men” operated from December 2009 to July 2012. Barclays, RBS and the Mitsubishi bank, which was then called Bank of Tokyo-Mitsubishi and is widely known as MUFG, were collectively fined almost €258 million by the commission over the activities in the two chat rooms.
UBS was involved in both groups, but was not fined because it disclosed the cartels’ existence to the commission. UBS avoided a €285 million penalty, the commission said.
“This is a legacy matter where UBS was the first bank to disclose potential misconduct,” the bank said in an emailed statement on Thursday. “We’ve made significant investments to further strengthen our control framework since then and are pleased this matter is resolved.”
UBS was among a group of the world’s largest banks that paid a combined $4.25 billion in 2014 after investigations into manipulation of foreign currency markets by regulators in Britain, Switzerland and the United States.
Except for MUFG, the banks identified by the commission on Thursday applied for leniency and received lesser fines in exchange for cooperating with investigators. All five banks received separate 10 percent reductions for acknowledging their participation in the cartels.
Citigroup, JPMorgan, Barclays and the Royal Bank of Scotland pleaded guilty in 2015 to federal crimes in the United States and, along with UBS, paid $5.6 billion in penalties for manipulating the value of currencies.
MUFG said in a statement that the investigation had found that the “high standards that we aspire to in our business were not met on this occasion.” The bank noted that it had taken measures to prevent such behavior in the future.
JPMorgan and the Royal Bank of Scotland both said they were pleased to have reached settlements.
JPMorgan said it had made “significant control improvements.” RBS said that “today’s fine is a further reminder of how badly the bank lost its way in the past and we absolutely condemn the behavior of those responsible.”
Citigroup and Barclays declined to comment.
The fines announced on Thursday may not be the commission’s last word on the issue. It said it would “continue pursuing other ongoing procedures concerning past conduct in the Forex spot trading market.”
U.S. Fines Billions For Wall Street Fraud. Nearly Half The Time It Doesn’t Collect
SEC collected just 55% of the $20 billion levied for securities cases in last five years.
Wall Street watchdogs often tout the fines they levy on alleged wrongdoers. Yet much of that money is never collected.
The Securities and Exchange Commission over the five years ending in 2018 took in 55% of the $20 billion in enforcement fines set through settlements or court judgments, according to agency statistics. During the prior five years, from 2009 through 2013, the SEC collected on 60% of $14.6 billion.
And in 2018, the commission collected just 28% of almost $4 billion. That rate—the lowest in a decade—was due in part to an unusual $1.7 billion settlement with the Brazilian oil company Petrobras that may never require payment to the SEC.
The SEC has struggled for years to get defendants to pay more of their fines, although some are almost certain to avoid payment forever. That includes people who went to prison on related criminal charges, or people behind Ponzi schemes who spent the funds they took from defrauded investors.
The Government Accountability Office, an investigative agency for Congress, criticized the SEC in 2014 for record-keeping lapses that understated the amounts owed by defendants by at least $42 million. Since then, the commission has been building a new computer system to track unpaid fines.
The SEC has written off more than $10 billion in fines since 2009, according to a Wall Street Journal analysis of SEC financial statements and budget documents. The amount includes monetary penalties and disgorgement, a type of fine that seeks to recover illegal profits.
The SEC at the end of its 2018 fiscal year was owed about $1.5 billion in fines, but expects to collect just $228 million of that amount, according to its financial statements.
The SEC confirmed the Journal’s estimate of write-offs and said the step is taken for accounting purposes. The agency’s staff still pursues debtors whose unpaid fines have been written off.
“We have a committed group of attorneys and paralegals in the dedicated office of collections who work hard to collect these funds, many of which will be distributed to harmed investors,” said John Nester, an SEC spokesman.
The SEC partly measures its success as an enforcement agency by how much it levies in fines and how much it collects. It also sometimes takes credit for fines that will likely never be collected.
In the Petrobras settlement, the SEC allowed the company to avoid paying most of that amount if it handed over an equivalent sum to Brazilian authorities, who pursued a separate investigation, and to U.S. investors in a class-action lawsuit. The plaintiffs in the private litigation were awarded $2.95 billion last year.
The Petrobras case was settled in September, three days before the end of the government’s 2018 fiscal year. Without that case included in the 2018 data, the regulator’s collection rate would have been about 51%.
In other cases, the SEC is still chasing the money—years after it levied a fine.
In April, the SEC asked a federal judge in Georgia to enforce a five-year-old judgment against an investment adviser who was required to pay more than $360,000. SEC commissioners ruled that Ernie Montford failed to disclose a conflict of interest—that his company was paid about $130,000 by another adviser who managed money for some of his clients.
Mr. Montford has paid the SEC in monthly amounts from his Social Security income, he said in an interview. But that only yielded about $21,000, according to an April 30 court filing submitted by the SEC.
Mr. Montford, who owns a home in Highlands, N.C., said nothing had changed about his finances in the years since the SEC sued him.
“The SEC stomps on little firms like mine,” said Mr. Montford, 71 years old. “If I could have paid more, I would have paid them.”
The Commodity Futures Trading Commission, another financial regulator, boosted its recovery rate in 2018 after years of varied performance. It collected $857 million in fines in 2018, according to its annual financial report, a rate that topped 90% of fines levied.
Unlike the SEC, the CFTC doesn’t disclose how much of a given year’s collections are tied to fines levied in that same year. As a result, the public can’t tell what share of the fines ordered during a particular year are actually collected. The $857 million collected in 2018, for instance, may include cash tied to cases that were concluded in prior years, a CFTC spokeswoman said.
The CFTC has levied higher fines in recent years as it settled cases with Wall Street institutions such as Deutsche Bank AG and Barclays PLC related to alleged manipulation of interest-rate and foreign-exchange benchmarks.
The CFTC’s collection rate varies significantly from year to year. In 2016, it reported collecting about $479 million, or 37% of the fines that were ordered.
The SEC has the authority to waive penalties against people who show they can’t afford a fine. But it still sometimes seeks money “where the prospect of collecting on a judgment is slight,” according to annual budget documents. The agency says that approach is justified because fines deter misconduct, and defendants who claim they are broke may one day come into money again.
Even though the SEC writes off unpaid fines as uncollectible after they are delinquent for two years, it makes sense to pursue big fines against bad actors who say they can’t pay, said Michael Shaub, a professor of accounting and accounting ethics at Texas A&M University.
“From a public policy perspective, people would rather see bad guys fund the SEC than good guys,” Mr. Shaub said.