Here's someone else who should be relieved at the way last week’s settlement worked out between JPMorgan Chase & Co. and federal energy regulators, in addition to the executives who run the bank: U.S. Attorney General Eric Holder.
This is an angle I haven’t seen mentioned in the coverage of the bank’s $410 million accord with the Federal Energy Regulatory Commission. (The agency accused JPMorgan of fraud and manipulating electricity markets in California and the Midwest from 2010 to 2012.) One of the most important parts of the deal is that the agency didn’t accuse JPMorgan or any of its employees of lying to its investigators. Had it done so, this may have raised uncomfortable questions for the Justice Department about whether the bank had violated the terms of a non-prosecution agreement over antitrust allegations in July 2011.
First, some background. As details of the investigation came to light, the New York Times in May ran an article that said the energy regulator’s investigators had claimed that a senior JPMorgan executive, Blythe Masters, gave “false and misleading statements” under oath. The Times said the findings appeared in a confidential document sent to JPMorgan in March. The article also quoted a JPMorgan spokeswoman, Kristin Lemkau, who said: “We strongly dispute that Blythe Masters or any employee lied or acted inappropriately in this matter.”
In the end, the agency didn’t accuse Masters or anyone else from JPMorgan of misleading investigators. However, it did include this admonition in its consent agreement with the bank: “Finally, in light of the record here, we remind all persons under investigation of the importance of candor and accuracy during all stages of market monitor inquiries and commission investigations.”
Had the agency accused JPMorgan of lying to investigators, it could have put the Justice Department in an uncomfortable spot. Under JPMorgan’s July 2011 non-prosecution agreement, the bank pledged that for two years it would respond “truthfully and completely” to subpoenas or investigative demands by other government agencies. (As if it were allowed to do otherwise.) An allegation that JPMorgan employees had been untruthful to the energy regulator’s investigators could have forced prosecutors to consider whether JPMorgan had breached the terms of its earlier settlement agreement -- which is serious stuff. The bank agreed in 2011 that it would be subject to prosecution if it gave “false, incomplete or misleading testimony of information” in another proceeding. (As part of the 2011 settlement, JPMorgan admitted that certain employees at its municipal derivatives desk had engaged in bid rigging.)
Now the Justice Department won’t have to go down that road. And that probably is just fine with Holder, who told Congress earlier this year that some financial institutions are indeed too big to prosecute, because of the damage to the U.S. and world economy that might ensue. It’s funny how this all worked out, isn’t it?
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)