By Pam Martens: July 11, 2012
On May 10 of this year, Jamie Dimon, Chairman and CEO of JPMorgan, announced that billions of insured deposits at his bank had been invested in high risk derivatives and had sustained at least a $2 billion loss. The Department of Justice and FBI have commenced investigations. Dimon is expected to announce the current extent of those losses this Friday in an earnings conference call.
Following the May 10 announcement, there were numerous calls for Dimon to step down from the Board of Directors of the Federal Reserve Bank of New York. That organization is the primary regulator of the firm. There was widespread public outrage that the CEO of a bank had no business serving on the governing body of his regulator. (The New York Fed has a long history of such conflicts.)
Now it has emerged that not only was Dimon conflicted in his role on the New York Fed but the President and CEO of the New York Fed had an equally dubious conflict of interest.
William C. Dudley has been employed by the New York Fed since January 1, 2007, first heading up the powerful Markets Group. That Group manages the supply of bank reserves in the banking system according to the mandate of the Federal Open Market Committee (FOMC). On January 27, 2009, Dudley was elevated to President and CEO of the New York Fed. Financial disclosure forms for 2008 through 2010 show that Dudley’s wife, Ann Darby, was a former Vice President of JPMorgan and had holdings of more than $1,500,000 in deferred income accounts at the firm as well as between $250,000 to $500,000 in a 401(K) plan there.
In a letter dated January 22, 2009, authored by the New York Fed’s General Counsel, Thomas C. Baxter, Jr. and Deputy General Counsel, Michael Held, two financial waivers were sought for Dudley. One involved $1.45 million in Treasury Inflation Protected Securities (TIPS) and the other involved a small monthly pension of $124.38 that Dudley would receive from his previous employer, Goldman Sachs, at age 65. (Dudley’s financial disclosure forms show over $1 million in his Federal Reserve Retirement Thrift Plan, which seems an extraordinary sum for his 5-year tenure. It could be that he was permitted to roll over most of his Goldman pension into the Federal Reserve plan, explaining why his monthly Goldman benefit at age 65 is so small.)
The January 22, 2009 letter carries the following statement:
“In addition, please note Mr. Dudley’s spouse previously worked at J.P. Morgan Chase (JPMC) and as a result received certain deferred income distributions from JPMC in the aggregate amount of approximately $190,000 annually. These disbursements will wind down and cease in 2021. We are currently in discussions with Mr. Dudley, representatives from the Board of Governors and JPMC regarding these financial interests. These interests would only give rise to a conflict in the event that Mr. Dudley were to work on a matter having a direct and predictable effect on JPMC’s ability or willingness to continue paying these amounts to Mr. Dudley’s spouse. Currently, no such matter exists. We hope to come back to you with an update on this issue in the near future to let you know how it has been resolved.”
The New York Fed carries the following statement about conflicts on its web site:
“New York Fed employees are subject to the same conflict of interest statute that applies to federal government employees (18 U.S.C. Section 208). Under Section 208 and the New York Fed’s code of conduct, a Bank employee is prohibited from participating personally and substantially in an official capacity in any particular matter in which, to the employee’s knowledge, the employee has a financial interest if the particular matter will have a direct and predictable effect on that interest. Participation in a particular matter may include making a decision or recommendation, providing advice, or taking part in an investigation.”
In this case, the top official of the regulatory body overseeing JPMorgan Chase, was receiving $190,000 per year in household income from the bank he was supervising. If Dudley was the named beneficiary of his wife’s assets, he had a current interest in $1.75+ million from JPMorgan Chase.
These conflicts were clearly known to the top two lawyers at the New York Fed on the date of this letter, January 22, 2009, two years after Dudley began his employment at the New York Fed. On February 16, 2011, Martin C. Grant, the Chief Compliance and Ethics Officer of the regulator, wrote to the Assistant General Counsel, Cary Williams, at the Board of Governors of the Federal Reserve System in Washington, D.C., providing the 2009 financial disclosure reports for Dudley.
That letter reads in part: “Enclosed for your and Chairman Bernanke’s review are the 2009 confidential Financial Disclosure Reports filed by the President…These reports are provided to you for your review, with the understanding that they will be reviewed only by you and Chairman Bernanke, and that they remain the property of the FRBNY. It is the FRBNY’s position that the reports and any information contained in the reports are exempt from public disclosure under the Freedom of Information Act…”
In a statement on the New York Fed’s web site dated January 31, 2012, there is no reference to any waiver ever being granted for Dudley on his spouse’s income and assets at JPMorgan, although other specific waivers are mentioned. When the 2010 financial forms were filed by Dudley, Ann Darby’s holdings at JPMorgan remained on the statements. The 2010 financial disclosures are the most recent filings available.
In addition to the DOJ and FBI probe here in the U.S. for gambling with insured deposits, JPMorgan is now under a criminal probe in Canada for rigging Libor interest rates and a Federal Energy Regulatory Commission (FERC) probe for rigging electric rates in California and the Midwest. On March 15 of this year, Judge Simone Luerti in Milan, Italy set a trial date of May 6 for fraud charges to commence against JPMorgan and three other banks (Deutsche Bank, UBS AG, and Depfa Bank) over alleged derivatives fraud. Prosecutors in Milan accused the four banks of misrepresenting the deals to city officials and earning $128 million in hidden fees.
Against this backdrop, we learned last week that a trade association for bankers (a trade association for bankers!) the British Bankers Association (BBA), is the overseer of a globally rigged system for setting interest rates (Libor) that impact over $10 trillion in consumer loans and $350 trillion of interest rate derivatives purchased by municipalities around the globe; towns from Alabama to Saint-Étienne, France, pillaged and looted by a morally bankrupt band of insatiable financial locusts.
Here is what the British Bankers Association – the group overseeing interest rates that impact everything from adjustable rate mortgages in the U.S. to what municipalities receive, or owe, in interest payments around the globe – says it does on its web site: “We promote a legislative and regulatory system for banking and financial services – in the UK, Europe and internationally – which takes account of our members’ needs and concerns and provides an effective and competitive market place in which their businesses can prosper.”
Here is how the New York Fed defines its regulatory regime under the title “Relationship Management”: “Examiners serve as relationship specialists, financial analysts or surveillance analysts, and focus on large foreign banks, other foreign banks, large domestic banks, regional banks or community banks.” Relationship management is not how the public wants its regulators and prosecutors of financial fraud to function but that is precisely what we have today: handholding and slaps on the wrist.
Yesterday we learned that the National Futures Association (NFA), whose Board of Directors consists of industry insiders, failed to detect yet another rogue commodities firm, PFGBest, that has absconded with hundreds of millions of customer funds. NFA’s other ward, MF Global, collapsed in October of last year and $1.6 billion of missing customer funds is yet to be located.
We’ve reached the point of no return here in the U.S. We are either going to continue to tolerate depraved Wall Street cartels to regulate themselves, to churn our economy and our life savings into oblivion or we are going to stand up to Wall Street and their sycophants in Congress and thunder: “ENOUGH!”