By Pam Martens and Russ Martens: July 31, 2018 ~

Less than seven months after a unit of JPMorgan Chase settled with the Federal Energy Regulatory Commission (FERC) for $410 million in penalties and disgorgement over allegations that it had manipulated electricity markets in California and the Midwest, one of its employees, Shawn Wesley Alexander, submitted a really creepy patent request to the U.S. Patent and Trademark Office on February 10, 2014.

The patent might not be creepy for the owner of a video game arcade but JPMorgan Chase is the largest bank in America – with a global footprint and an unprecedented three Federal felony counts to which it has pleaded guilty in the past four years. The first two counts came in 2014 for looking the other way at Bernie Madoff’s Ponzi scheme as the bank watched hundreds of billions of dollars come and go through his business account at the bank, but never for the payment of securities he was supposed to be trading for clients. The next felony count came in 2015 for being one of multiple banks engaged in rigging the foreign exchange market.

The patent was approved on January 16 of this year under the title of “Dynamic Game Deployment.” Under “Background” for the patent, it says this: “Interactive games or challenges can be an effective tool to motivate/incentivize users, employees, etc., to achieve various goals or objectives.” Under “Description” we are offered this:

“It can be appreciated that virtual games/challenges (such as those implemented on electronic devices, e.g., computers, mobile devices, etc.) can be effective in motivating/incentivizing users to achieve various goals/objectives. However, existing technologies do not enable the deployment of such games/challenges in a manner that can effectively incentivize users across organizations and/or enable organization administrators to dynamically configure/adjust aspects of such games/challenges based on various changes that may occur over the course of such game(s).

“Accordingly, as described herein, a gamification platform is provided that can enable the deployment of multiple games/challenges across multiple users and/or an entire organization, population, etc. Such a platform can deploy multiple games to various users, and receive various interactions from such users in relation to the various deployed games. As described herein, such interactions (reflecting the various ways in which such users interact with and/or progress within various games) can be analyzed and various aspects of such games can be adjusted/configured based on such analysis (e.g., by providing dynamic notifications to the user suggesting/encouraging a particular action/operation.”

These statements caught our eye because one of the biggest concerns of Federal regulators is the culture of Wall Street and why its minions seem to be hopelessly incentivized to engage in abusing customers and illegal activities. JPMorgan’s culture has been so bad that two trial lawyers Helen Davis Chaitman and Lance Gotthoffer, published a book on the subject, comparing the bank to the Gambino crime family.

We also were reminded of some unseemly emails that emerged from the U.S. Senate’s Permanent Subcommittee on Investigations (which has had JPMorgan Chase in its cross-hairs on more than one occasion) over JPMorgan’s involvement in the manipulation of electricity markets. (The same matter that led to the $410 million settlement with FERC.) 

One email came from Francis Dunleavy, the former head of Principal Investing within the JPMorgan Commodities Group. It was dated April 29, 2010 at 7:47 p.m. and sent to a colleague, Rob Cauthen. It said simply: “Please get him in ASAP.”

The email conveyed that Dunleavy wanted to interview a prospective job candidate immediately. That candidate was John Howard Bartholomew, who had obtained his law degree from George Washington University two years earlier. But it wasn’t his newly minted law degree that Bartholomew prioritized in the resume he sent to JPMorgan; it was the fact that while working at Southern California Edison in Power Procurement, he had “identified a flaw in the market mechanism Bid Cost Recovery that is causing the CAISO [the California grid operator] to misallocate millions of dollars.” Bartholomew went on to brag in his resume that he had “showed how units in reliability areas can increase profits by 400%.”

Senator Carl Levin, then the Chair of the Senate Subcommittee, said this about Bartholomew and Dunleavy at a hearing conducted into this and related matters: 

“There’s two things that I find incredible about this. First, that anyone would advertise in a resume that they know about a flaw in the system — signaling that they’re ready and willing to exploit that flaw. And, second, that somebody would hire the person sending that signal.”

JPMorgan not only hired Bartholomew, according to the Senate’s investigation, but within three months from the date of the email to Dunleavy, “Bartholomew began to develop manipulative bidding strategies….” By early September, the strategy to game the system was put into play. By October, the JPMorgan unit was estimating that the strategy “could produce profits of between $1.5 and $2 billion through 2018.”

JPMorgan Chase owns hundreds upon hundreds of patents, many featuring aspects of artificial intelligence (AI) and machine learning – where the computer is given access to data and it learns for itself what it can do with that data. Given JPMorgan’s history of running afoul of the law, that should concern every American.

In April of 2014, Jamie Dimon, CEO of JPMorgan Chase, wrote in his annual shareholders’ letter that JPMorgan employs “nearly 30,000 programmers, application developers and information technology employees…” According to Anish Bhimani, Chief Information Risk Officer at JPMorgan Chase, in an interview in 2013, JPMorgan has “more software developers than Google, and more technologists than Microsoft…we get to build things at scale that have never been done before.”

Last week, writing for The Hill, Kirsten Wegner reported that JPMorgan Chase “will spend $11 billion on technology in 2018.” Wegner notes that $11 billion is more than five times the total budget for the Securities and Exchange Commission, the Federal regulator that oversees JPMorgan’s stock trading operations.

Another interesting patent obtained by JPMorgan Chase just last month is described as a “system and method for customized sentiment signal generation through machine learning based [on] streaming text analytics.” This appears to allow a computer to teach itself how to rapidly read a newly released research report and, potentially, determine if it is generating a buy or sell signal. Obviously, the inference is that the machine could then trade instantly on that “sentiment” while a human is still attempting to digest the nuances of the report. It sounds like this might also be applied to breaking news on publicly traded stocks.

With JPMorgan having more software developers than Google, a tech budget more than five times its stock market regulator’s total budget to police all of Wall Street, and a steady history of settling regulatory lapses on the cheap and getting deferred prosecution agreements for criminal felony counts from the U.S. Justice Department, who among us still believes that Wall Street is a free/efficient market place?