Wall Street’s pain-free guilty plea

Published 12:00 am Tuesday, May 26, 2015

By Brian Dickerson

Detroit Free Press

Five of the world’s largest banks pleaded guilty to participating in a massive criminal conspiracy the other day, but if you sneezed or got up to use the bathroom, you may have missed the whole thing.

Usually, charges like the ones the U.S. Justice Department leveled against the conspirators are resolved with a stiff fine and a promise, announced at a ceremony with all the drama of a mortgage closing, that whatever the government’s clueless prosecutors think may have happened will never happen again, not that anyone is admitting it ever did.

But last week’s episode of “So You Want to be a White-Collar Criminal” appeared to forge new ground, including an unusually large fine ($5.6 billion), and the Justice Department’s insistence that each of the five defendants — JPMorgan Chase, Citigroup, UBS, Barclays and the Royal Bank of Scotland — cop to criminal charges as part of their agreement to settle charges arising from the currency manipulation scam they ran from 2007 to 2013.

Tellingly, however, none of the individuals responsible for executing the fraudulent scheme have been charged with so much as a misdemeanor (although most of them were fired long ago, and the Justice Department isn’t ruling out the possibility that it will prosecute individual employees down the road).

As for the CEOs who approved Monday’s plea agreement, of course they won’t face criminal charges. And, by the way, not one of those executives signed off on the deal until the Securities and Exchange Commission issued waivers exempting their banks from rules that would otherwise have excluded them from the currency markets they conspired to corrupt.

Regulators have always assumed that the sheer magnitude of the foreign exchange market, which includes corporations that buy and sell currencies for commercial purchases, as well as sophisticated speculators making educated bets about how those currencies will rise and fall relative to one another, made it practically impossible for any trader to make big profits by rigging exchange rates.

But the banks targeted by the Justice Department disproved that assumption by using online chat rooms with names like “the bandit’s club” and “the cartel” to coordinate the timing of big currency transactions. The traders involved made money for their employers by “front-running,” or placing their own currency orders in anticipation of coordinated trades they believed would move the market in the bank’s favor.

It’s easy to understand the general public’s failure to muster much outrage about criminal acts few outside the financial industry can fathom. After all, the only currency exchange rate most of us know or care about is the one our credit card company applies when it bills us for the gasoline (or liquor or restaurant meal) we bought. But you’d think the corporations and institutions who buy and sell currencies on a daily basis — the unwitting clients on whose behalf the banks traded at exchange rates they had colluded to rig — would be apoplectic, no?

Yet the news of the banks’ plea deal and record fine seems to have elicited little more than a yawn among sophisticated 1-percenters.

The Wall Street Journal, the newspaper of record for Masters of the Universe actual and aspiring, ran the currency manipulation story below the fold. In Detroit, the disclosure that five banks had rigged the foreign exchange market every global automaker depends on generated less disappointment than Red Wings coach Mike Babcock’s widely anticipated departure for Toronto.

I can’t help contrasting that muted reaction to the moral indignation a Detroit CEO of my acquaintance expressed when I ran into him the morning the Free Press first published text message excerpts revealing that then-Mayor Kwame Kilpatrick had lied to jurors about a romantic relationship with his chief of staff.

“I’m through with that guy!” the CEO told me, describing with disgust the way Kilpatrick had courted him with golf and dinner invitations. “Mayor or not, I’ll never take another call from him.”

My acquaintance has long since retired, but I see his successor often, most recently at an event celebrating JP Morgan Chase CEO Jamie Dimon’s decision to invest tens of millions of dollars in Detroit’s redevelopment.

I’m sure Dimon is embarrassed by this week’s plea deal, in which his bank agreed to pay the government $890 million in addition to the $1.1 billion in fines it has forked over previously.

But I can’t imagine there’s a CEO in Michigan who’d refuse to take his call.

Brian Dickerson is a Detroit Free Press columnist. Email him at bdickerson@freepress.com.