What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're going over a recent case between wall street's, biggest bank jpmorgan and federal regulators that saw jp morgan admit to wide-ranging accusations, the sec fined the Bank 125 million dollars and the commodity futures trading, commission or cftc also find the bank an additional 75 million dollars for basically the same charges. That brings the total of fines paid by jp morgan for the violations to 200 million dollars. The crux of the charges involves jp morgan, enabling and condoning the use of unregulated traceless communication channels for sensitive business dealings by effectively telling even upper level managers and other senior personnel to use encrypted messaging apps like whatsapp. They skirted federal laws requiring that financial companies keep comprehensive records of all electronic communications between brokers and clients.

These laws are designed to enable regulators to enforce antitrust and anti-fraud laws. According to the commodity futures trading, commission, jp morgan failed to maintain, preserve and produce records that were required to be kept under cftc record-keeping requirements and also failed to diligently supervise matters related to its businesses as cftc registrants. J.P morgan admits about the cftc and sec charges and acknowledged that their conduct did indeed violate laws, including the commodity exchange act. These fines are especially relevant because they relate to a string of violations by major wall street investment banks.

Recently online chat rooms such as those that the regulators are concerned about are central to other charges brought by the sec and other regulators, for example. The recently settled foreign exchange trading cartel charges, which were brought by the european commission against five of the largest european investment banks, took place in online chat rooms in this video we'll go over what exactly the most recent charges were, how they relate to other wrongdoings, commanded By the investment banks and what it means for the banks going forward, sec chairman gary gunster gave the following background for the charges quote since the 1930s record-keeping and books and records obligations have been an essential part of market integrity and a foundational component of the sec's Ability to be effective cop on the b as technology changes, it's even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight. Unfortunately, in the past we've seen violations in the financial markets that were committed using unofficial communications channels, such as the foreign exchange scandal of 2013. books and records obligations, help the sec conduct its important examinations and enforcement work.

They build trust in our system. Ultimately, everybody should play by the same rules and today's charges signal that we will continue to hold market participants accountable for violating our time-tested record-keeping requirements. Unquote. His reference to the 2013 foreign exchange scandal refers to a scandal which we covered in a previous video about five of the biggest investment banks in europe.

Manipulating the foreign exchange markets check out that video, if you haven't already, but here's a brief recap of what happened. The foreign exchange or forex market is incredibly big and in fact, more than twice as much money trades hands in the forex market in a single day than the entire economic output of the uk in a whole year. It's so big, because it's not just a market for trading and speculating multinational companies need to trade forex to convert currencies as a natural part of doing business internationally as a financial capital of europe and the biggest gateway between american and european business. London is by far the biggest center for forex trading, the giant european investment banks rigged the forex markets by manipulating what is called the daily exchange rate fix.

Historically, the rate fix is determined by a single 60 second period each day during which the actual transactions in the market are observed by wm reuters, these actual transactions are used to determine a benchmark exchange rate that billions of dollars of transactions would use for the rest Of the day, the five conspiring investment banks use this mechanism to do something called banging the close, which entails placing huge, buy or sell orders in collaboration to manipulate the average market price during the 60 second window, usually right around the close of trading at 4 pm. This distorts the resulting daily fix rate. These actions perpetrated by many of the biggest investment banks in london and new york, took place in online chat rooms such as those targeted by the most recent sec and cfdc settlements. Some specific chat rooms used by traders for the banks were named things such as the bandits club, the cartel and the mafia.

So what exactly were the regulations that were violated? Most of them are part of the securities exchange act of 1934.. Section 17a1 of the exchange act authorizes the sec to issue rules requiring broker dealers to make and keep records of relevant business records. Copies of these records have to be furnished upon request to the sec. As necessary for the public interest or investor protection, specifically the sec adopted, what's known as rule 17 a4 under this authority, this rule specifies the manner and length of time that records must be maintained and produced promptly to the sec upon request all communications received by broker Dealers must be kept in original form, and copies of all outgoing communications must also be kept according to the sec.

These requirements are based on standard business practices. A prudent broker dealer should follow anyway in the normal course of business. In the past, they have say that these record-keeping requirements are quote an integral part of the investor protection function of the sec and other securities regulators, in that the preserved records are the primary means of monitoring compliance with applicable securities laws. Unquote, the investigations into jpmorgan's violation of these requirements found that the violations were incredibly widespread.

In fact, the use of encrypted unmonitored third-party messaging services on personal devices for sensitive business related communications was firm wide. The failure occurred on all levels of authority, including dozens of managing directors and senior supervisors. In one instance, an executive director in charge of a high-grade credit trading desk at jpmorgan launched a whatsapp group chat with his entire team, named quote portfolio trading auto x. Unquote, the purpose of this group chat was to talk about the company's securities business, investment strategies, client meetings, market analysis and market moving events and trends, of course, because it was on whatsapp.

These conversations would not be monitored or retrievable by any regulator. In fact, the sec only learned about this in other similar instances through its own investigations and through other third parties. When jp morgan was subpoenaed for documents and records requests by the sec as part of other unrelated investigations into the company, they did not provide the requested documents that were on these third-party messaging apps. In fact, the sec only found out about them when other third parties cooperating with the sec investigations provide their communications with jp morgan.

Through these apps, for example, the sec was conducting an investigation into jp morgan's underwriting business when interviewing unrelated parties. As part of that investigation, the sec received records of numerous text messages with jp morgan employees on unofficial messaging services. Jp morgan never produced these messages to provide to the sec on their own. The sec questioned jp morgan about this and jp morgan confirmed that they had not collected any text messages sent or received through unapproved communications methods.

It was only after an entire year after the sec originally asked jpmorgan for these communications and three months after the sec alerted jp morgan that it knew of these violations that jp morgan finally started providing the sec with those messaging records. However, the sec found out that many text messages had been deleted before jp morgan started, providing them to the sec. Additionally, the sec found out that, after they informed jp morgan of their investigation into the use of unapproved communication channels, jpmorgan employees continue to use them and, in some instances, even use those unapproved devices to discuss the investigation. This whole matter begs the question: was jp morgan doing anything nefarious on these unapproved messaging apps? We already know that jp morgan has engaged in market manipulation and insider trading infringements in the past, but was using unmonitored personal messaging devices, a deliberate part of potentially yet undiscovered such activities.

The sec and cftc did not say anything about this issue. However, the sec did describe another aspect of their investigation that may be relevant in forming an opinion, despite the fact that these communications violations were so wide-ranging across the company, with dozens of managing directors and even executive directors. Using personal communication services for business, jp morgan supposedly had policies and procedures in place, saying that this was not allowed at the firm jp morgan advised their employees that the use of unapproved electronic communications methods were not permitted, and yet the practice permeated all levels of the Company, if it were just a couple of cases of a supervisor of a trading desk using whatsapp, there might be an argument to be made that it was just an isolated incident or a few bad apples. But it is abundantly clear that the problem was much deeper than that, in fact, dozens of the very people responsible for supervising employees to prevent this misconduct themselves communicated using unapproved personal devices, and these are not low level employees.

They include managing directors and other highly paid employees. The sec said in their press release that jp morgan did not implement a system of follow-up and review to ensure that their internal policies were being followed even after the company was made aware by the sec of these violations. Widespread record-keeping, failures and supervisory lapses continued on a large scale, in other words, jp morgan's internal policies and procedures. Prohibiting employees from using unmonitored personal communication services for business are likely nothing more than a facade based on the sec and cftc's recent investigations and jp morgan's owned admissions.

It seems that those internal policies, sole purpose, is to provide the appearance of jp morgan being compliant on an institutional level. Having these official policies makes it easier to blame specific employees for their violations, but in reality the policies don't seem to have been enforced or respected. In any way anywhere in the company, alright guys that wraps it up for today's video. What do you think about these revelations about jp morgan's record-keeping failures? Do you think the 200 million dollar combined penalty from the sec and cftc is appropriate for jp morgan, a company that made about 130 million dollars per day in net profit last quarter? Let us know in the comments section below in the meantime.

Thank you. So much for watching and we'll see in the next video wall street millennial signing out.