JPMorgan Joins MF Global in Lobbying Wins That Backfire
By Heidi Przybyla and William McQuillen - May 22, 2012 8:00 PM ET
MF Global Holdings Ltd. argued in a December 2010 letter to regulators that futures brokers didn’t need tighter restrictions on how they invest client funds. Ten months later, as MF Global filed for bankruptcy, about $1.6 billion in customer accounts was missing.
Within weeks, U.S. derivatives regulators approved a measure, dubbed the “MF rule,” designed to limit the kinds of transactions firms could make using client funds. The rule had been on the regulatory backburner as lobbyists sought to stall or alter new curbs proposed after the 2008 financial crisis.
Along with JPMorgan Chase & Co. (JPM)’s recent $2 billion loss, MF Global’s case demonstrates that an army of Washington lobbyists seeking to roll back U.S. rules and regulations can undermine the interests of the businesses they serve.
“This is a classic example of how industry claims to know better than the bothersome bureaucrats in Washington,” said Nancy Watzman, a consultant for the Sunlight Foundation, a Washington-based group that advocates open government records.
The group documented nine meetings between MF Global officials and staff from the U.S. Commodity Futures Trading Commission about the financial overhaul. The meetings focused on such topics as money market mutual funds and provisions for compiling information from various accounts, according to the foundation.
‘An Embarrassment’
“The paper trail companies have left pleading their cases becomes an embarrassment,” Watzman said.
JPMorgan’s loss follows lobbying by its chief executive, Jamie Dimon, to weaken the 2010 Dodd-Frank financial overhaul, which he has referred to as “Dodd Frankenstein.” Dimon’s criticism of regulatory efforts may come back to haunt him and the firm as lawmakers in Washington are pointing to the $2 billion loss as evidence that tougher regulation is needed.
Both examples illustrate former Federal Reserve Chairman Paul Volcker’s comment to reporters following a May 9 Senate hearing that there’s “no question” that lobbying from banks contributed to the complexity of the initial 298-page Dodd-Frank proposal, including many rules that have been delayed.
“I could give you stories all day about lobbyists making things more complicated because they may do it for reasons they want to disrupt the whole process,” Volcker said at the time.
JPMorgan spokeswoman Jennifer Zuccarelli declined to comment, referring to Dimon’s March 30 annual letter to shareholders in which he said he didn’t “disagree with the intent of the Volcker rule.” At the same time, he said Dodd-Frank allowed “regulation to become politicized, which we believe will likely lead to some bad outcomes.”
12 Lobbyists
JPMorgan employs 12 lobbyists and spent $7.6 million on lobbying in 2011, according to the Center for Responsive Politics in Washington, which tracks spending on Lobbying.
Lobbying topics included patent reform and helping refinance Fannie Mae and Freddie Mac-held mortgages, according to the group. Commercial banks spent a combined $61.8 million in that period, employing 456 lobbyists, compared with the steel industry’s 107 lobbyists and the airline industry’s 198 paid representatives.
Jon S. Corzine, the former New Jersey governor and U.S. senator, was MF Global’s chairman and chief executive officer. Executive Vice President Laurie Ferber said in the Dec. 2, 2010, letter to the U.S. derivatives regulator that it would be “unnecessary” to block futures firms from investing funds from customer segregated accounts. The letter said such restrictions would “eliminate a liquid, secure, profitable and necessary category of investment.”
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