JPMorgan Chase & Co. (NYSE:JPM)’s $13 billion settlement with the Securities Exchange Commission has impressed some people who want to see regulators get serious with misconduct. Richard Bove, Vice President of Equity Research at Rafferty Capital Markets, LLC, has serious issues with the deal, as he explained in a pair of recent notes.

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JPMorgan’s lawyers would have missed this angle

Most interesting is the idea that the Federal government could be the ones committing a crime. “A past Federal prosecutor, for whom I have great respect, has indicated to me that this may be entrapment. The government begged this company to acquire Bear Stearns and then apparently is about to fine it for doing so.” Bove thinks this could be the basis of a lawsuit, but it seems strange that JPMorgan Chase & Co. (NYSE:JPM)’s lawyers would have missed this angle. However, with so much happening behind closed doors, it’s difficult to know what strategies may have been pursued as negotiation tactics, if nothing else.

Bove thinks shareholders should have the right to vote

Bove’s less startling but probably more important objection to the process is that shareholder money is being paid in fines through a closed-door process. Even if you think executives at JPMorgan Chase & Co. (NYSE:JPM) are guilty of something, which Bove might not, they aren’t the ones who have to pay the fines. The $13 billion will come from shareholders who, as a group, aren’t even being accused of wrongdoing. Bove thinks that shareholders should at least have the right to vote on the final deal, and that the lack of transparency is a problem.

“The company is dealing with unelected officials concerning issues that have not been well defined,” he writes. “The ‘trial,’ to the degree that one exists, has been solely through newspaper leaks. I do not understand why no one has any problems with this.”

Bove also takes issue with the idea

Bove also takes issue with the idea that unelected officials are running the show, but forcing regulators to spend energy getting re-elected seems like a bad idea. Besides, there are already accusations of regulatory capture, and introducing campaign donations would only make it worse. All the while, crusading regulators who want to make big cases out of small incidents could also become a problem.

If regulators are worried that the process used to fine JPMorgan Chase & Co. (NYSE:JPM) wouldn’t hold up under public scrutiny, that alone should be a concern.