Just a day after U.S. Commodity Futures Trading Commission acting commissioner Mark Wetjen was reported to have made a decision to appoint Blythe Masters to sit on a regulatory advisory panel, the controversial head of the commodity trading division at JPMorgan Chase & Co. (NYSE:JPM) has withdrawn her name from consideration, according to a report by Bloomberg’s Silla Brush and Hugh Son, who also first reported on Master’s initial appointment. Masters said she needs to focus on the sale of JPMorgan’s commodity unit.
Notorious commodity trading division at JPMorgan
While at JPMorgan Chase & Co. (NYSE:JPM), Masters, 44, who is said to be retiring from the bank after the sale of the commodities trading unit sale is complete, was infamous for running a division that always seemed to find itself at the center of regulatory issues. She, like many large bank executives, has not been individually charged with criminal behavior.
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The most notable of her division’s escapades involved admitted manipulation of the electricity markets, accused manipulation of the metals markets and her denying critical facts in the JPMorgan Chase & Co. (NYSE:JPM) “Whale” trade. When the announcement of her appointment was made it elicited an immediate backlash on Twitter and in the blogosphere, which is credited by some for Master’s withdrawal from the position.
In the electricity manipulation case involving Master’s division, which was reminiscent of Enron except without the criminal charges, the Federal Energy Regulatory Commission (FERC) issued a blistering report, first reported in the New York Times, that said “Government investigators have found that JPMorgan Chase & Co. (NYSE:JPM) devised ‘manipulative schemes’ that transformed ‘money-losing power plants into powerful profit centers,’ and that one of its most senior executives gave ‘false and misleading statements’ under oath.”
A familiar DoJ approach with banks: no individual criminal charges
For lesser humans, providing false and misleading statements under oath would typically lead to obstruction of justice charges, but no charges were filed against senior executives and the bank weathered this storm, just one of a growing number of regulatory entanglements that ended in a financial settlement, this time a $410 million fine and a slightly tainted reputation. “For executives, the bank’s transition from model citizen to problem child in the eyes of the government has been jarring,” the Times report noted at the time. “It has helped drive top managers out of the bank, and it could make a coming shareholder vote on whether to split the roles of chairman and chief executive an anxious test for Mr. Dimon, long the country’s most influential banker.” The JPMorgan board of directors would go on to not only give Dimon a vote of confidence by keeping his chairman and CEO titles, but also gave him a significant pay raise amid the firm’s record regulatory fines in 2013.
JPMorgan executive: Interesting CFTC subplot
Wetjen’s appointment of Masters is interesting in that it is seen as a nod to the powerful large bank lobby in Washington D.C. Wetjen, a former Senate staffer for Harry Reid (D-NV), was a Democratic appointment to the CFTC. However, Wetjen’s views on regulation “might as well be Republican” as he is known to favor a “light regulatory touch,” according to a senior CFTC source. Separate sources familiar with financial services lobbying efforts surmise that Wetjen, when push comes to shove, will be expected to follow the lead of the largest banks in regards to regulatory matters.
Unlike outgoing CFTC commissioner Bart Chilton, who had a fierce independence and was known to stand up against the large banks over issues of market manipulation, Wetjen and the two incoming Obama administration CFTC nominees, Timothy Massad and Sharon Bowen, are expected to be big bank friendly and silence voices of dissent inside the once independent regulator.
It is unclear how Wetjen became acting CFTC Commissioner, as the rules would have the most senior commissioner taking the spot, which would be the remaining CFTC commissioner Scott O’Malia, who was confirmed on October 16, 2009. Wetjen was confirmed October 25, 2011.
CFTC watchers speculate the fact Masters was even considered as a potential regulatory appointment is the sign of things to come. “The Bart Chilton era of an independent regulator who will stand up to the banks will leave when he does,” said one source. On a separate note, Chilton, speaking to Bloomberg’s Stephanie Ruhle, said that Ponzi scams are at an “unprecedented level,” noting that he had requested the Obama administration to add an independent funding source for the CFTC so that it could continue its aggressive enforcement activities. “More is needed on the customer protection front,” Chilton said, noting that CFTC funding lags that of the SEC. Sources familiar with financial lobbying efforts speculate that once the large banks have a “friendly” group of CFTC commissioners, the purse strings for the agency will open up.