The Wall Street Journal reported today that the Securities and Exchange Commission will not charge individuals as a result of J.P. Morgan's allegedly fraudulent sale of mortgage-backed securities. The Journal goes on to reveal that J.P. Morgan "will pay a significant financial penalty." The report is based on leaked details of a settlement between SEC staff and J.P. Morgan. The SEC has yet to vote on the deal.
This incident illustrates why the SEC ought to revive its short-lived practice of requiring staff to come to the Commission for guidance before undertaking settlement negotiations. Otherwise, as appears likely to happen in this case, the politically accountable commissioners will be voting on a fait accompli; the staff will present the settlement to them with every expectation that the Commission will simply rubber stamp it. At this point, it would be awkward for the Commission to turn down the staff-negotiated settlement or insist that individuals be charged. It is time for the Commission to reclaim its decision-making authority from the SEC's enforcement staff and insist that it is entitled to weigh in on settlements before the general public does.