DealBook: JPMorgan Reveals It Faces Criminal and Civil Inquiries

DealBook: Case Reveals Cohen’s Links to Dubious Actions at SAC

Steve Marcus/ReutersSteven A. Cohen, founder of SAC Capital Advisors.

As government investigators closed in on the billionaire hedge fund manager Steven A. Cohen in recent years, his defenders argued that the unusual structure of his firm, SAC Capital Advisors, shielded him from any illegal trading by his employees.

Mr. Cohen, they said, sat atop a sprawling, decentralized operation in which about 140 small teams were each given hundreds of millions of dollars to invest. These teams had almost complete autonomy, so if they were crossing the line, Mr. Cohen would not know about it.

But in a detailed legal filing on Friday, federal regulators made their case that Mr. Cohen was not only well aware of suspicious trading activity at SAC but participated in it. Piecing together phone records, e-mails and instant messages, the Securities and Exchange Commission’s filing painted Mr. Cohen as a boss deeply engaged in his employees’ questionable behavior.

“Faced with red flags of potentially unlawful conduct by employees under his supervision, Cohen allowed his traders to execute the recommended trades and stood by,” the S.E.C. said.

The information in the S.E.C. filing could provide additional ammunition for federal prosecutors and the F.B.I., who continue to build a criminal case against SAC. Among the actions being contemplated by the Justice Department is bringing a broad conspiracy charge against the fund itself, accusing it of multiple acts of insider trading over a period of years.

The S.E.C. case also adds detail on Mr. Cohen’s role in his firm’s buildup of large stakes in two drug makers, the subject of a separate criminal case, including the first mention of input from a former SAC employee who is now a hedge fund manager.

In an appearance last week at an investment conference sponsored by the cable news channel CNBC, Preet Bharara, the United States attorney in Manhattan, whose office is investigating SAC, refused to answer specific questions about Mr. Cohen and his firm.

But speaking broadly about hedge funds, Mr. Bharara said that some firms paid “lip service” to compliance, adding that those with multiple violations over a period of time must be held accountable. While noting that charging a company with a crime was a “rare use of power,” Mr. Bharara told the interviewer, Jim Cramer, that he was not opposed to doing so.

“I don’t see anyone that’s too big to indict,” Mr. Bharara said. “No one is too big to jail.”

The civil action brought by the S.E.C. does not accuse Mr. Cohen of insider trading or securities fraud, but with failing to supervise his employees. And it was filed not as a lawsuit in federal court, but as an administrative proceeding that will be heard by an administrative law judge at the S.E.C. If the commission prevails, possible penalties against Mr. Cohen include a permanent ban from the financial services industry.

Though the case is the first time the government has personally accused Mr. Cohen of wrongdoing, it adds to a raft of criminal and civil insider trading cases involving SAC over the last three years. Four former SAC employees have pleaded guilty; five others have been tied to illicit activity. The fund agreed this year to pay a record $616 million penalty to settle two S.E.C. lawsuits related to insider trading.

The crush of cases has imperiled SAC, which Mr. Cohen started in 1992 and now has more than 1,000 employees. Many investors in the $15 billion fund have pulled their money since the beginning of the year. They have asked to withdraw roughly two-thirds of the $6 billion in outside funds managed by SAC. The rest of firm’s assets — about $9 billion — are mostly Mr. Cohen’s. The next quarterly deadline to make a withdrawal request is Aug. 15. Losing outside capital costs SAC dearly, because the fund charges its investors among the industry’s highest fees on the strength of its superior performance.

An SAC spokesman said Mr. Cohen, 57, at all times acted appropriately and would fight the charges. He also noted that the commission was ignoring SAC’s “extensive compliance policies and procedures.”

Yet the S.E.C.’s filing depicts Mr. Cohen and his employees operating free of any interference by SAC’s compliance department. The case, which focuses entirely on trading in 2008, the only year SAC lost money, highlights a number of dubious communications between Mr. Cohen and his staff members.

In one instance, Mr. Cohen received an e-mail in which an SAC analyst explicitly said he had received financial information from a person inside the computer maker Dell for three consecutive quarters and then provided detailed numbers about the company in advance of its coming earnings announcement. After receiving the e-mail, Mr. Cohen sold his entire 500,000-share position in Dell, the S.E.C. said.

The filing seeks to show that Mr. Cohen was aware that his staff was possibly gleaning secrets from classic inside sources like an executive at a publicly traded company and doctors involved with clinical trials for a promising new drug. S.E.C. lawyers say such information would have caused any reasonable hedge fund manager to investigate possible wrongdoing and take reasonable steps to prevent it, which is what the government must show to prove its case.

“The standard of proof is substantially lower here than with an insider trading charge, which would require showing knowledge or recklessness,” said Paul Huey-Burns, a former S.E.C. lawyer now in private practice. “A failure-to-supervise case requires only a showing of negligence, that Mr. Cohen was essentially careless in his oversight of the firm.”

In the past, Mr. Cohen, who owns 100 percent of SAC, has acknowledged a lack of familiarity with the firm’s compliance and ethics policies on insider trading. In a deposition he gave in 2011 connected with a lawsuit unrelated to the S.E.C.’s case, Mr. Cohen said, “I’ve read the compliance manual, but I don’t remember exactly what it says.” He also called the rules on what constituted inside information “very vague.”

As the investigation escalated earlier this year, Mr. Cohen tried to send a message to investors and regulators that he and his firm took compliance seriously. He announced changes to bolster SAC’s compliance practices, including holding back the pay of those accused of wrongdoing and increasing the compliance department by 25 percent, to about 40 employees. In 2008, by contrast, the firm had just 10 people in its compliance department.

The S.E.C. filing details how Mr. Cohen encouraged employees to elicit information from a doctor involved in clinical trials. It also rounds out information concerning SAC’s controversial positions in the stocks of the drug makers Elan and Wyeth.

Mathew Martoma, a former SAC portfolio manager, was charged last year with securities fraud for illegally selling Elan and Wyeth shares in advance of negative news about a promising Alzheimer’s drug that was being developed by the two companies. Prosecutors said he had obtained confidential information about the drug from a doctor involved in its clinical trials. The government said Mr. Martoma traded on the information, helping SAC earn profits and avoid losses totaling $276 million.

Mr. Martoma has pleaded not guilty and is set to stand trial in November. The doctor, Sidney Gilman, has agreed to testify against Mr. Martoma in exchange for not being prosecuted.

The S.E.C.’s case provides additional information on Mr. Cohen’s role in SAC’s accumulation of large positions in Elan and Wyeth. In addition to relying on Mr. Martoma’s advice, Mr. Cohen, according to the S.E.C., received input on the companies from a former SAC employee referred to only as “Hedge Fund Manager A.”

The hedge fund manager is Wayne Holman, according to people briefed on the case. Mr. Holman, a health care stock specialist, was one of SAC’s highest-paid employees, earning more than $100 million before leaving in 2006 to start his own hedge fund, Ridgeback Capital Management, these people said.

Inside SAC, there was much internal debate over the soundness of holding such big, risky positions in Elan and Wyeth in advance of the impending announcement of the clinical trial’s results. After an analyst sent Mr. Cohen an instant message questioning the holdings, Mr. Cohen responded that he was following the advice of Mr. Martoma and Mr. Holman because “they are closer to it than you,” according to the court filing.

The analyst then replied to Mr. Cohen, “[I] don’t know if [Hedge Fund Manager A] or mat [Martoma] will answer, but do you think they know something or do they have a very strong feeling.”

Mr. Cohen replied: “[T]ough one … i think mat [Martoma] is the closest to it.”

Mr. Holman has not been accused of any wrongdoing. Bud G. Holman, Mr. Holman’s father and Ridgeback’s general counsel, did not return requests for comment.

DealBook: Detroit Gap Reveals Industry Dispute on Pension Math

Bill Pugliano/Getty ImagesMany in Detroit were alarmed recently when, seemingly out of nowhere, a $3.5 billion hole appeared in the city’s pension system.

Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe.

Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager.

Retirees were shaken. Pension trustees said it must be a trick. The holders of some of Detroit’s bonds realized in shock that if the city filed for bankruptcy — as it finally did on Thursday — their claims would have even more competition for whatever small pot of money is available.

But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.

It may sound arcane, but the stakes for the country run into the trillions of dollars. Depending on which side ultimately wins the argument, every state, city, county and school district may find out that, like Detroit, it has promised more to its retirees than it ever intended or disclosed. That does not mean all those places will declare bankruptcy, but many have more than likely promised their workers more than they can reasonably expect to deliver.

The problem has nothing to do with the usual padding and pay-to-play scandals that can plague pension funds. Rather, it is the possibility that a fundamental error has for decades been ingrained into actuarial standards of practice so that certain calculations are always done incorrectly. Over time, this mistake, if that is what it is, has worked its way into generally accepted accounting principles, been overlooked by outside auditors and even affected state and municipal credit ratings, although the ratings firms have lately been trying to correct for it.

Since the 1990s, the error has been making pensions look cheaper than they truly are, so if a city really has gone beyond its means, no one can see it.

“When the taxpayers find out, they’re going to be absolutely furious,” said Jeremy Gold, an actuary and economist who for years has called on his profession to correct what he calls “the biases embedded in present actuarial principles.” In 2000, well before the current flurry of pension-related municipal bankruptcies, he wrote his doctoral dissertation on how and why conventional pension calculations run afoul of modern economic principles.

Mr. Gold made his prediction about taxpayer fury in an interview a number of years ago in which he also explained why he had chosen his topic. He said he hoped to help put a stop to the errors he saw his colleagues making before pension problems that were already starting to brew then boiled over and a furious public heaped blame, scorn and legal liability on the profession.

When a lender calculates the value of a mortgage, or a trader sets the price of a bond, each looks at the payments scheduled in the future and translates them into today’s dollars, using a commonplace calculation called discounting. By extension, it might seem that an actuary calculating a city’s pension obligations would look at the scheduled future payments to retirees and discount them to today’s dollars.

But that is not what happens. To calculate a city’s pension liabilities, an actuary instead projects all the contributions the city will probably have to make to the pension fund over time. Many assumptions go into this projection, including an assumption that returns on the investments made by the pension fund will cover most of the plan’s costs. The greater the average annual investment returns, the less the city will presumably have to contribute. Pension plan trustees set the rate of return, usually between 7 percent and 8 percent.

In addition, actuaries “smooth” the numbers, to keep big swings in the financial markets from making the pension contributions gyrate year to year. These methods, actuarial watchdogs say, build a strong bias into the numbers. Not only can they make unsustainable pension plans look fine, they say, but they distort the all-important instructions actuaries give their clients every year on how much money to set aside to pay all benefits in the future.

If the critics are right about that, it means even the cities that diligently follow their actuaries’ instructions, contributing the required amounts each year, are falling behind, and they don’t even know it.

These critics advocate discounting pension liabilities based on a low-risk rate of return, akin to one for a very safe bond.

In the years since his doctoral research, Mr. Gold and like-minded actuaries and economists have been presenting their ideas in professional forums and in scholarly papers crammed with equations and letters of the Greek alphabet. They have won converts, but so far no changes in the actuarial standards. Their theoretical arguments tend to fly over the head of the typical taxpayer.

Year after year there has been consistent resistance from the trustees of public pensions, the actuarial firms that advise them and the unions that represent public workers. The unions suspect hidden agendas, like cutting their benefits. The actuaries say they comply fully with all actuarial standards of practice and pronouncements of the Governmental Accounting Standards Board. When state and local governments go looking for a new pension actuary, they sometimes post ads saying that candidates who favor new ways of calculating liabilities need not apply.

A few years ago, with the debate still raging and cities staggering through the recession, one top professional body, the Society of Actuaries, gathered expert opinion and realized that public pension plans had come to pose the single largest reputational risk to the profession. A Public Plans Reputational Risk Task Force was convened. It held some meetings, but last year, the matter was shifted to a new body, something called the Blue Ribbon Panel, which was composed not of actuaries but public policy figures from a number of disciplines. Panelists include Richard Ravitch, a former lieutenant governor of New York; Bradley Belt, a former executive director of the Pension Benefit Guaranty Corporation; and Robert North, the actuary who shepherds New York City’s five big public pension plans.

This project has drawn fire from a large number of public pension officials. They recently wrote the Society of Actuaries a joint letter, urging it to reconstitute the Blue Ribbon Panel by adding more people “who can provide insight” into the many benefits of the current method, and expressed great concern about switching to a new one that could cause confusion and volatility. Of possible interest to the bondholders and taxpayers of Detroit, they also said that as fiduciaries they were required to “put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.”

Much of the theoretical argument for retaining current methods is based on the belief that states and cities, unlike companies, cannot go out of business. That means public pension systems have an infinite investment horizon and can pull out of down markets if given enough time.

As Detroit has shown, that time can run out.

Monica Davey contributed reporting.

DealBook: Detroit Gap Reveals Industry Dispute on Pension Math

Bill Pugliano/Getty ImagesMany in Detroit were alarmed recently when, seemingly out of nowhere, a $3.5 billion hole appeared in the city’s pension system.

Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe.

Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager.

Retirees were shaken. Pension trustees said it must be a trick. The holders of some of Detroit’s bonds realized in shock that if the city filed for bankruptcy — as it finally did on Thursday — their claims would have even more competition for whatever small pot of money is available.

But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.

It may sound arcane, but the stakes for the country run into the trillions of dollars. Depending on which side ultimately wins the argument, every state, city, county and school district may find out that, like Detroit, it has promised more to its retirees than it ever intended or disclosed. That does not mean all those places will declare bankruptcy, but many have more than likely promised their workers more than they can reasonably expect to deliver.

The problem has nothing to do with the usual padding and pay-to-play scandals that can plague pension funds. Rather, it is the possibility that a fundamental error has for decades been ingrained into actuarial standards of practice so that certain calculations are always done incorrectly. Over time, this mistake, if that is what it is, has worked its way into generally accepted accounting principles, been overlooked by outside auditors and even affected state and municipal credit ratings, although the ratings firms have lately been trying to correct for it.

Since the 1990s, the error has been making pensions look cheaper than they truly are, so if a city really has gone beyond its means, no one can see it.

“When the taxpayers find out, they’re going to be absolutely furious,” said Jeremy Gold, an actuary and economist who for years has called on his profession to correct what he calls “the biases embedded in present actuarial principles.” In 2000, well before the current flurry of pension-related municipal bankruptcies, he wrote his doctoral dissertation on how and why conventional pension calculations run afoul of modern economic principles.

Mr. Gold made his prediction about taxpayer fury in an interview a number of years ago in which he also explained why he had chosen his topic. He said he hoped to help put a stop to the errors he saw his colleagues making before pension problems that were already starting to brew then boiled over and a furious public heaped blame, scorn and legal liability on the profession.

When a lender calculates the value of a mortgage, or a trader sets the price of a bond, each looks at the payments scheduled in the future and translates them into today’s dollars, using a commonplace calculation called discounting. By extension, it might seem that an actuary calculating a city’s pension obligations would look at the scheduled future payments to retirees and discount them to today’s dollars.

But that is not what happens. To calculate a city’s pension liabilities, an actuary instead projects all the contributions the city will probably have to make to the pension fund over time. Many assumptions go into this projection, including an assumption that returns on the investments made by the pension fund will cover most of the plan’s costs. The greater the average annual investment returns, the less the city will presumably have to contribute. Pension plan trustees set the rate of return, usually between 7 percent and 8 percent.

In addition, actuaries “smooth” the numbers, to keep big swings in the financial markets from making the pension contributions gyrate year to year. These methods, actuarial watchdogs say, build a strong bias into the numbers. Not only can they make unsustainable pension plans look fine, they say, but they distort the all-important instructions actuaries give their clients every year on how much money to set aside to pay all benefits in the future.

If the critics are right about that, it means even the cities that diligently follow their actuaries’ instructions, contributing the required amounts each year, are falling behind, and they don’t even know it.

These critics advocate discounting pension liabilities based on a low-risk rate of return, akin to one for a very safe bond.

In the years since his doctoral research, Mr. Gold and like-minded actuaries and economists have been presenting their ideas in professional forums and in scholarly papers crammed with equations and letters of the Greek alphabet. They have won converts, but so far no changes in the actuarial standards. Their theoretical arguments tend to fly over the head of the typical taxpayer.

Year after year there has been consistent resistance from the trustees of public pensions, the actuarial firms that advise them and the unions that represent public workers. The unions suspect hidden agendas, like cutting their benefits. The actuaries say they comply fully with all actuarial standards of practice and pronouncements of the Governmental Accounting Standards Board. When state and local governments go looking for a new pension actuary, they sometimes post ads saying that candidates who favor new ways of calculating liabilities need not apply.

A few years ago, with the debate still raging and cities staggering through the recession, one top professional body, the Society of Actuaries, gathered expert opinion and realized that public pension plans had come to pose the single largest reputational risk to the profession. A Public Plans Reputational Risk Task Force was convened. It held some meetings, but last year, the matter was shifted to a new body, something called the Blue Ribbon Panel, which was composed not of actuaries but public policy figures from a number of disciplines. Panelists include Richard Ravitch, a former lieutenant governor of New York; Bradley Belt, a former executive director of the Pension Benefit Guaranty Corporation; and Robert North, the actuary who shepherds New York City’s five big public pension plans.

This project has drawn fire from a large number of public pension officials. They recently wrote the Society of Actuaries a joint letter, urging it to reconstitute the Blue Ribbon Panel by adding more people “who can provide insight” into the many benefits of the current method, and expressed great concern about switching to a new one that could cause confusion and volatility. Of possible interest to the bondholders and taxpayers of Detroit, they also said that as fiduciaries they were required to “put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.”

Much of the theoretical argument for retaining current methods is based on the belief that states and cities, unlike companies, cannot go out of business. That means public pension systems have an infinite investment horizon and can pull out of down markets if given enough time.

As Detroit has shown, that time can run out.

Monica Davey contributed reporting.

Lew’s Visit to Europe Reveals a Wide Policy Divide

Mr. Lew pointed to evidence that increased government spending and looser monetary policy had helped the United States recover at a much faster pace than the Continent has. But even as some European leaders expressed concern about rising unemployment and deepening recession, it was clear that Europe’s political constraints — and Germany’s insistence that bringing down deficits and reassuring lenders was the best route to sustained growth — were preventing a more expansionary approach from taking hold.

“Nobody in Europe sees this contradiction between fiscal consolidation and growth,” said Wolfgang Schäuble, the German finance minister, sitting alongside Mr. Lew at a joint news conference in Berlin on Tuesday. “We have the common position of a growth-friendly process of consolidation, or sustainable growth.”

Consumed by the problems of the American economy and its efforts to hold off deep budget-cutting proposals from Republicans in the United States, the Obama administration has hardly been in a position in recent years to lecture other nations on good policy.

But Mr. Lew’s trip to Brussels, Frankfurt, Berlin and Paris — his first swing through Europe since becoming Treasury secretary — gave the administration an opportunity to highlight the diverging economic fortunes of the United States and Europe and to make the case that more expansionary policies could actually help with budget deficits.

The United States has pointed out that its quick rescue of the financial system, front-loaded stimulus measures and delayed budget-cutting have helped foster 14 straight quarters of growth and a falling unemployment rate — even if the recovery has proved sluggish by historical standards.

In contrast, Europe has lurched from one crisis to another, hobbled by a complicated political structure and skittish financial markets. It continues to suffer through rising joblessness and economic stagnation. Greece, Spain and Portugal all remain mired in deep recessions, and even the large economies of Germany, Italy and France were contracting as well at the end of 2012.

A Treasury official, speaking on condition of anonymity to discuss the sensitive diplomatic conversations, said that while the Americans did not endeavor to lecture the Europeans, they did focus on the profound need for growth on the Continent, for the good of Europe as well as the world.

As Mr. Lew said in Berlin, “The driver for economic growth will be consumer demand and policies that would help to encourage consumer demand in countries that have the capacity would be helpful.”

But some of the biggest levers that governments employ to bolster their economies during a downturn are seemingly out of the question in Europe, given its political constraints and some countries’ heavy debt burdens. Any calls for more stimulus spending, less austerity or looser monetary policy face entrenched resistance in powerful Germany. The view there, shared in other Northern European countries like Austria and Finland, is that the European Central Bank has already gone far out on a limb with measures to prevent a collapse of the 17-nation euro zone.

Michael Heise, chief economist of the German insurance giant Allianz, said Tuesday that the central bank should already be thinking about how to reabsorb some of the money it has pumped into euro zone banks by issuing unlimited cheap loans. Otherwise, he said, easy money policies could feed new asset bubbles and remove pressure for economic reforms.

Looking on the bright side, the Treasury official said the European representatives all recognized the urgent need to focus on employment and growth. The official also said that there seemed to be growing pragmatism in Europe, with more officials willing to allow budget flexibility in certain economies, for instance.

Jack Ewing contributed reporting from Frankfurt and Steven Erlanger from Paris.

DealBook: JPMorgan Chase Inquiry Reveals Status Quo After Financial Crisis

Daniel Rosenbaum for The New York TimesSenator Carl Levin, Democrat of Michigan.

People have learned their lesson.

We’ve been told that so many times since the near-death experiences of the financial crisis. Bankers and regulators have flipped roles: now it’s the bankers who are cautious and their overseers who are aggressive.

Details of JPMorgan Chase’s multibillion-dollar trading loss — brought to light by a riveting and devastating report from the Senate Permanent Subcommittee on Investigations — demonstrate what a sham that is. Bankers aren’t acting cautious and chastened. Risk managers aren’t in the ascendance on Wall Street. Regulators remain their duped and docile selves.

What we now know about the incident is that, as the cliché has it, the cover-up was worse than the crime. The losses out of the London office weren’t enough to take down the bank. But as they were building, JPMorgan traders fiddled with risk measures and valuations. The bank’s risk managers defended the traders and pooh-poohed the flashing red signals. The bank gave incorrect information to its regulator. Top executives then made misleading statements to shareholders and the public. All the while, the regulator served its typical role of house pet.

As JPMorgan got into trouble, traders and the responsible executives treated the valuation of trading positions, made up of derivatives, as a puppet made to do what they wanted. The traders pulled on this calculation or that to change the way they were valuing the position to reduce the losses.

Ina Drew, the head of the bank’s chief investment office, referring to how the positions were calculated, asked an underling if he could “start getting a little bit of that mark back.” She then asked if he could “tweak at whatever it is I’m trying to show.” She might believe it is exculpatory that she prefaced the comment by saying to do it “if appropriate” and that the tweak should come with “demonstrable data,” but any idiot working for her would know exactly what she meant: create some rationale to manipulate the valuations to make things look better than they really are.

This discussion did not make it into the bank’s internal report on the incident from January. Imagine that.

Yes, Ms. Drew was ousted. But her actions show that what financial executives do postcrisis when faced with trouble is no different than what they did precrisis. In testimony on Friday, in a quiet voice, she deflected blame up to Mr. Dimon and down to her traders, claiming she was kept in the dark.

The Senate report makes it clear that JPMorgan misled shareholders and the public, particularly on its April 13, 2012, conference call.

That call, which makes up a particularly damning portion of the Senate report, featured a haughty Jamie Dimon famously dismissing the problem as a “tempest in a teapot.”

Of course, it was no such squall. In the call, the chief financial officer at the time, Douglas L. Braunstein, made a number of what appear to be misleading statements about the trades. Mr. Braunstein said the trading decisions were made on a very long-term basis, when in fact the traders were shuffling positions almost daily to make profits and then to disastrously “defend” their positions from further losses. Mr. Braunstein reassured investors and analysts in the call that the trades were vetted by the firm’s top risk managers, when they were not (though top officials, including Mr. Dimon, knew about repeated risk-measure breaches).

This means “there was risk oversight” for the office that made the trades, and the trading “positions needed to comply with limits,” a JPMorgan spokesman, Joseph Evangelisti, said. “We were not aware at the time of all the deficiencies in the risk organization” of the trading group.

In the conference call, Mr. Braunstein also said that the trades were “fully transparent to the regulators,” but, in fact, watchdogs didn’t receive any regular reporting of the positions and received specific information only days before the call.

“What Doug said was accurate,” Mr. Evangelisti said. “No one in senior management at that time believed there was a larger problem in the context of the firm’s size and scale.”

In JPMorgan’s internal report, the call receives scant attention. In testimony before Senator Carl Levin, the Michigan Democrat who heads the Senate subcommittee, Mr. Braunstein fell back on the explanation that he was saying what he believed at the time.

Mr. Braunstein wasn’t available for comment, according to the bank.

Maybe regulators will think it notable that the chief financial officer of JPMorgan misled shareholders in his first extensive comments about the trading losses. Don’t hold your breath.

I don’t even expect much to come out of the evidence that the bank misled regulators. The bank stopped giving its regulator, the Office of the Comptroller of the Currency, important information. At one point, the bank told the agency that it was reducing the size of its positions when it was actually increasing those positions, according to the Senate report.

Despite JPMorgan’s smoke screens, the regulators deserve the public humiliation they have received. They were alerted to risk-measure breaches that should have warned them of problems. By April 30, 2012, just weeks after the trading debacle came to light and before any serious investigation, the Office of the Comptroller of the Currency declared the matter closed, according to internal minutes from a meeting. (At Friday’s hearing, officials from the agency disputed that it was, in fact, closed.)

So, yes, people have learned their lessons, the real lessons of the financial crisis. JPMorgan repeated the same misdeeds that other banks successfully pulled off at the height of the financial crisis: mismarking portfolios of assets and misleading the public. This was condoned by regulators. Regulators and prosecutors have been averting their eyes for years from rotted bank assets and rotted bank morals; why would JPMorgan expect any different reaction in this case?

Mr. Dimon and JPMorgan executives have all publicly donned hair shirts to demonstrate their contrition. Mr. Dimon and Mr. Braunstein even took pay cuts, going from earning many millions to some fewer millions.

JPMorgan argues that Mr. Dimon and Mr. Braunstein told regulators and the public only what they believed at the time. Mr. Dimon and Mr. Braunstein made mistakes, but they quickly worked to clean them up, fire those responsible and change their ways. The losses were small relative to the size of the bank and, if anything, demonstrate the strength of JPMorgan’s diversified business. After all, the bank made record earnings last year.

But I suspect that if you dosed JPMorgan executives with Pentothal, they would reveal they believed all of this attention was a media creation and political showboating — still a “tempest in a teapot.”

“Not true,” Mr. Evangelisti, the JPMorgan spokesman, said. “We acknowledged from the outset that we made significant mistakes, and we have repeatedly apologized for them. We do not blame the media or regulators for these issues. This was our fault totally. All we can do now is fix the problems and learn from them.”

As has happened so often in the wake of the financial crisis, we are left with the spectacle of bankers — here the well-compensated Mr. Dimon and Mr. Braunstein — insisting that they were clueless and incompetent, which would shield them from any allegations of intent to defraud.

As for many longtime officials at the Office of the Comptroller of the Currency, they may well think that this was merely a nuanced mistake that calls for nothing more than careful suggestions of remedies that don’t harm the bank too much. The new head of the agency, Thomas J. Curry, has begun to clean house and re-energize the place, but the overhaul that is needed looks too big for one person.

So let’s take a moment to celebrate a handful of American heroes, Mr. Levin and the staff members at the Senate Permanent Subcommittee on Investigations. Because of them, this corruption has come to light. Friday’s hearing served to emphasize how lonely Mr. Levin’s efforts are. Senator John McCain, Republican of Arizona and the new ranking minority member on the committee, did a yeoman’s job of asking a few questions. Senator Ron Johnson, Republican of Wisconsin, made a few incoherent statements using the au courant phrase “too big to fail,” then scuttled out of the hearing. None of the other senators, Democrats and Republicans alike, bothered to show up.

The 78-year-old Mr. Levin, peering over those glasses that seem surgically attached to the tip of his nose, soldiered on.

But let’s imagine what would happen if this report does what the senator hopes and puts pressure on the regulators to finish a simplified and loophole-free Volcker Rule, which would prohibit banks from making bets for their own profit using taxpayer-backed money. Why should we have the slightest confidence that big banks could be persuaded to follow it? And why should we feel reassured that, if they didn’t, regulators could or would enforce it?

We shouldn’t. And we don’t.