JPMorgan Chase, the nation’s largest financial services firm, has paid $28 billion to settle cases brought by federal agencies in the past 10 years, most of them related to the 2008 financial crisis.

Yet the massive fines extracted from banks like JPMorgan for their role in the Wall Street meltdown have done little to deter other types of misconduct in the decade since, and one reason is lenient treatment from the Securities and Exchange Commission, according to our analysis of SEC enforcement records with a Georgetown University law professor.

Moreover, the analysis shows that the SEC has come down much harder on smaller financial institutions for violations that generally pale in comparison to those of the big firms.

Over the past 10 years JPMorgan Chase has been named in more than a dozen other cases brought by federal regulators unrelated to the financial crisis, including allegations of rigging bids in the municipal bond market, manipulating rates on foreign currency exchanges and charging excessive fees on credit card accounts.

In seven of those cases, all of which the SEC settled with fines totaling $2.26 billion, the charges were serious enough to trigger added, supposedly mandatory, penalties, including automatic disqualification from certain trading privileges on Wall Street and closer monitoring by the commission. But in every instance the SEC waived those penalties, enabling JPMorgan to continue business as usual.

Similarly, Bank of America, the nation’s second-largest financial institution, paid fines to settle seven cases with the SEC since 2008, but each time received waivers allowing it to maintain unfettered access to financial markets. The SEC did deny a waiver in 2014 after the bank agreed to a record-breaking penalty of $16.6 billion for defrauding investors in the years leading up to the financial crisis.

But even in that massive fraud case, the SEC only revoked Bank of America’s status as a “well-known seasoned issuer,” which simply meant it had to get agency preapproval before selling securities — a paperwork requirement that applies to all other investment firms and that can delay transactions by a few days at most. In the same case, the SEC gave the bank a waiver from a more punitive, “bad actor” provision that would have limited its access to private capital markets for five years, though it did require monitoring of the bank’s activities in those markets.

The SEC’s practice of waiving penalties for major banks and investment firms, which received the bulk of the nearly 200 waivers issued in the past 10 years, contrasts with the agency’s stricter enforcement record against smaller players in the financial markets.

Since 2008, the SEC reached settlements in 565 cases in which the companies were either put out of business or disqualified from trading privileges. Nearly all of those cases involved smaller firms, our analysis with Georgetown University law professor Urska Velikonja found.

Critics say the practice of routinely granting waivers to major firms dramatically undermines SEC enforcement.

“Washington has an arsenal to combat misconduct,” said Bart Naylor, financial policy advocate for Public Citizen’s Congress Watch. The requirement that serious offenders be automatically disqualified from trading privileges wasn’t used effectively under the Obama administration, he said, “and as far as I can tell the Trump administration isn’t using it either.”

The SEC declined requests for interviews about its enforcement record, as did trade groups representing the biggest financial institutions, including the American Bankers Association and the Securities Industry and Financial Markets Association.

Spokesmen for JPMorgan and Bank of America also did not respond to requests for comment.

But some financial industry experts defended the waivers as a necessary balancing act that protects the interests of investors.

J.W. Verret, an associate professor at George Mason University’s Antonin Scalia Law School and a former Republican staffer on the House Financial Services Committee, believes waivers are important for big firms, especially if faced with disqualification from certain types of participation in financial markets.

“Why should the entire company and its investors be punished when a few individuals engage in misconduct?” Verret asked. He said the waivers are appropriate “when a small group engaged in the behavior and where the company had controls in place to try to prevent bad behavior.”

David Huntington, a former counsel to two SEC chairmen appointed by President George W. Bush, co-authored a 2015 journal article on the issue and concluded that the waivers are a “necessity.” If the penalties were rigidly enforced, it could mean financial harm for major corporations, said Huntington, now with the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison.

“The commission is not in the business of trying to kill businesses and put people out of work,” he said. “So that is the sort of balancing that goes on here.”

But Richard Painter, a University of Minnesota law professor who has written extensively on banking regulation and served as chief White House ethics lawyer under George W. Bush, argues that financial penalties alone don’t provide a deterrent for future misbehavior.

“They do it, they get in trouble, they get a consent decree, the shareholders pay the fine and then they do it again,” he said. “It’s a cost of doing business that’s passed on to the shareholders. The managers don’t pay for their bad decisions, and then the company may go on to do it again.

“Management isn’t held accountable,” Painter said. “I suggest they should be.”

Meanwhile, small financial players involved in far less grievous infractions get little mercy from the SEC.

A 36-year-old senior manager for Microsoft settled a case in 2016 with a penalty of $379,653 after he was accused of insider trading that netted him about $184,000. The SEC banned him from serving as an officer of any publicly traded company for five years, handicapping his career.

Another settlement in 2017 involved a 48-year-old investment adviser in Connecticut who was accused of violating SEC reporting requirements and misleading clients about the value of investment funds. He was ordered to pay a fine of $150,000, hire an independent compliance officer and was banned from serving as a compliance officer at any firm for three years.

The co-director of the SEC’s Enforcement Division, former Wall Street lawyer Stephanie Avakian, described the agency’s enforcement strategy in the Trump era in a speech last fall before the Securities Enforcement Forum, an annual gathering of financial industry attorneys, executives and regulators.

“While new leadership certainly brings about all sorts of change, one thing that will not change is the mission of the Enforcement Division — to protect investors,” Avakian said. “But how we protect investors — specifically, what we identify as our priorities and how we allocate resources to meet those priorities — is subject to change.”

More emphasis will be placed on the “retail” investment sector, which often means small-time perpetrators of Ponzi schemes and other types of fraud, she said, adding that financial advisers who charge hidden fees or steer clients to more expensive products will also be targeted.

Avakian stressed that a focus on smaller players did not mean it would be hands off of the larger ones.

“The premise that there is trade-off between ‘Wall Street’ and ‘Main Street’ enforcement is a false one,” she said. “Outside of the retail area, we have continued to address misconduct by financial and other institutions of all sizes.”

Still, several independent analysts said the commission is clearly reluctant to come down hard on major Wall Street conglomerates that manage hundreds of billions of dollars in investments worldwide.

Of course it could be argued that with so much money at stake, stricter enforcement is essential, said Thomas Lee Hazen, a University of North Carolina law professor who has written extensively on securities regulation. Especially for the large investment banks, he said, “If they’re not going to be held accountable, who is?”

But the loss of trading privileges enjoyed by competitors could severely harm a big bank’s bottom line, argued Robert Plaze, a former SEC deputy director now with the Washington law firm Proskauer Rose. One of those is the ability to make shelf registrations, where securities can be offered immediately with pricing set later based on market conditions — a streamlined process that can’t be used if a bank loses its status as a “well-known seasoned issuer.”

“The ability to use shelf registration is imperative” for big firms, Plaze said.

Deep dive for data

Bringing the big picture of SEC enforcement into focus is not an easy task, partly because the agency publicly discloses only waivers that are granted, not those denied. But Velikonja, a law professor specializing in securities, figured out a way to piece it together.

She examined all 1,620 settlements filed with the SEC over the past decade — from fiscal 2008 through fiscal 2017 — and determined that 762 of those cases, or nearly half, would have triggered automatic disqualifications from either “well-known seasoned issuer” status or from participation in private capital markets — the bad actor provision put into effect by the 2010 Dodd-Frank law overhauling financial regulation.

Of those, the SEC granted 197 waivers — meaning it passed on enforcing the automatic penalties in 26 percent of the cases.

Most of the companies receiving those waivers are comfortably ensconced among the Fortune 500: the four biggest U.S. banks — JPMorgan, Bank of America, Wells Fargo and Citigroup — along with Barclays, Charles Schwab, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and others.

The bulk of the 565 settlements that did not result in waivers involved individuals or companies that aren’t among the Wall Street elite — Bradway Financial, Matrix Capital Markets and Strategic Capital Management, just to name a few.

Waivers explained

Since 2005 the SEC has allowed institutions that qualify as so-called “well-known seasoned issuers,” or WKSIs, to avoid time-consuming paperwork when offering securities for sale on the market. In more recent years, as private funds became a dominant source of capital formation the agency added an additional shortcut, allowing established firms to offer financial instruments to qualified investors without prior approval from the SEC.

However, SEC rules require that if a firm commits fraud or other serious financial misconduct, those privileges be automatically revoked for up to five years. In order to get a waiver from that penalty, a firm must show that a disqualification from trading privileges is “not necessary under the circumstances.” A bank might argue, for example, that if only a handful of employees were involved in misconduct, the entire institution should not be penalized.

After the financial crisis, Congress included the bad actor provision in the Dodd-Frank law requiring the SEC to strengthen enforcement of the automatic penalties for violators of financial laws. The rules were updated in 2013 to require disqualification from the private capital privileges for any individual or firm with “a relevant criminal conviction, regulatory or court order or other disqualifying event.”

But Verret, the George Mason law professor, said applying the penalties without discretion across the board would be a mistake.

“Securities enforcement uses concepts designed for individuals that are very difficult to apply to large multinational conglomerates,” he said.

The fact that big firms get most of the waivers is simply a reflection of their business standards, he said. “The larger players have much more robust compliance systems in place.”

Those efforts don’t always prevent misconduct, though.

In November 2009, for example — a year after the financial meltdown — a case came before the SEC involving JPMorgan executives who had paid millions in bribes to obtain a contract for managing municipal bonds to finance sewer construction in Jefferson County, Ala., the state’s largest county. The bank officers then convinced the county to buy toxic swap deals that pushed the debt further into the future at substantially higher costs. The county’s debt more than quadrupled to $14.7 billion over 40 years and sewer rates for residents rose by 7.89 percent for four years and by 3.49 percent in subsequent years; the county declared bankruptcy in 2011 and emerged two years later.

JPMorgan paid a $25 million fine to settle the case, plus $50 million to the county and another $648 million in forfeited payments, according to SEC documents. And on the same day the settlement was announced, the chief of the SEC’s Corporation Finance Division wrote to JPMorgan’s attorney, Stephanie Avakian (now the SEC’s co-director of enforcement), to say the bank would be given a waiver from automatic disqualification as a WKSI.

The same thing happened two years later, when JPMorgan settled charges of bid-rigging to obtain bond business in 31 states. The bank agreed to reimburse $51.2 million to affected municipalities, plus pay $177 million to settle “parallel charges brought by other federal and state authorities,” according to the SEC. The agency also granted JPMorgan two waivers: one allowing it to maintain its WKSI status and one enabling it to continue operating in private markets.

Again in 2015, when JPMorgan pleaded guilty to criminal charges that it colluded with four other financial institutions to manipulate prices in foreign currency exchanges, the bank paid penalties totaling $550 million and the SEC granted a waiver from disqualification as a WKSI.

Consumer advocates argue the repeated violations demonstrate the SEC’s ineffectiveness.

“The misconduct on Wall Street will only be exacerbated by granting these waivers,” said Public Citizen’s Naylor. Disqualifying bad actors “is important for investors and consumers at large to be protected, but it’s also important to deter recidivist behavior,” he said.

Large financial penalties in settlements are simply passed along to shareholders, Naylor argues. “Most glaring is that individuals are not paying any price, they’re not being held to account.”

Troubled history

A political debate about waivers began not long after President Barack Obama tapped Mary Jo White, a former U.S. attorney and Wall Street lawyer, to head the SEC in 2013. White launched an enforcement strategy modeled after New York City’s “broken windows” crime-fighting program, where even seemingly minor offenses were targeted to prevent larger ones.

White said she wanted the SEC to be “an agency that makes you feel like we are everywhere.”

In reality the Obama administration was aggressive in pursuing more cases, and was especially proud of obtaining big-dollar settlements in civil actions against the worst offenders in the financial crisis. Fourteen banks each paid more than $1 billion in fines and fees in federal cases over the past 10 years, mostly for actions related to the 2008 economic disaster. Five of them were forced to pay more than $10 billion apiece, led by Bank of America with $56 billion in penalties and JPMorgan with $28 billion, according to a 2016 report by Good Jobs First, a nonprofit that tracks accountability in the financial sector.

But Obama’s regulators also were criticized for not pursuing individual actors in the crisis — no Wall Street executives went to prison — even as top managers in the big firms continued to receive substantial pay raises.

In 2013 the SEC issued the tough new bad actor rules, providing that those committing fraud or other serious violations be automatically banned from certain financial markets for up to five years, unless the disqualification was waived by the regulators.

The following year SEC Commissioner Kara Stein — a new Obama appointee and a former aide to Rhode Island Democratic Sen. Jack Reed — began objecting to a number of waiver requests, including one sought by BNP Paribus on the same day the French bank pleaded guilty to criminal charges that it violated U.S. sanctions against Sudan, Cuba and Iran, agreed to pay $8.9 billion in fines and was hit with a five-year probation by the U.S. District Court. The bank, which provides investment services in the U.S., received the waiver in a 4-1 vote, with Stein the sole dissenter, according to Reuters. At the time, she declined to explain her vote.

Then in November 2014, after Bank of America reached a $16.65 billion settlement with the Justice Department for its role in the financial crisis, Stein and Commissioner Luis Aguilar, also a Democratic appointee, held up the deal by objecting to the bank’s request for two waivers, one allowing it to keep its well-known seasoned issuer status and one exempting it from a ban on operating in the private capital markets as required by the bad actor rule, according to the Reuters report.

The two dissenters created a 2-2 tie on the commission as White had to recuse herself because of previous legal representation for Bank of America’s former CEO, Kenneth Lewis. The stalemate was broken when the bank agreed to have an SEC-approved monitor of its financial activities, but Bank of America was only granted one waiver, allowing it continued access to the private markets as long as an appointee approved by the SEC monitored its activities. The WKSI waiver was denied, so the bank lost its ability to sell securities without prior approval of each transaction by the SEC.

A month after the controversy, Stein outlined her position in a speech to the Consumer Federation of America. “The commission can waive the disqualifications, but only if there is good cause,” she said. “That standard must be applied with the utmost care.”

She added: “We can’t afford to ignore what may be one of our most effective methods of improving compliance with the securities laws.”

Another fight broke out in June 2015, after five banks, including JPMorgan and Citigroup, pleaded guilty to federal charges of manipulating foreign currency exchanges. Each were granted WKSI waivers.

Liberal Democratic Sen. Elizabeth Warren of Massachusetts weighed in with fury. In a scathing 13-page letter to White, Warren described her tenure so far at the SEC as “extremely disappointing” for a number of reasons, including failing to curb the use of waivers.

Warren noted Stein had dissented on the waivers for the five banks because of their “recidivism” in violating financial laws. “These waivers apparently reflected the Commission’s view that these banks deserved to continue to enjoy special privileges under the securities laws despite the deep breaches of trust and evident mismanagement displayed in these cases,” Warren wrote.

Some teeth needed

One of the lessons of the financial crisis is big banks need monitoring, said Hazen, the North Carolina law professor. “Investment bankers like any profession are going to have bad apples, and we’ve learned that the cost of bad apples can be huge,” he said.

“Traditionally the smaller firms tended to have done much worse things than the blue chip firms,” Hazen said. “That changed around the turn of the century when it became apparent that they were doing a lot of the same shenanigans the smaller firms were doing. Once that became apparent, since 2000, it was no longer appropriate to say, ‘Well they are blue chip . . . so we know they have their ducks in a row.’ ”

The SEC could avoid the appearance of going soft on big firms if it followed a recommendation made by Commissioner Aguilar several years ago to grant waivers with conditions, such as independent monitoring of their activities for a period of time, Hazen said.

“Rather than completely disabling a firm because of the bad actor status, you could say ‘OK, you’ve been a bad actor, you stand to be disqualified,’ then depending on what the violations were, these remedial steps must be taken,” he said.

Fewer waivers of disqualification as a well-known seasoned issuer might also have some deterrent effect, since the status is valuable to financial firms. “Being a WKSI is clearly an advantage, because it is a streamlined process,” Hazen said. “I think probably among investors loss of WKSI status could easily have a negative impact on the perception of the company.”

Disqualification as a WKSI would have a cost but would not damage a firm as much as some other disqualifications, said Huntington. “It means you’re back in the old-fashioned system where you have to file a registration statement that is reviewable by the SEC” before you can offer securities on the market, the New York lawyer said.

The paperwork costs could be in the hundreds of thousands of dollars, but it wouldn’t put a big bank out of business, Huntington said.

Georgetown’s Velikonja agrees. “If you’re disqualified under WKSI, so what?” Companies can still raise as much capital as they want, and pretty quickly, she said.

Democrats in Congress, including Warren, continue to urge more disclosure of enforcement actions by the SEC, though their prospects are not bright with the Republican majority more interested in rolling back financial regulations than strengthening them.

Rep. Maxine Waters of California, the ranking Democrat on the House Financial Services Committee, introduced legislation (HR 3519) last year to add more transparency to the waiver process. The bill would provide the public with notice and an opportunity to comment on waiver requests and require the SEC to keep a database of all requests.

But at an April 26 hearing of the Financial Services Committee entitled “Oversight of the SEC’s Division of Corporation Finance,” which makes recommendations on waivers of disqualification, the word “waiver” was not even mentioned.

In the Senate, Minnesota law professor Painter worked with Reed, the second-ranking Democrat on the Banking, Housing and Urban Affairs Committee, on legislation introduced in October (S 1912) that would require companies to disclose exactly how penalties in settlements are paid.

“It says companies should disclose when they get hit with a fine what the plan is, what percentage of the fine is to be paid by shareholders and what percentage is to be taken out of executive comp,” said Painter, who is running for the Senate in Minnesota as a Democrat.

Congress can’t mandate that penalties be paid by executives, but it can demand more transparency, which can help serve as a deterrent to future misbehavior, Painter said.

The Trump record

Near the end of the Obama administration in 2016, one of the deans of the hedge fund industry, Leon Cooperman, was facing a five-year ban and a fine of $8 million after being charged by the SEC with insider trading that allegedly netted him more than $4 million in ill-gotten gains.

But four months into Trump’s presidency, the commission under Jay Clayton, the new head of the SEC, gave Cooperman a waiver of the automatic disqualification when he agreed to settle the case for a $4.9 million fine. The SEC is monitoring Cooperman’s $5 billion-plus firm, Omega Advisors, which is operating without the restrictions that would have probably put the firm out of business.

This was a clear sign of the direction the SEC was headed in the new administration.

Since President Donald Trump took office and appointed new, business-friendly administrators in agencies that enforce financial laws, “the SEC has filed more fraud actions against small-time players and fewer actions of any kind against large financial firms,” Velikonja said.

A report Velikonja compiled last November on the SEC’s enforcement record in fiscal 2017 shows a dramatic drop in cases against Wall Street firms since Trump’s appointment of Clayton, a former Sullivan & Cromwell partner. From October 2016 through March 2017 penalties levied against big firms totaled $2.4 billion, but the amount fell to $1.25 billion from April to September, the report said.

“In the second half of 2017, the SEC has continued to pursue relatively small establishments for various violations but brought very few enforcement actions against larger entities, often referred to as Wall Street firms,” Velikonja said in a summary of her report.

A separate study issued in November by Cornerstone Research and the New York University Pollack Center for Law and Business produced similar findings: The SEC filed 62 new enforcement actions against public companies and subsidiaries in fiscal 2017, a 33 percent drop from fiscal 2016. But 45 of those actions came in the first half of the fiscal year and only 17 were filed in the second half, the study found.

Meanwhile, penalties paid by public firms dropped from $1 billion in the first half to $196 million in the second. “The timing of this drop coincides with leadership changes at the SEC,” the report said.

There also has been a steady decline in the percentage of SEC enforcement actions for violations that trigger automatic disqualifications under the WKSI and bad actor provisions.

In each of the six fiscal years from 2007 through 2012, more than half of all charged violations triggered automatic disqualifications, Velikonja’s analysis found. Since fiscal 2013, the percentage of cases that triggered disqualifications dropped to an average of 42.8 percent each year. In fiscal 2016, only 31 percent of cases triggered disqualifications, and of those, more than a quarter of the firms charged were granted waivers, Velikonja’s data showed.

Plaze, the former SEC official now with Proskauer Rose, said the granting of waivers doesn’t necessarily mean the agency is being soft on violators because the threat of disqualification from Wall Street privileges can be a powerful tool for a prosecutor. “The existence of this death sentence makes it much easier to get a settlement or the SEC can extract more in penalties,” he said.

He also argues that SEC enforcement does have consequences for major firms.

“People do get fired,” Plaze said. “If you’re working at a big bank and you’re responsible for this, you get fired and that has an effect on other employees down the line.”

Velikonja is more skeptical.

“Changes in enforcement against entities appear driven in significant part by the different priorities of Chair Clayton and his co-directors of enforcement,” she wrote in her analysis of SEC enforcement in fiscal 2017. “As such, they are likely to persist until the next scandal, crisis or liquidity crunch forces a change in direction.”