SOX legislation and the case of JPMorgan

SOX legislation and the case of JPMorgan

Organizational ethics is the response to rights and wrong through employee conduct and business operations (Johnson, 2015). The unethical behaviour of an organization typically includes violation of laws, breach of customer rights, coveted production practices, adverse human resource management policies and more (Saremi & Nezhad, 2014). Ethical behaviour of organizations is crucial because it determines organizational success in the long run. Organizations design policies, set corporate norms, and declare business rules based on ethics to gain a strong, competitive position in the market (Snellman, 2015). However, the question arises on the role of management to ensure that all ethical policies and decisions are being implemented to achieve the ethical aim. The management can plan, monitor and control the ethics in an organization and report the violation to top management. Managers play an ultimate role in maintaining ethics in the organization. Managers also determine the need for implementing charge sheets, rectify employee and cease unethical behaviours before they could affect the organization’s goals strategically (Kelidbari & Mehdi Fadaei, 2016).

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The Sarbanes-Oxley Act

The Sarbanes-Oxley Act was passed on July 30, 2002, as a response to high profile corporate scandals (Coates, 2007). The profit-oriented, manipulative scandals of big corporations like Enron, Worldcom and Cendant led the UK parliament to think about the legislation that could enforce organizations to stay ethical in their practices. The quality of governance practices and the inclusion of ethics in US-listed firms are to be bound by legal enforcements. The purpose of devising SOX legislation was to create fear of accountability and public exposure of big scandals by renowned firms. The liability risk should exist, and something from the state should stop organizations from committing serious crimes (Green, 2007). Sections 302 and 404 of SOX are the most implementable solutions for renowned organizations. Section 302 states that organizations are directly responsible for financial reports. The section, therefore, holds CEO and CFO directly accountable for the financial actions taken by the company. The CEO and CFO are to be produced in court to complete speculations of scandal, as and when a scandal would surface (Bergen, 2005). Section 404 adheres to the assessment of internal control by management. The managerial body of organizations is to own the responsibility of fraudulent activities because managers are directly responsible for the actions of employees due to direct interaction with subordinates daily. Section 404 also allow auditors to investigate whether the assessments and assertions made by management are fair or not (SOX, 2020).

The role of management in organizational ethical behavior

The unethical behaviour of organizations ruins the brand image, lift the stakeholders’ trust and reflect bad corporate governance. In light of growing corporate scandals in the US, the government designed the Sarbanes-Oxley (SOX) Act (2002) (Verleun, Georgakopoulos, & Ioannis Sotiropoulos, 2011). The act is a reaction to high profile accounting scandal of Enron, the WorldCom, and Ahol. The primary purpose of SOX is to hold fraudulent practices of organizations into accountability and a legal need to respond. The SOX act is implemented on US-listed firms, and the primary aim is to stop unethical activities of organizations. The SOX act typically deals with the accountability frauds and financial controversies of organizations, but it can also be implemented on any unethical activity, decision, policy, or case of an organization under certain sections (Nick, 2009).

Literature review critique

Potential approaches of subordinates to manager’s unethical requests

Managers often push employees to indulge in unethical activities (Singh & Twalo, 2015). Be it a sign on an important paper or a transfer of data to the unauthorized person, the subordinates are often pressurized by managers to act unethically. However, some approaches can be adopted by employees to respond to such requests. Bennett J Tepper conducted research on the employee’s possible reaction in the wake of manager’s pressure to act unethically (Tepper, 2010). The research on Pressure to Behave Unethically (PBU) is analyzed from psychological and moral perspectives. The researcher urges employees to develop morale consciousness to understand right and wrong and respond in justifying manner to negate such requests. However, the paper lacks specific recommendations, a framework, or a moral policy for employees to follow in case of a manager’s pressure to behave unethically.

Ryan Fehr et al. (2019) conducted the research on unethical behaviour of leaders and managers and developed a model to follow by employees in case any demand occur from them (Fehr, Fulmer, & Keng‐Highberger, 2019). The research paper integrates social cognitive theory with social information processing theory to propose that the support employees give to leaders who act unethically hinges on their propensity to disengage morally. The paper ends with a specific model to teach moral disengagement to employees in a situation where the ethics are being violated.

Anna and Anna assert the concept of dark, toxic, and dysfunctional leadership in organizations that violate basic corporate ethics (Lašáková & Remišová, 2015). The conference discussed the unethical behaviours of leaders and adhered to the knowledge needs of employees to deal with such leader’s requests. The paper, however, does not present explicit recommendations to employees for responding appropriately without being defensive.

However, Atiya et al. (2015) conclude from the research that ethical leadership can create contradictory results in employee behaviour concerning ethics and morality (Almutairi, Alshammari, & Thuwaini, 2015). An ethical organization keeps employee motivation, monitor behaviour and disregard employee ethics to maintain corporate governance. Arezoo Aghaei Chadegania & Azam Jaria also agrees with the same notion that ethical culture of organizations is mandatory to integrate good ethics in employees and maintain the autonomy of corporate governance (Chadegania & Jaria, 2015). In order to maintain ethics in employees, the conference concludes, the ethical culture should be ensured in all settings of the workplace.

Nevertheless, the research shows that there are some ethics in employee monitoring too. The process of monitoring, as described by the study of Yerby (2013), is also bound to ethics to maintain employee privacy and basic stature in the organization. The paper concluded that ethics in employees should not be considered above fundamental employee rights. However, Myles et al. (2015) assert the fact that ethics are essential in all dimensions of organizational and employee performance (Bassell, Fischer, & Friedman, 2015). It is mandatory for employees to learn ethics as per the need to maintain corporate governance.

The case of JP Morgan

JP Morgan is an American multinational bank and financial services holding company. The company is situated in New York City and is ranked as the seventh-largest bank in the world by total assets worth of US $3.213 trillion. The name of JP Morgan is considered reliable for market capitalization. Therefore, the indulgence of big organization in a scandal of corporate ethics and accountability leaves stakeholders in surprise.

JP Morgan is known for fair trading and financial services across the world. However, recently, a confession is made by the company for making a quiet settlement of $920 million with the firm to spoof trades in the market of precious metal. The lawsuit was filed by Hedge fund manager Daniel shack. JP Morgan was accused of manipulating silver market futures which cost the plaintiff to suffer $30 million. The treasury fund markets were exploited by the settlement which JPMorgan successfully saved from surfacing in the financial sector or public knowledge. The act of spoofing is a planned action to place a ‘buy and sell’ order without having an actual intention to do the transaction. The spoofing goal is to hike the market price of shares of the buyer and to strengthen the current position in the financial market. Under the law of Dodd-Frank economic reform law, the act of spoofing is forbidden to raise market share price or to strengthen the market position. JP Morgan was accused of manipulating future silver markets from 2010 to 2011 through spoofing trades. The filers were two metal traders Mark Grumet and Thomas Wacker along with the manager of Hedge, Daniel Shak. JPMorgan cleverly did not let the details of the settlement to be disclosed (Schoenberg, 2018). JPMorgan continued to deny the claims of plaintiffs till 2018. However, in the hearing of November 2018, the officer of JP Morgan confessed in court that he had been involved in the manipulation of prices of silver, gold, platinum and palladium future contracts from 2009 -2015. He also agreed to design bogus trades with the help of senior traders in the bank. Moreover, he repeatedly assured that all seniors at JP Morgan were aware of the act and consent of supervisors and relevant managers was always taken before heading off with trades. As per 2020hearing, JPMorgan Jeffery who had been head of metal trading has been arrested. The Commodity Futures Trading Commission has imposed a penalty of US$436 billion on JP Morgan, which is the highest financial penalty in the history of financial investing companies (Robinson, 2020).

Analysis and Findings

Reasons of JPMorgan’s unethical practices

The unethical behaviour of JP Morgan was evident in the light of SOX legislation. As per SOX, the action of spoofing trades was to dodge the traders and gain advantages for the company’s profits (Anderson, 2020). The spoofing process is conducted by using a high-speed computer through which the trader shows a flock of buy and sell trades in a short time to reflect the artificial surge in demand and supply of particular item (silver and precious metals in case of JPMorgan) (Mangan, 2020). The spoofing practice can unimaginably distort the market price. I believe that the scheme of spoofing trades was launched to move the prices of silver artificially it was intentionally done by JPMorgan to buy the six silver future contracts at a below-market price.

As per SOX legislation, a company indulging in lying, fraud, cheating, or manipulation of facts is liable for financial charges as well as legal lawsuits. The stakeholders of the company’s unethical and fraudulent behaviour possess all rights to file the lawsuit against the company and claim for compensation in likewise manner.

Possible preventive measures to be taken by JP Morgan

According to the SOX act, an organization must adhere to the facts of internal control to prevent the occurrence (Thabit & Solaimanzadah, 2018). Although corporate scandals and financial frauds are not a ‘mistake’, culprit commits them by will. Research shows that the history of corporate financial scandals show that accountability and organizational image are ignored to sear the profit and gain economic advantage through financial activities (Toms, 2019). The case of JP Morgan is a classic example of intentional financial fraud made by the company to manipulate future silver markets. Therefore, five factors of internal control are to adhere in order to maintain the integrity of the organization and avoid such circumstances which can yield motivation to plan for frauds. The factors of internal control are auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure (Rikhardsson & Best, 2008).

At the time of fraud’s happening, JP Morgan could ensure that financial disclosures are being made explicitly to avoid the possibility of scams. As some officials of JP Morgan claim that they were unaware of spoofing trades, the enhanced financial disclosure could have verified their claim. Moreover, auditor independence and internal control assessment would ensure that all employees are performing their duty with transparency and integrity. Corporate governance is another internal control factor that plays a major role in maintaining integrity in all circumstances being faced by an organization. Corporate governance is a term entailing all processes, laws, rules, and strategies designed to operate, regulate, and control the organizational operations. Therefore, I believe that the board of directors of JP Morgan, the management and internal and external auditors are all responsible under SOX act to be intentionally unaware of spoofing trades which produced no single complete transaction and yet showed an ultimate hike in supply and demand of precious silver metals.

Positive effect of SOX provisions

Under the SOX act, I think that the provisions of internal control would have a positive effect on corporate ethics practices in JP Morgan. As explained above, internal control would have maintained integrity of business operations and kept auditors and management aware of the spoofy trades. Moreover, if managers would not have been involved, the spoofing would be caught by them and fraudulent employee would be stopped to keep business process integrity.


The recommendation to JP Morgan under SOX legislation is to revamp the organizational aim towards fair practices and transparency. The case of spoofing trades show that JPMorgan has been into unfair practices ‘with’ the consent of supervisors, managers and top authorities. Therefore, it is evident to understand that the scandal is arising at the will of management which reflects loophole in mainstream activities. Therefore, the need is to develop a robust aim for fairness and transparency. Moreover, the literature review asserts that even if managers or leaders urges employee to behave unethically, personal moral engagement should refrain employees from behaving in said manner. SOX legislation also recommends employees to report unethical practices going on in the organization and stop unfair and unjustified actions and decisions of organizations that can harm stakeholders and general public adversely.


The report concludes that unethical behaviour and actions can harm the organizational image adversely. The case of JP Morgan reflects the audacity of renowned organizations to misuse their financial strength and manipulate future markets. The involvement of managers, supervisors and employees to achieve the aim of manipulating silver markets, indicate a drawback in JP Morgans’ ethics policy. SOX legislation should be implied in the case of JP Morgan, and the organization should declare its policy of ethics explicitly. To conclude, ethics and morality are mandatory to keep organizational integrity. Organizations can ensure integrity in employee behaviour and managerial decisions by tieing all of them to the aim, which is based on fairness, transparency and ethics.

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