Introduction
The following case study addresses JP Morgan’s Chase, the biggest bank in the USA, which has recently announced trading losses, which stemmed from investment decisions, made by the Chief Investment Office of the bank. After having realized the losses, the Office provided the Securities and Exchange Commission with reports, containing falsified data. The issues, considered in the Analysis part will refer both to the case itself and the legal background, which underlies consideration of the facts of the case. Concluding we will provide some basic recommendation referring to investments.
Analysis
- Means to achieve effectiveness of Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTS)
According to the official website of SEC, its mission lies in protecting investors and maintaining fair and efficient markets along with facilitating capital formation (). CFTS aims at ensuring integrity of the market of futures and options. The major principle, which helps both organizations to ensure effectiveness of their activities is openness as particularly open information can help potential investors to make balanced decision on whether it is worth buying an investment. To ensure openness of information, SEC requires all public companies to disclose meaningful (particularly financial) information to the public, so that potential investors can make use of the common pool of knowledge. Moreover, SEC ensures timeliness key participants at the markets of securities, and futures & options. Another crucial issue in terms of effective prevention of high-risk gambles at the markets under study deals with agencies’ enforcement authority. Both SEC and CFTS are authorized to bring civil enforcement actions against individuals and legal entities, which violate relevant laws and regulations. Effective prevention of gambling is also ensured with agencies’ cooperation with many other institutions including the Congress. Agencies can either enforce by-laws themselves or use special legal mechanisms, so that necessary laws or amendments to laws are enforced by it.
- Elements of a valid contract. Duty of good faith and fair dealing
According to Beth Walston-Dunham (2011), valid contract should be characterized with such elements as the presence of at least two parties both parties should have legal capacity (legal capacity includes requirements dealing with age and mental capacity), mutual consent (which is achieved with the help of the process of offer and acceptance), lawful objective and consideration (437). In contract law, an important role belongs to the implied covenant of good faith and fair dealing. Good faith and fair dealing is a general presumption, which provides that the parties to a contract will act in an honest and fair manner and in good faith, so that the other party (or parties) receives the benefits of the contract. The relationships between the bank and the client are formalized with the help of a contract, so all relevant explicit and implicit provisions of contract law spread to banking relationships.
- Intentional and negligent tort actions
A tort refers to a civil wrong, not dealing with the breach of contract. Basic functions of tort law are preserving the peace between individuals, culpability and compensation. The law of tort uses three main categories of torts. They are negligent torts, intentional torts and torts where strict liability is assessed regardless of fault. According to George D. Pozgar (2011), there are two main differences between intentional and negligent torts (32). The first one deals with the intent, which is present in intentional torts, but not in negligent torts. The second difference is more implicit. The intentional tort is always connected with a willful action, aimed at violating the interests of another person, whereas a negligent tort is not necessarily connected with committing an action itself. In other words, negligent tort can also be manifested in the form of a failure to act where there was a legal duty to act.
- Tort action of Interference with Contractual Relations and Participating in a Breach of Fiduciary duty
Business torts are wrongs, which occur both within the companies and between companies. Business torts may include interference with business or contractual relations, violations of the state's consumer protection law and breach of fiduciary duties. Interference with contractual or business relationships (or tortuous interference) occurs in case a person intentionally damages business or other contractual relationships of the plaintiff. In this case contractual relationships should not necessarily deal with business.
The most wide-spread example of such a tort occurs when one party conducts willful actions, aimed at inducing another party to breach of the contract with a third party. The breach of fiduciary duty tort is most often committed by people, whose positions are connected with trust or fiduciary relationship, such as directors, top managers, officers etc. Most important principle with respect to fiduciary duties is freedom from self-dealing, conflicts of interest or other abuses for personal advantage. Two most wide-spread fiduciary duties are duty of loyalty and duty of care.
- Protection of software for mobile banking.
One of most important aspects of ensuring safety of mobile banking deals with developing systems, which allow for reliability of clients’ authentication. By introducing reliable authentication means banks can protect mobile banking services consumers from both funds-related risks and the ones, which are connected with an unauthorized disclosure of personal data. Modern authentication systems require not only the login and password, but include extra protection with help of secret codes, sent in text messages and even biometrical data. Moreover, protection systems are designed for software, which is used by employees in the banks.
- Legal environment of business
Legal environment of business is represented by commercial (ort business) law. Commercial law deals with the issues, which relate both to private and public law. In the USA commercial law provisions can be enforced both by Congress and state legislatures. Despite the fact that the USA government adheres to the development of market economy, which does not require thorough governmental regulations, a general legal framework is necessary to ensure fairness and stability of commercial relationships. A unified body of commercial law of the USA is represented by Uniform Commercial Code, which was adopted by 50 states within the USA. In general, business law in the USA deals with such fields as business organizations, tax issues, securities regulation, intellectual property law and corporate finance.
- The contract includes such basic elements as offer, acceptance, intention to create legal relations, and consideration. The first step towards conclusion of the contract is offer. An offer is followed either by acceptance of rejected. In case the offer is accepted, there is consent to conclusion of the contract. An offer can be also followed by counteroffer, which can be either accepted or rejected. While negotiating the contract, the parties should demonstrate their intention to be legally bound by the contract. Consideration is most often referred to as something of particular value, which is given by a promissor to a promissee in exchange for something of a particular value, which is given by the promissee to the promissor. Capacity is a necessary element of any valid contract. Both parties should be characterized by necessary capacity. Legal capacity determines whether they are able to make binding changes to their rights, duties and obligations. Most important capacity requirements for natural persons concern age and mental state. Capacity of business entities is determined in its constitutive documents. The principle of legality is more applicable to the theory of law than to any branch of law in particular. It refers to the ideal, according to which all laws should be clear, unambiguous and non-retrospective. In addition to being a criminal act, is also recognized as a type of tort. Most common type of fraud in civil law is actual fraud, which deals with person’s intentionally or recklessly misinterpreting the fact by words, silence or conduct. Third parties are people, other than a promissor or promissee, whose rights stem from the contract, concluded between contracting parties. Performance of the contract is an execution of the contract by its parties, whereas breach of the contract means failure to execute obligations, provided for by the contract.
- Uniform Commercial Code sales and lease contracts-related provisions
Uniform Commercial Code represents a unification of U.S. business law. The code contains such titles as general provisions, sales, leases, negotiable instruments, bank deposits, fund transfers etc. Article 2 (“Sales”) provides for basic definitions, form, formation and readjustment of contract, general obligation and construction of the contract, title, creditor and good faith purchases, performance, breach and remedies. The article also addresses risk of loss in the absence of breach and allocation of risks. Article 2a (“Leases”) contains general provisions, provisions related to the formation and construction of lease contract, effect of lease contracts, performance of lease contract, and default by lessor and lessee. Insurable interest is the ability to derive profit or a benefit of another type from an object, business or something else.
Conclusion
The case under study required not only analysis of the facts of the case, but also an application of provisions of civil, commercial and tort law. Basic provisions of civil, commercial and tort law were highlighted in the text above.
References
Pozgar, G.D. (2011). Legal aspects of health care administration. Sudbury: Jones & Bartlett Learning
Securities and Exchange Commission (2013). Official website. Retrieved 25 May 2013 from http://www.sec.gov/
Walston-Dunham, B. (2011). Introduction to law. NY: Cengage Learning
