How JP Morgan’s $2 Billion Trading Loss May Impact Citizens United II

The United States Supreme Court is currently reviewing a petition for a writ of certiorari in the case of American Tradition Partnership, Inc. v. Attorney General of Montana.  The case has been dubbed “Citizens United II” by some because, as I blogged back in February (here), the “Montana Supreme Court ruling that upheld a state ban on corporate political independent expenditures…. appears to be in direct conflict with Citizens United.”  I was reminded of this case when I read the following in the Wall Street Journal (here) this past Tuesday:

 J.P. Morgan Chase & Co. is finding few friends on Capitol Hill…. Republicans haven't forgotten that J.P. Morgan gave a majority of its campaign donations to President Barack Obama and Democrats in the 2008 campaign. Even though the company has since reversed course and donated most of its political dollars to Republicans ... senior GOP officials say they still perceive the firm as cozy with the Democratic establishment…. And Republicans say their displeasure extends to contribution patterns by other banks including Goldman Sachs Group Inc., Bank of America Corp., and Citigroup Inc. …. But frustrations with J.P. Morgan are also a reason the GOP defense of the bank's misstep has been muted, according to senior Republican officials…. In January 2010, Mr. Boehner, now the House speaker, made a pitch to Mr. Dimon over drinks on Capitol Hill to make more donations to Republicans, who were opposing Mr. Obama's plans to impose tough new regulations on the industry. Since then, J.P. Morgan has worked hard to curry favor with important Republicans in Congress.

This strikes me as precisely the sort of thing that implicates both the anti-corruption and shareholder-protection rationales for regulating corporate political expenditures that a majority of the Supreme Court rejected in Citizens United.  In “A Contractarian Critique of Citizens United,” Joseph Morrissey recounts the following from Citizens United:

Justice Stevens cited to the district court opinion, written by Judge Kollar Kotelly.  That opinion discussed the subtleties of corruption and the evidence that electioneering involves indirect forms of influence peddling.   Judge Kollar Kotelly had found that politicians routinely request corporations to make electioneering communications so that the politicians themselves do not have to engage in disseminating certain messages.   She also discovered that politicians routinely communicate with corporations to thank them for distributing those messages.   In addition, she found that a vast portion of the American public – 80% -- believe that corporations get pay backs for engaging in political electioneering.   One lobbyist had even testified that indirect expenditures in fact generate more influence with politicians than direct contributions.   That testimony went uncontroverted.

Furthermore, in “Rational Coercion: Citizens United and a Modern Day Prisoner's Dilemma,” Anne Tucker argues that:

The prisoner's dilemma demonstrates the pressure on corporations to participate in politics via their checkbooks. That pressure existed before Citizens United (i.e., political action committees and affiliated non-profit foundations, and charitable contributions), but was exacerbated with the expansion of corporate political speech through independent expenditures. Increased corporate political spending impacts both the participatory rights and the economic interests of citizen shareholders. The individually rational choice of corporations to make political expenditures creates irrational results, which will impact the price and efficiency of political messages as well as promote the inefficient allocation of corporate resources.

It will be interesting to see whether the evolving JP Morgan story becomes a part of the Citizens United story.

Stefan Padfield