The London Whale’s $6 billion gambling tab showed that the big banks wouldn’t change until someone made them change. So last week, a group of Occupy Wall Street activists launched a bid to force a change: They sued the Federal Reserve, the Securities and Exchange Commission, and the US Treasury.

The losses were also notable because they should have been illegal. A 2010 overhaul of bank regulations was supposed to outlaw the kind of reckless gambling the London Whale engaged in. Federal regulators were supposed to ban naked speculation by banks last July, but they’re still haggling over the details of a rule to keep banks full of public money from poisoning themselves.

A single trader cost JP Morgan $6 billion last year. The trader, nicknamed the London Whale, had managed to lose more money on his own than some entire divisions in the bank make over the course of a year.


The lawsuit by the activist group Occupy the SEC marks a significant new shift in the battle to corral Wall Street excess. Marching in the street won’t stop Wall Street bankers from gambling away the economy. But firm regulations will. So Occupy the SEC is engaging the big banks on their own turf. It’s taking ground-up, broadly democratic activism, and training it on the opaque, insidery world of financial regulation.

Occupy the SEC came together back when protests were raging in Lower Manhattan’s Zuccotti Park in 2011. Akshat Tewary, a lawyer, hooked up with a group of regulatory geeks and activists from inside the financial sector. They all believed that banks had created the financial crisis by running circles around their regulators and, if given the opportunity, would pull the trick again. So they poured their efforts into bending banks to a sensible set of rules. “I understand that banks are an essential, vital part of the economy,” Tewary says. “But there’s a level of accountability that’s really lacking.”

Occupy the SEC has worked an activist agenda while playing an inside game. The group has pressed regulators on an international interest-rate scandal and proposed an overhaul for money market fund rules. But the group’s efforts have centered around the so-called Volcker Rule — an effort to clip risky gambling inside big banks.


The 2008 financial collapse exposed a huge rift inside Wall Street. Banks like Citigroup held federally insured deposits and borrowed cheap money from the Federal Reserve, but they were using publicly backed cash to stockpile exotic financial instruments. The 2008 crash buried the last of the big investment banks, prompting the likes of Goldman Sachs to change their legal status to gain access to a spigot of cheap federal money. The Volcker Rule said the price of accepting easy cash from the Fed was a commitment to real banking, not running hedge funds on the government’s credit card: Banks could gamble or partner with the government, but they couldn’t do both.

The Volcker Rule was supposed to kick in last summer, but the ban still hasn’t gone into effect. Banks and regulators are still haggling over the rule’s details. Industry lobbyists usually use these haggling sessions to win back points they’d lost in Congress, and dilute regulations as much as possible. They’re normally the only ones playing this game. For an industry that was dead-set against the rule from the beginning, stalling the rule for nearly three years is the next best thing to having no Volcker Rule at all.

When the banks looked to soften Volcker, though, Occupy the SEC fired back with a 325-page comment letter suggesting ways to strengthen the rule. And when the SEC suggested that, despite being several months past a deadline to put the Volcker Rule into effect, it might take several months more, Occupy the SEC sued to force the rule into existence.


“We’re using the courts to compel the agency to do what Congress said they’re supposed to do,” Tewary says. “They can come up with a rule that’s horrible. But they have to come up with something. There are plenty of lawsuits coming from the lobbying side. This is the first time the push is coming from the other side.”

Paul McMorrow is an associate editor at Commonwealth Magazine. His column appears regularly in the Globe.