As J.P. Morgan Chase JPM +2.73% & Co.'s top lawyer took the stage on Friday for a panel discussion in New York, he was confrontational as regulators Daniel Stipano of the Office of the Comptroller of the Currency and Deb Morris of the Consumer Financial Protection Bureau sat just to his right.
J.P. Morgan's top lawyer, Stephen Cutler, formerly was the SEC's chief of enforcement. Shown, Mr. Cutler speaking at the SEC in January 2004.Bloomberg News
"At what point does this stop?" he said, referring to record-setting fines for J.P. Morgan and other large banks. "We should all be concerned," he added, "because at a certain point people become immune to the numbers."
Mr. Stipano said the government's application of fines in legal settlements is "more art than science." He said the OCC is exploring ways to improve its calculations. An OCC spokesman declined further comment.
It was surprising to hear J.P. Morgan's general counsel raise such questions just three days after the announcement of the bank's $13 billion settlement with the Justice Department and other agencies over soured mortgage securities.
A person familiar with Mr. Cutler's thinking said he wanted to prompt a discussion about how regulators exercise their power in the future. The comments weren't the product of any personal frustration, the person said.
Acquiescence doesn't come easily to Mr. Cutler, a hard-nosed litigator still remembered for his pursuit of corporate wrongdoing while chief of enforcement for the Securities and Exchange Commission from 2001 to 2005.
But the 52-year-old Mr. Cutler met his match in the bank's battle with the Justice Department. He advised J.P. Morgan Chairman and Chief Executive James Dimon that the New York company couldn't afford to play an extended game of chicken, people close to the talks recall.
The reason: The U.S. government could potentially put the bank out of business with an indictment.
Instead, last week's settlement carried a record penalty and kept open the threat of a criminal investigation. People close to J.P. Morgan believe additional charges for selling shoddy mortgage securities are less likely.
Mr. Cutler "followed the defense playbook by making a lowball offer initially" and asking for a release from criminal liability, said Michael Bresnick, who oversaw the government investigation when he was head of the Obama administration's financial-fraud enforcement task force.
J.P. Morgan's top lawyer was "rebuffed at every turn," added Mr. Bresnick, now a partner at law firm Stein, Mitchell, Muse & Cipollone LLP in Washington.
The Justice Department's lead negotiator on the case, Associate Attorney General Tony West, praised Mr. Cutler. "Steve is a worthy adversary," said Mr. West. "He and his team are talented professionals."
The stress and hours have taken a toll on Mr. Cutler, people close to him say. He is often in the office at 6:45 a.m. and typically works 12-hour days.
Mr. Cutler has fought big cases for the government and against it. While at the SEC in 2003, he took on J.P. Morgan, which he accused of helping Enron Corp. commit fraud. J.P. Morgan executives saw the probe as a misguided response to a political frenzy, but the bank decided to pay a $135 million fine rather than fight.
In a press release at the time, Mr. Cutler said the financial penalty was "a reminder that you can't turn a blind eye to the consequences of your actions." Mr. Cutler became J.P. Morgan's top lawyer in 2007.
Mr. Cutler was a key part of the team that approved the 2008 purchases of Bear Stearns Cos. and Washington Mutual Inc. WMIH +6.80% 's banking operations. The hurried acquisitions gave J.P. Morgan immediate benefits but saddled the company with lawsuits and investigations, including the bulk of the $13 billion settlement announced last week.
At Washington Mutual, J.P. Morgan lawyers believed late changes to the final agreement allowed the bank to recover any future legal liabilities from a Federal Deposit Insurance Corp. receivership that liquidated the thrift in 2008.
The FDIC disagreed. J.P. Morgan agreed not to go after the receivership for any part of the $13 billion deal announced. The bank still might tangle with the FDIC over costs of future cases.
In the Bear Stearns and Washington Mutual deals, the "general counsel's office underestimated the risk they were taking on," said Charles Peabody, a partner at Portales Partners, a New York research firm.
Until early 2013, Mr. Cutler also was in charge of J.P. Morgan's compliance department, a part of the company that monitors adherence to laws and regulations. J.P. Morgan has said it made mistakes with mortgage foreclosures, credit-card collections and derivatives trading. Earlier this year, J.P. Morgan's head of compliance began reporting to another top executive. Mr. Cutler endorsed the move, said a person familiar with his thinking.
Mr. Dimon has defended the job done by Mr. Cutler. "Steve's the best at what he does, and we're lucky to have him," J.P. Morgan's CEO said recently, according to a person familiar with the conversation.
Mr. Cutler is worried about the recent escalation in fines for the largest U.S. banks, airing his views at Friday's panel discussion, which was hosted by trade group The Clearing House.
"I can probably think of about 13 billion reasons why I am here," he joked. "Let me start by saying how handsome Dan Stipano is," referring to the OCC official. The audience laughed at both quips.
Mr. Cutler later turned to Mr. Stipano and Ms. Morris on the subject of how federal overseers handle privileged bank information and said: "I would ask both of you to think about what it might be like to be in my shoes." Mr. Stipano replied: "I can't give legal advice to your clients, Steve."
J.P. Morgan's top lawyer also expressed concern about what he saw as duplicative behavior by multiple regulators.
"There has to be a better way to allocate government resources," he said, calling for a task force to study the issue.
—Julie Steinberg contributed to this article.
Write to Dan Fitzpatrick at and Devlin Barrett