Four regulators, two countries, $920 million. That's what it took for JPMorgan to put some of the "London Whale" debacle — when two London-based derivatives traders lost over $6 billion while hiding the value of their trading positions from the bank and regulators, according to the regulatory orders — behind them, at least partially. While JPMorgan settled with four of its regulators, the Securities and Exchange Commission, the U.K. Financial Conduct Authority, the Federal Reserve, and the Office of the Comptroller of the Currency, they are still under investigation by the Commodity Futures Trading Commission and Massachusetts securities regulators.
According to documents filed with the SEC by JPMorgan, the CFTC staff will recommend another enforcement action against JPMorgan for the London Whale trades. The CFTC is responsible for regulating derivatives.
The four enforcement actions largely buttress what has already been reported and disclosed about the trades. In its $200 million settlement with the SEC, the bank admits to having inconsistent approaches to pricing derivatives, with the investment bank having far more conservative pricing than the Chief Investment Office, which housed the London Whale traders.
The bank admitted that using investment bank valuations would have led to $750 million in extra losses in the beginning of 2012. The "woefully deficient accounting controls" led to JPMorgan releasing misleading accounting statements and earnings reports to the SEC, which led to the large fine, as well as a $459 million downward restatement in its first-quarter 2012 earnings as more information about the London Whale losses became available.
The bank also admitted to failing to adequately inform its board of directors of just how big its accounting and trading problems were within the Chief Investment Office. "The penalty reflects the SEC's assessment of the gravity of the control failures and the risks to which they exposed the firm and investors," George Canellos, the SEC's co-director of enforcement said in a statement accompanying the SEC's order.
"The nearly $1 billion in combined penalties and the more than $6 billion in losses resulting from the failures in controls over derivatives trading serve as important reminders to all bankers of the importance of prudent controls, strong governance, and effective risk management," said OCC head Thomas Curry. Two former JPMorgan employees, Javier Martin-Artajo and Julien Grout, were indicted by a federal grand jury Monday for their alleged role in mismarking the value of the Chief Investment Office's derivatives trades in order to hide losses as they grew in early 2012. The actual "London Whale" himself, Bruno Iksil, got a nonprosecution agreement from federal prosecutors for his cooperation in bringing charges against his two former colleagues.
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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