JPMorgan Hires Ex-SEC Enforcement Chief McLucas in Probes

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, has hired former U.S. Securities and Exchange Commission enforcement chief William McLucas to help respond to regulatory probes of the firm’s $2 billion trading loss.

The lender retained law firm Wilmer Cutler Pickering Hale & Dorr LLP, where McLucas is a partner, shortly after the bank disclosed the loss on May 10, said Kristin Lemkau, a spokeswoman for New York-based JPMorgan.

The probes began after JPMorgan traders in London built up positions in illiquid credit derivatives that were so large they distorted market prices and eventually led to what Chief Executive Officer Jamie Dimon called “self-inflicted” losses that may grow. That spurred reviews by the SEC, Commodity Futures Trading Commission, Office of the Comptroller of the Currency and Federal Bureau of Investigation.

“Our focus right now is on whether the company’s public disclosure and financial reporting is accurate,” SEC Chairman Mary Schapiro said today in congressional testimony. “The agencies collectively, including the criminal authorities, are working very hard to untangle what happened at the firm.”

The SEC is reviewing the accuracy and timing of JPMorgan’s disclosure of changes in how it calculates value-at-risk, or VaR, which shows how much it could lose from trading most days, Schapiro said. The bank changed its VaR model for the chief investment office during the first quarter without telling investors. The new model, which has since been scrapped, had cut the risk estimation almost in half, Dimon told investors May 10.

Disclosure of Changes

When there are changes to the VaR model, “those changes have to be disclosed” to the public, said Schapiro, 56. When companies report large trading losses, “we actually make them back-test and provide us with full information about why their estimates of losses were so far off,” she said.

McLucas, 61, led the SEC’s enforcement division from 1989 to 1998 and represented board committees in the collapses of Enron Corp. and WorldCom Inc. He didn’t reply to a phone call and e-mail seeking comment.

The losses occurred in a portfolio of credit investments overseen in London by JPMorgan’s chief investment office, which manages risks. The company used a trading strategy that was “flawed, complex, poorly conceived, poorly vetted and poorly executed,” Dimon, 56, has said.

JPMorgan’s general counsel and most senior lawyer, Stephen Cutler, also previously served as the head of enforcement at the SEC. Cutler, 50, worked with McLucas at WilmerHale from 2005 to 2007, before JPMorgan hired him.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net; David Scheer at dscheer@bloomberg.net

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William McLucas

Brendan Hoffman/Bloomberg

William McLucas, a former enforcement director with the U.S. Securities and Exchange Commission.

William McLucas, a former enforcement director with the U.S. Securities and Exchange Commission. Photographer: Brendan Hoffman/Bloomberg

5:36

May 22 (Bloomberg) -- Doug Ciocca, chief executive officer at Kavar Capital Partners LLC, talks about the possible impact of JPMorgan Chase & Co.'s $2 billion loss on regulation of the U.S. financial industry. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

3:29

May 22 (Bloomberg) -- U.S. Senator Richard Shelby, an Alabama Republican, talks about the prospects for financial regulation following the $2 billion trading loss by JPMorgan Chase & Co. Shelby, speaking to Megan Hughes on Bloomberg Television's "Bottom Line,” also discusses the outlook for testimony by Jamie Dimon, chief executive officer of JPMorgan, before the Senate Banking Committee next month. (Source: Bloomberg)