JPMorgan's $920 Million Admission of GuiltBy
It’s a nearly billion-dollar day for Jamie Dimon. Admitting that JPMorgan Chase violated federal securities laws, the bank’s chief executive agreed to pay a combined $920 million to a cluster of U.S. and U.K. regulators to settle charges tied to its massive 2012 “London Whale” trading losses.
Those trades, in which the bank’s London-based chief investment officer made wrong-way bets on derivatives so large that they distorted the market, lost JPMorgan more than $6 billion and demolished its reputation as the best risk-managed bank on Wall Street.
JPMorgan will pay $300 million to the Office of the Comptroller of the Currency, whose investigations found the bank had “inadequate” controls in risk management, oversight, governance, pricing of trades, internal audits, and other areas.
Dimon’s bank will also pay $200 million to the Securities and Exchange Commission. “While grappling with how to fix its internal control breakdowns, JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators,” the SEC’s co-director of enforcement, George S. Canellos, said in a statement.
The SEC’s new chairwoman, Mary Jo White, has been pushing the agency’s enforcement officials to secure admissions of guilt from the targets of its investigations, rather than allowing them to sign settlements that contain squishy neither-admit-nor-deny clauses.
The U.K.’s Financial Conduct Authority will extract an additional $220 million from JPMorgan. “We consider JPMorgan’s failings to be extremely serious such as to undermine the trust and confidence in U.K. financial markets,” Tracey McDermott, the agency’s director of enforcement and financial crime, said in a statement.
And $200 million more will go to the Federal Reserve. JPMorgan is still being investigated by the Justice Department and the Commodity Futures Trading Commission. Also, in August, the SEC, in an action that is ongoing, charged two former traders at the bank, Javier Martin-Artajo and Julien Grout, with fraud.
For Dimon, the Whale affair is a storm that just won’t go away. He testified before Congress twice, suffered a bruising Senate report on the bank’s conduct. He had his pay cut, and more significantly, he lost his status—hard-won during the financial crisis—as the most responsible bank chief executive. Dimon handily defeated a shareholder referendum in May over whether he should be allowed to serve as both chairman and CEO of JPMorgan, but the slow-moving regulatory response to the Whale trades has continued to dog him, as have other probes into the bank’s activities.
Earlier this month, JPMorgan increased the pool of money it sets aside for litigation expenses by $1.5 billion, amid federal investigations into its activities in energy trading, credit cards, and other areas.
The bank’s shares have gained more than 20 percent this year.