Update: SEC fines JPMorgan Chase $920 million for trading loss cover up

From today’s NYT DealBook Blog:

More than a year after a group of traders at JPMorgan Chase caused a multibillion-dollar loss, government authorities on Thursday imposed a $920 million fine on the bank and shifted scrutiny to its senior management.

Extracting the fines and a rare admission of wrongdoing from JPMorgan Chase, the nation’s largest bank, regulators in Washington and London took aim at a pervasive breakdown in controls and leadership at the bank. The deal resolves investigations from four regulators: the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.

But the bank has struggled to settle with another regulator, the Commodity Futures Trading Commission, which is investigating whether the bank’s trading manipulated the market for financial contracts known as derivatives. JPMorgan Chase disclosed on Thursday that the agency’s enforcement staff had recommended the filing of an enforcement action.

The regulators who did settle with JPMorgan cited the bank for “deficiencies” in “oversight of the risks,” assessment of controls and development of “internal financial reporting.” The group at JPMorgan tasked with double-checking the traders’ estimated profit and losses was so “under resourced” and “unequipped,” authorities said, that it consisted of a single employee.

The regulatory orders attributed much of the blame to JPMorgan’s senior management, who failed to elevate concerns about the losses to the bank’s board.

Read the entire article here.


When it comes to smart investing, the lesson is bankers gamble big

The CEO of JPMorgan Chase continued his testimony before Congress today concerning the multi-billion trading loss that bank announced last month. Jamie Dimon testified before the House Committee on Financial Services yesterday, and in a humorous exchange with Rep. Gary Ackerman (D-NY) revealed just how deep self-deceit goes for those holding the cards of America’s financial future.

Ackerman: What is the difference between gambling and investing?

Dimon: I think when you gamble you usually lose to the house.

Ackerman: That’s been my general experience with investing.

Dimon: I’d be happy to get you a better financial advisor.

The idea that the house is fixed but investing is not is increasingly falsified by our experience with the financial collapse. The joke would be funny if Dimon could deliver better financial advise, but as it is JP Morgan does not have a great track record when it comes to making winning bets on acceptable risks.

Andrew Rosenthal of the NYT said this:  “There are many obvious differences between gambling and investing, but let’s just stick to the one that Mr. Dimon offered – there is no fix for the house (the bank) when you invest.”

Rosenthal reports that Chase regularly engages in questionable gambles with apparent fixes. According to an article from last year on JPMorgan and Sigma, a troubled pre-crash investment vehicle. “In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about … Sigma…But the bank chose not to move out $500 million in client assets that it had put into Sigma two months earlier.”

As a result Sigma collapsed and all of the bank’s clients lost nearly all their money, while JP Morgan collected nearly $1.9 billion. That’s one more example of gamblers losing to the house. I’ll take 10 to 1 odds that its clients wish they had a better financial advisor!