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Criminal Inquiry Shifts To JPMorgan's Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond?

Tyler Durden's picture


On the last day of May, when we first learned via Bloomberg that there was even the scantest likelihood that JPM may have been massaging its CDS marks within the (London-based of course) CIO organization - the backbone of hundreds of billions in notional exposure, and thus a huge counterfeited benefit to trader bonuses and corporate earnings - we wrote, "The Second Act Of The JPM CIO Fiasco Has Arrived - Mismarking Hundreds Of Billions In Credit Default Swaps" in which we explained precisely how this activity would and did take place, precisely why other traders caught doing the same are on the verge of being thrown in jail, precisely why everyone else does it, and precisely why the biggest CDS self-reporting and client/banker owned-organization (this is where images of Libor should appear), MarkIt, may well be implicated in everything - very much in the same way that the BBA is the heart of Lie-borgate. Because unlike all other allegations of impropriety, most of which rely on Level 2 and Level 3 assets whose valuations are in the eye of the oh so very sophisticated beholder (in this case JPM) who has complex DCFs and speaks confidently when explaining marks to naive, stupid outsiders (in other words baffles with bullshit), when it comes to one of the last places where Mark to Market is still applicable and used: the OTC CDS market, and where daily P&L records are kept, it will take any regulator, enforcer, or criminal investigator precisely 1 minute to find out if there was fraud, or gambling, going on here.

Then lo and behold, none other than JPM admitted minutes before releasing its Q2 earnings that it had been doing precisely what Zero Hedge accused it of doing nearly 2 months earlier (but of course Jamie Dimon had no idea, no idea, what the media accused his firm of doing), and in doing so exposed itself to just as much litigation risk as Barclays in the Lie-borgate scandal, while further throwing a monkey wrench into the CDS market, where all the other banks (who had been doing just the same), will no longer be able to pick off the bid/ask spread in the process crushing CDS trader bonuses, and resulting in billions in foregone imaginary profits.

Most importantly, it opened up the firm to a criminal investigation. Which as Reuters reports, is precisely what has now happened.

From Reuters' Matt Goldstein and Jennifer Ablan:

Before last week's disclosure, the criminal probe largely had focused on the personal trading of some CIO traders, two of those sources said. The authorities were looking for evidence that some in London may have sold shares of JPMorgan in advance of the firm's May 10 disclosure that it could lose a minimum of $2 billion on the derivatives trades gone awry.


Now the investigation is focused on whether three JPMorgan employees in London committed fraud in reporting on their transactions. The bank is cooperating with authorities.

Obviously, nobody at the top had any idea of anything that was going on...

JPMorgan's chief executive, Jamie Dimon, and some of his top lieutenants did not learn about the potential misconduct by some CIO employees until early last week, said these sources, who were not authorized to speak publicly on the matter

Maybe he should have been reading Zero Hedge? Because said otherwise, as JPM is allegedly to its CIO traders, so Goldman Sachs is to Fabrice Tourre. Remember him - he was the only person who in 2006-2008 was singlehandedly masterminding Goldman's CDO fraud, which the firm settled for a then record sum. Nobody else: it was just him. Well, if the glove fits, JPM will do the same, and is about to throw some of its heretofore most profitable traders under the bus.

In fact, some of these traders who will have been "discovered" to be mismarking their books will most likely be the same people who have already lost their jobs and are in the process of clawing back pay:

So far, the trading loss has cost a number of people their jobs, including Ina Drew, the former head of the CIO, who resigned in May. Also gone from the bank are three traders in London, Bruno Iksil -- who gained fame as the "London Whale" for his large trades -- Achilles Macris and Javier Martin-Artajo.


Lawyers in London for Iksil and Martin-Artajo did not return phone calls or email seeking comment. A lawyer in New York for Macris declined to comment.


A lawyer in New York for Drew did not return request for comment. A family member who answered the phone at Drew's home said she was not available for comment.

Here's the problem: nobody will be stupid enough to believe for one second that the marks on hundreds of billions in securities passed from the front office straight to JPM's 10-Q without vetting by middle office, back office, Treasury office, and even in some cases, counterparties. In other words, if JPM is indeed stupid enough to attempt to pull a "Fabrice Tourre" on CIO, it won't work.

Actually scratch that: it may work, but it will involve a "fine", i.e., a bribe of about $1 billion to the SEC, and countless promises of perpetual campaign donations to all the other corrupt members of congress and the senate. Which if this fraud flies by unscathed will mean all of them.

Ironically, if only JPM had indeed been honest, and told the public that not only did it have a loss, but it had discovered "material lapses in internal control" back on May 10 when the story hit, it would be a non-event by now. Instead, with the phased in revelations of events that even the most inexperienced trader knows full well all took place at the same time, it is becoming very obvious that Jamie Dimon and crew are merely hiding more and more revelations in some dark corner.

And what is scariest is that all this excludes the liability that the bank will with absolute certainty have as a result of Liborgate, and that it is one of the only three US members of the USD Libor fixing committee at the British Banksters Association.

We will leave the final words to our good friend from Bloomberg Jonathan Weil, who said that "It was once inconceivable that Dimon might someday wind up like Barclays CEO Bob Diamond, who resigned last week after that company's Libor scandal broke wide open. It's not anymore."

It certainly is not.

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Mon, 07/16/2012 - 20:12 | 2622313 Xibalba
Xibalba's picture

How's that silver market investigation going??

Mon, 07/16/2012 - 20:22 | 2622338 The Monkey
The Monkey's picture

But, but, but... Dimon's part of the NY Fed.

Mon, 07/16/2012 - 20:36 | 2622383 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Looks like he'll be wearing those "POTUS" cuff links again soon.

Mon, 07/16/2012 - 20:48 | 2622435 world_debt_slave
world_debt_slave's picture

The teflon coated bankster, how do you get rid of such a thing?

Mon, 07/16/2012 - 20:50 | 2622445 HoofHearted
HoofHearted's picture

Silver bullets!

Mon, 07/16/2012 - 22:18 | 2622803 LookingForTruth
LookingForTruth's picture


Mon, 07/16/2012 - 23:08 | 2622952 Tunga
Tunga's picture

It's a long and Transitorily  unwinding road.  Drivers wanted.


Tue, 07/17/2012 - 00:33 | 2623172 sunaJ
sunaJ's picture

Yes, Dimon might be shamed to forgo 80% of his bonus, too - like Diamond.  Poor, poor Dimon.  The day he is known as "Jimbo" to his cellies at Leavenworth will be the day chickens fly South for the Winter.

Tue, 07/17/2012 - 00:36 | 2623183 eatthebanksters
eatthebanksters's picture

He'll have to give up his day job, because suddenly, the emporor has no clothes....

Tue, 07/17/2012 - 00:42 | 2623193 Precious
Precious's picture

Jamie Dimon overheard talking to Ben Bernanke in the hallway.  "I think we can work out a plea bargain."

Tue, 07/17/2012 - 02:13 | 2623294 Ahmeexnal
Ahmeexnal's picture

Blythe is pulling out a midnight raid on silver. Since she (and her boss) are going to jail the guillotine, they might as well just bring silver to $5 per ounce....if only for a brief moment.  Time to buy with both hands.

Tue, 07/17/2012 - 04:45 | 2623393 Davalicious
Davalicious's picture

You said it, Ahmeexnal. They can't afford to admit years of silver manipulation at this point. So they can't let the price go. On top of that it is a good income stream, and they will definitely get away with slamming it down hard one more time.

Tue, 07/17/2012 - 00:50 | 2623057 AlaricBalth
AlaricBalth's picture

Here is JPM's SarbOx certification. The question is, at the time, was the information contained in this 10Q a fair representation, in all material respects, of the financial condition and results of operations of JPM?
Dimon attested that it was. This was arguably a false certification.

Section 906 of the Sarbanes-Oxley Act of 2002 requires CEOs and CFOs to certify that their company’s periodic financial reports comply with applicable requirements and fairly present, in all material respects, the financial condition and results of operations of the company. See 18 U.S.C. § 1350(a), (b). Any person who “knowingly” provides a false certification can be fined up to $1,000,000 and/or imprisoned for not more than ten years. See 18 U.S.C. § 1350(c)(1). Any person who “willfully” provides a false certification can be fined up to $5,000,000 and/or imprisoned for not more than twenty years. See 18 U.S.C. § 1350(c)(2). In one criminal prosecution, the government stated that for a defendant’s conduct to violate this provision “[h]e must not only know that the periodic report contains materially false information, he must falsely certify . . . that the report is materially accurate, he must do so knowing that such a false certification is forbidden by law, and he must do so with the specific intent to violate the law.” United States v. Scrushy, 2004 U.S. Dist. LEXIS 23820, at *14-15 (N.D. Ala. Nov. 23, 2004). As described above, some courts may require a less stringent showing of culpability to meet the definition of “willful,” requiring only that the defendant knew his conduct was wrongful, not that he knew it was unlawful.

Exhibit 32
JPMorgan Chase & Co.


In connection with the Quarterly Report of JPMorgan Chase & Co. on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of JPMorgan Chase & Co., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of JPMorgan Chase & Co.

May 10, 2012
James Dimon
James Dimon
Chairman and Chief Executive Officer

May 10, 2012
Douglas L. Braunstein
Douglas L. Braunstein
Executive Vice President and Chief Financial Officer

This certification accompanies this Form 10-Q and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

A signed original of this written statement required by Section 906 has been provided to, and will be retained by, JPMorgan Chase & Co. and furnished to the Securities and Exchange Commission or its staff upon request.

Tue, 07/17/2012 - 06:53 | 2623455 MillionDollarBoner_
MillionDollarBoner_'s picture

"Sarbanes-who? Who gives a shit!"


Tue, 07/17/2012 - 02:43 | 2623315 cpzimmon
cpzimmon's picture

JHP...at close range. Fixed it for you. Thank me later.

Tue, 07/17/2012 - 00:11 | 2623138 RiverRoad
RiverRoad's picture

To world_debt_slave:        Garlic, a cross, and a mirror at dawn.

Tue, 07/17/2012 - 06:30 | 2623429 Peter Pan
Peter Pan's picture

Stop Dimonizing the man !!! 

Mon, 07/16/2012 - 20:53 | 2622460 bigkahuna
bigkahuna's picture

It aint gonna happen. Corzine is still on the loose, no way they even question him.


Remember, just-us.

Mon, 07/16/2012 - 21:17 | 2622478 Caviar Emptor
Caviar Emptor's picture

@kahuna: Exactly. We need to apologize as a nation to our bankster heroes. What we put them through! And they do it all for one reason: to keep us safe. Makes me tearful and I'm a macho alpha-type. 

Mon, 07/16/2012 - 23:06 | 2622953 knukles
knukles's picture

Grand Idea in the Tradition of our Messiah Apologizing ti the Rest of the World for Being Everything Possible Under the Sun.

The New Humility.

"I hate myself."

Mon, 07/16/2012 - 23:19 | 2622990 jeff montanye
jeff montanye's picture

imo dimon will resign before the election occurs.

imo that would be bullish for silver so i'm talking my book.

Tue, 07/17/2012 - 02:42 | 2623314 Dr. Sandi
Dr. Sandi's picture

Nah, Dimons are Forever.

But I'm holding onto my silver anyway.

Mon, 07/16/2012 - 20:48 | 2622437 FEDbuster
FEDbuster's picture

Yada, yada, yada.....  So he will have to throw a few more millions around D.C, chump change.

Tue, 07/17/2012 - 00:32 | 2623170 RockyRacoon
RockyRacoon's picture

If they keep throwing the only traders who make them money under the bus, what kind of balance sheet are they going to end up with?  Who is going to want to go to work for a company that treats its employees as human sacrifices to Congressional hearings?  Serves 'em right... all of 'em.

Tue, 07/17/2012 - 06:24 | 2623426 reload
reload's picture

Many years ago, in what seems now like another life altogether - I worked as a market maker on the IRS desk at a TBTF Bank.

The mark to market farce worked like this:

Trader tells junior where to mark book outstandings.

Junior does so and signs p&l update forms.

Sometimes an auditor would question an entry or two: Auditor would genearly be baffled with bulshit until he went away, a favourite was along the lines of "the benchmark security was changed as the one used at trade inception is now off the run and no longer represantative"

The more senior you were, the less likely you were to have your signature anywhere near anything even questionable.

So the issue is not

If they keep throwing the only traders who make them money under the bus, what kind of balance sheet are they going to end up with?

But: given the awful internal practices and accounting standards used by Banks, how do they even know themselves who their profit making traders are? the answer would seem to be, they dao not. And they certainly make a lot less trading than they have come to believe. 

Wed, 07/18/2012 - 16:48 | 2629826 RockyRacoon
RockyRacoon's picture

Very good.  Thanks for the insider view.   My trust has just taken yet another down-tick.

Mon, 07/16/2012 - 21:36 | 2622648 Smartie37
Smartie37's picture

For the thinking of the FED sharks on this, U2 said it well: 

"I'm no dope I'll give you rope, here's the rope, here's the rope..........

...................SWING AWAY............................


Mon, 07/16/2012 - 21:45 | 2622685 El Oregonian
El Oregonian's picture

The "White Hats" will be pulling in to town real soon.

Tue, 07/17/2012 - 02:45 | 2623316 Dr. Sandi
Dr. Sandi's picture

Problem is, they'll be riding in from the East. And I don't mean Long Island.

They'll clean up the town and then they'll take it over.

Hope I'm wrong, bet I'm right.

Mon, 07/16/2012 - 20:54 | 2622464 q99x2
q99x2's picture

Arrest Bernanke too.

Mon, 07/16/2012 - 20:35 | 2622382 Neezer
Neezer's picture

Actually, the LIBOR scandal and the CDS P/L manipulation guarantee that no regulator will investigate the silver market. Three mega frauds within a month at a single bank might reveal to the public that the regulators are utterly incompetent (or still watching porn) and that all of the financial reform window dressing / Dodd Frank grandstanding since 2008 has been a political farce.

Besides, JPMorganWamuBear is TBTF.

Mon, 07/16/2012 - 20:39 | 2622399 Unprepared
Unprepared's picture

If we regulators consacred the half hour between wiping their d!cks off and going for the daily after lunch walk on probing on any one of the above mentioned fraud cases, no major financial institution would be still standing today.

Mon, 07/16/2012 - 21:41 | 2622671 Stock Tips Inve...
Stock Tips Investment's picture

These issues are generating a lot of mistrust in the general public and investors. All this must be investigated and punished if they determine responsibilities. However, I believe that we should not contribute to worsen this situation. We will need the capital market to exit this crisis.

Tue, 07/17/2012 - 02:53 | 2623326 imbrbing
imbrbing's picture

All we are going to be left with when this is over is the barter market. The capitol market? How is that working out for us so far. Regulated it might work well, but when will it ever in the history of mankind

with his greediness ever reach that pinaccle of being regulated "correctly" so as to work.

Tue, 07/17/2012 - 03:40 | 2623362 Offthebeach
Offthebeach's picture

TBTA. Too big to arrest.

Mon, 07/16/2012 - 20:36 | 2622388 Western
Western's picture

Commercials are now net long gold in last week's COT, silver... not yet?

Mon, 07/16/2012 - 21:26 | 2622607 Stoploss
Stoploss's picture

Told ya Jaime. Meet Kharma, she is pissed, you are done.

Mon, 07/16/2012 - 22:06 | 2622758 Dingleberry
Dingleberry's picture

Probably held up due to the Corzine investigation. Or maybe the BP spill investigation. Or maybe (fill in the financial crime) investigation.


What do you expect investigators to do with so much porn on the web to watch?

Tue, 07/17/2012 - 02:46 | 2623319 Dr. Sandi
Dr. Sandi's picture

I don't know. Is there such a thing as Chapstick for the Dick?

Mon, 07/16/2012 - 20:13 | 2622316 TahoeBilly2012
TahoeBilly2012's picture

Hey, maybe the wars are a fraud too?

Mon, 07/16/2012 - 22:12 | 2622773 Bananamerican
Bananamerican's picture

and ObamneyCare, and "No Child Left behind" and the Dream Act, Dodd Frank, Social Security, Homeland Security, TSA etc etc etc etc.................It's like the Russian taxi driver said "Amerika is a boollshit country"

Mon, 07/16/2012 - 20:14 | 2622318 zero19451945
zero19451945's picture

The entire financial system is composed of unadulterated fraud. 


Every single aspect of it is riddled with lies, manipulations, and criminal activity. 

Mon, 07/16/2012 - 20:27 | 2622362 dick cheneys ghost
dick cheneys ghost's picture

Send in the drones................

Mon, 07/16/2012 - 20:35 | 2622378 zero19451945
zero19451945's picture

At this point I ask: Is there anything that isn't fraud in the financial system?

Mon, 07/16/2012 - 22:38 | 2622861 jez
jez's picture

There are some honest sandwich delivery guys on Wall Street, I believe.

Tue, 07/17/2012 - 06:56 | 2623456 MillionDollarBoner_
MillionDollarBoner_'s picture

that would depend on how you define "fraud"

Mon, 07/16/2012 - 21:37 | 2622656 jimmytorpedo
jimmytorpedo's picture

these are not the drones you're looking for,...

Mon, 07/16/2012 - 21:49 | 2622704 El Oregonian
El Oregonian's picture

They have, they've been working there now a long time... OH! you mean those weaponized ones that are unconstitutional...

Mon, 07/16/2012 - 20:41 | 2622408 stocktivity
stocktivity's picture

Just throw a few small fry traders under the bus. How much of this CDS crap floating around...something like $700 TRILLION? That's a lot of claw backs. They know this house of cards has to remain propped up by any means.

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