Fraud Fortress: JPM Settles London Whale, Admits To Violating Securities Laws

It's not part of our business model. it would be wrong and we don't do it.

     -  JPMorgan's Blythe Masters on manipulating markets

US and UK authorities hit JPMorgan Chase with $920m in telegraphed in advance fines on Thursday related to the “London whale” trading losses, which saw the largest US bank by assets lose $6bn last year, for a bevy of issues from "unsafe and unsound practices" to "a failure to maintain effective internal controls over financial reporting."

Here is the Fed's release on the issue:

The Federal Reserve Board on Thursday announced that JPMorgan Chase & Co., New York, New York (JPMC), a registered bank holding company, will pay a $200 million penalty for deficiencies in the bank holding company's oversight, management, and controls governing its Chief Investment Office (CIO).


The consent Order of Assessment of a Civil Money Penalty against JPMC cites the failure by JPMC to appropriately inform its board of directors and the Federal Reserve of deficiencies in risk-management systems identified by management. On January 14, 2013, the Board issued a consent Cease and Desist Order requiring JPMC to take prompt action to correct these deficiencies, which represented unsafe or unsound practices at JPMC. The Board's Cease and Desist Order followed the disclosure of significant losses in a large synthetic credit portfolio that was managed by the CIO.


The Board's action on Thursday was taken in coordination with the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Financial Conduct Authority of the United Kingdom. The penalties issued by the agencies total approximately $920 million.


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More importantly, as the SEC noted, JPM has FINALLY admitted to violating securities laws. So much for Fortress Balance Sheet. More like "Fraud Fortress."

  • The trading losses occurred against a backdrop of woefully deficient accounting controls in the CIO, including spreadsheet miscalculations that caused large valuation errors and the use of subjective valuation techniques that made it easier for the traders to mismark the CIO portfolio.
  • JPMorgan senior management personally rewrote the CIO’s valuation control policies before the firm filed with the SEC its first quarter report for 2012 in order to address the many deficiencies in existing policies.
  • By late April 2012, JPMorgan senior management knew that the firm’s Investment Banking unit used far more conservative prices when valuing the same kind of derivatives held in the CIO portfolio, and that applying the Investment Bank valuations would have led to approximately $750 million in additional losses for the CIO in the first quarter of 2012.
  • External counterparties who traded with CIO had valued certain positions in the CIO book at $500 million less than the CIO traders did, precipitating large collateral calls against JPMorgan.
  • As a result of the findings of certain internal reviews of the CIO, some executives expressed reservations about signing sub-certifications supporting the CEO and CFO certifications required under the Sarbanes-Oxley Act.
  • Senior management failed to adequately update the audit committee on these and other important facts concerning the CIO before the firm filed its first quarter report for 2012.
  • Deprived of access to these facts, the audit committee was hindered in its ability to discharge its obligations to oversee management on behalf of shareholders and to ensure the accuracy of the firm’s financial statements.

In other words, Jamie Dimon lied to Congress.

And here is Jamie Dimon explaining why he is "richer than you":

It seems the "storm in a teacup" at the fortress balance sheet bank was a little more than Dimon expected but the stock price is rising and there appears no risk of the CEO facing any blow-back.

So, the question is, which market is JPM secretly cornering now, and will pay a settlement that amounts to one tenth or less of the total profit it rakes in from doing so?

Full admission of guilt from the SEC below: