JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations

JPMorgan Chase (JPM) has agreed to pay a $920 million fine to resolve securities fraud investigations conducted by the Federal Reserve, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Financial Conduct Authority in London. The probes were related to the multibillion-dollar trading losses the bank is blamed for in last year’s London Whale debacle.

The regulators cited JPMorgan for “deficiencies” related to controls assessments, risk oversight, and internal financial reporting. The bank’s senior management is getting the brunt of the blame for purportedly not citing concerns about the losses to the board. However, no charges have been filed in this case against any executive.

Also, the SEC was able to extract an acknowledgement from JPMorgan that it was in violation of federal securities laws over this matter. This comes in the wake of the regulator’s decision to reverse its policy that previously let banks settle without having to deny or admit to having done anything wrong.

The admission could put JPMorgan at a disadvantage in any private securities lawsuits from investors who may have been hurt by the trading fiasco, during which complex derivatives were traded, including those amassed by one now former JPMorgan trader who became known as the London Whale. Traders are accused of betting on credit derivatives, which let them wager on certain companies’ perceived health. Authorities say that when positions started to sour, the trades were still valued in too optimistic light, with their worth purposely inflated by traders. JPMorgan would lose $600 billion in the debacle.

As part of this securities settlement, the bank will pay $200 million each to the SEC, the Federal Reserve, and the Financial Conduct Authority, and $300 million to the comptroller’s office.

The settlements, issued today, revealed even more details about the bank’s failures over the London Whale trades, including that trading loss were a result of accounting controls that were “woefully deficient” in the chief investment office, miscalculations on spreadsheets, the standard employed for traders’ valuations were “subjective,” and the group tasked with checking the estimated losses and profits of traders was comprised of just one person.

Meantime, JPMorgan has yet to reach a settlement with the Commodity Futures Trading Commission, which is trying to determine whether the bank’s trading manipulated the market for the derivatives. However, the agency’s staff is recommending that it file an enforcement action.

Also today, the Consumer Financial Protection Bureau and the comptroller’s office imposed fines against the bank over credit card practices. The financial firm consented to pay $80 million over allegations that it deceived customers with credit cards into purchasing products that were supposed to protect them from identity fraud. However, the regulators say that products, which were offered by JPMorgan Chase between ’05 and 6/ ’12, were never created.

Already, the bank has paid about $300 million to over 2 million customers over this matter. $60 million of the $80 million settlement will go to the comptroller’s office while the bureau will get the remaining $20 million. The comptroller’s office also took issue with how JPMorgan gets back debt from customers, such as depending on potentially inaccurate documentation to determine how much a customer is owed.

JPMorgan Agrees to Pay $920 Million in Fines Over Trading Loss, New York Times, September 19, 2013

JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges, SEC, September 19, 2013

US regulators order JPMorgan to pay $80M in fines, $309M in refunds over ID theft service, Fox News/AP, September 19, 2013

More Blog Posts:
JPMorgan Could Settle “London Whale” Fiasco for $800M, Institutional Investor Securities Blog, September 17, 2013

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle, Institutional Investor Securities Blog, August 10, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013