JPMorgan Could Settle “London Whale” Fiasco for $800M

According to a source knowledgeable about negotiations, JPMorgan Chase & Co. (JPM) could pay at $800 million in penalties in the investigations conducted by regulators over the “London Whale” trading scandal. The regulators are the Federal Reserve, the Securities and Exchange Commission, the British Financial Conduct Authority, and the US Office of the Comptroller Currency. The announcement of the settlement is expected shortly.

The trading fiasco involved JPMorgan trading in complex derivatives, which were amassed by a trader who was dubbed the London Whale. Traders are accused of betting on credit derivatives, which let them wager on the supposed health of certain companies. Authorities contend that when the positions began to go bad, the traders valued them in a way that was too positive. The trades would cost the financial firm over $600 billion.

Following the debacle, the bank said that it made changes to internal controls. JPMorgan maintains that it was the one that detected the traders’ questionable activities and notified the authorities.

According to those in the know, as part of the settlement with regulators, the financial firm will admit it should have detected the problem sooner and that its lax controls let traders in their London unit construct the risky position and conceal the losses. The admissions come in the wake of the SEC’s recent reversal of its longtime policy that used to let all banks settle without denying or admitting to wrongdoing.

Also, JPMorgan has yet to resolve matters with the Commodity Futures Trading Commission, which is the regulator that oversees the market where the London Whale losses happened. The agency has been looking at whether the firm amassed a position so huge that it was able to manipulate the market for derivatives and it reportedly plans to impose its own penalty later this year.

This week, a formal indictment was announced against two ex-JPMorgan employees. Prosecutors filed criminal charges against, trader Julien Grout and manager Javier Martin-Artajo last month for allegedly concealing losses from the trades by overstating their positions’ value in the purported hopes that hundreds of millions of dollars in losses would go undetected. They are charged with falsifying bank records, wire fraud, and contributing to regulatory filings that were false.

However, both men are still in Europe and extraditing them could be difficult if not impossible. A third trader, Bruno Kisi, has not been charged. He is the one that was dubbed the London Whale because his wagers were so big. However, Iksil and authorities in New York arrived at a nonprosecution deal which involves him cooperating against Grout and Martin-Artajo.

Meantime, the Federal Bureau of Investigation and federal prosecutors are still looking into the bank’s losses in the London Whale fiasco.

JPMorgan Chase Is Said to Admit Fault in Settlement of Trade Loss, NY Times, September 16, 2013

U.S. indicts ex-traders in JPMorgan ‘London Whale’ scandal, Reuters, September 16, 2013

JPMorgan could pay $800 million in penalties in ‘London Whale’ case, Los Angeles Times, September 16, 2013

More Blog Posts:
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

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013