You are here
Morgan seen ready to admit almost manipulating a market
JPMorgan Expected to Admit Fault in 'London Whale' Trading Loss
By Ben Protess and Jessica Silver-Greenberg
The New York Times
Tuesday, October 15, 2013
http://dealbook.nytimes.com/2013/10/15/jpmorgan-said-to-reach-deal-with-...
For JPMorgan Chase, fines totaling billions of dollars are no longer sufficient to placate the government. Now the bank's regulators want something stiffer: a mea culpa.
A month after JPMorgan acknowledged that "severe breakdowns" had allowed a group of traders in London to run up $6 billion in losses, the bank has preliminarily reached a rare agreement to admit that the trading blowup itself represented reckless behavior, according to people briefed on the negotiations.
The bank could settle with the Commodity Futures Trading Commission as soon as this week, according to the people briefed on the negotiations, who were not authorized to discuss the private settlement talks. Aside from admitting some wrongdoing, the bank is expected to pay about $100 million to resolve the case, a trading debacle last year that has come to be known as the London Whale episode.
... Dispatch continues below ...
How to profit with silver --
and which stocks to buy now
Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.
Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.
To learn about this report, please visit:
http://www.futuremoneytrends.com/index.php?option=com_content&id=376&tmp...
Unlike a settlement last month with the Securities and Exchange Commission, which largely took aim at porous controls and governance practices at the bank, the pact with the Commodity Futures Trading Commission zeros in on the bank's actual trading practices. The agency, using new authority under the Dodd-Frank Act of 2010, argues that the bank's trading was so large and voluminous that it violated a law preventing banks from recklessly using a "manipulative device" in the market for credit derivatives, financial contracts that let the bank bet on the health of companies like American Airlines.
JPMorgan's concession, part of a broader policy shift in Washington that emerged in fits and starts over the last year, is the most aggressive step in reversing a decades-long practice of allowing banks to "neither admit nor deny" wrongdoing. The deal also could set a precedent that potentially exposes a bank to scrutiny -- from the government and from shareholder lawsuits -- whenever it builds a huge trading position that alters the market.
The change in regulators' approach traces in part to criticism that Wall Street misdeeds generated only token settlements that banks could easily afford. When Mary Jo White took over the SEC this year, she outlined a new policy for extracting admissions in certain cases.
For the government, an admission by JPMorgan could provide a template for pursuing other admissions in Wall Street cases. Already, according to people briefed on the matter, the Justice Department is pushing JPMorgan to admit that from 2005 to 2007, it sold mortgage securities to investors without fully warning of the risks.
Yet the regulatory crackdown is not comprehensive. The fine print of JPMorgan's admission -- in both the SEC and CFTC cases -- provides the bank some cover from private litigation. Rather than admitting market manipulation, the bank is expected to acknowledge a series of facts that the CFTC will characterize as "recklessly employing manipulative devices." While it is a small and technical distinction, it could save the bank from an onslaught of shareholder lawsuits.
The bank also won some ground on the breadth of its wrongdoing. It agreed, the people briefed on the negotiations said, to admit wrongdoing stemming from trading on one particular day. The trading commission is likely to refer to other trading in its order against the bank, but JPMorgan is expected to neither admit nor deny wrongdoing in those instances.
The aggressive policy can have repercussions for regulators. If a bank balked at making an admission, for example, it could lead to costly litigation that government agencies can ill afford.
The JPMorgan case nearly highlighted this risk.
The bank, arguing that its trading was legitimate, resisted an admission. And the trading commission drafted a potential lawsuit. Talks reopened in recent weeks, paving the way for the admission.
JPMorgan declined to comment on the settlement talks.
The people briefed on the negotiations cautioned that the settlement could face delays since the government is now shut down. The trading commission is operating with about 30 employees, a fraction of its roughly 700-person staff.
David Meister, the agency's enforcement chief, is among those working. If a settlement emerges in the coming days, it could be his last at the agency. Mr. Meister recently announced plans to depart the agency after overhauling the enforcement unit.
Despite the recent push, the agency had yet to charge a big Wall Street bank over a "manipulative devices" violation. For years, the agency had to prove that a trader intended to manipulate the market, and successfully created artificial prices.
But under Dodd-Frank, the financial regulatory overhaul passed after the crisis, the agency must show only that a trader acted "recklessly." The agency harnessed that new authority to pursue the JPMorgan trading, where it was unclear whether the traders had intended to distort the market. All together, the bank's traders increased their position in a credit derivative index by $34 billion in early 2012, according to a Senate report.
"The commission is trying to flex its muscle under the Dodd-Frank standard and is also going an extra yard to get an admission," said Hugh J. Cadden, a former enforcement official at the CFTC.
The trading commission was the sole holdout in settling London Whale cases. In September, JPMorgan paid $920 million to four other regulatory agencies -- the SEC, the Financial Conduct Authority of Britain, the Federal Reserve, and the Office of the Comptroller of the Currency. The bank also admitted to the SEC that it had violated federal securities laws. The agency, however, continues to investigate the trading loss.
Even before a settlement, federal prosecutors and the Federal Bureau of Investigation in Manhattan have brought criminal charges against two of the traders: Javier Martin-Artajo and Julien Grout, who were accused of covering up the size of their losses. The traders deny wrongdoing. A third trader, Bruno Iksil, sidestepped charges, striking a nonprosecution deal.
As JPMorgan faces a broader wave of scrutiny -- at least seven federal agencies, several state regulators, and two foreign countries are investigating the bank -- its legal bills have mushroomed. On Friday, JPMorgan announced that it would have to set aside $9.2 billion to cover those legal expenses at a cost that led the bank to report its first quarterly loss under Jamie Dimon, its chief executive.
A portion of that money is expected to cover a settlement with the Justice Department over questionable mortgage practices. So far the discussions for that deal have languished, said people familiar with the matter. JPMorgan has offered to pay a roughly $7 billion fine and provide a billion dollars in relief for struggling homeowners, the people said.
* * *
Join GATA here:
Gold Investment Symposium 2013
Luna Park Conference Center, Sydney, Australia
Wednesday-Thursday, October 16-17, 2013
The Silver Summit
Davenport Hotel, Spokane, Washington
Thursday-Friday, October 24-25, 2013
http://www.cambridgehouse.com/event/silver-summit-2013
Mines and Money Australia
Melbourne Conference and Exhibition Centre
Tuesday, October 29-Friday, November 1, 2013
New Orleans Investment Conference
Sunday-Wednesday, November 10-13, 2013
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana
https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...
* * *
Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:
http://www.goldrush21.com/order.html
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Buy metals at GoldMoney and enjoy international storage
GoldMoney was established in 2001 by James and Geoff Turk and is safeguarding more than $1.7 billion in metals and currencies. Buy gold, silver, platinum, and palladium from GoldMoney over the Internet and store them in vaults in Canada, Hong Kong, Singapore, Switzerland, and the United Kingdom, taking advantage of GoldMoney's low storage rates, among the most competitive in the industry. GoldMoney also offers delivery of 100-gram and 1-kilogram gold bars and 1-kilogram silver bars. To learn more, please visit:
http://www.goldmoney.com/?gmrefcode=gata
