JPMorgan Chase & Co., seeking to end probes of a $6.2 billion trading debacle, admitted to violating federal securities laws and agreed to pay about $920 million for failing to implement adequate controls and providing incomplete information to regulators and its board.
Senior management knew in April 2012 that the bank’s chief investment office in London, which was responsible for the loss, was using aggressive valuations that hid $750 million in losses, the Securities and Exchange Commission said today in a statement. Some executives “expressed reservations” at signing off on JPMorgan’s first-quarter earnings filings last year as required under the Sarbanes-Oxley Act, the SEC said.
The settlement resolves claims by the SEC, the U.S. Office of the Comptroller of the Currency, Federal Reserve and the U.K. Financial Conduct Authority. The Justice Department and Commodity Futures Trading Commission are among agencies still investigating the trading loss at the CIO, a unit of the New York-based bank that was supposed to help reduce risk and manage excess deposits. JPMorgan said today it was notified by the CFTC that its staff intends to recommend enforcement action.
“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” George S. Canellos, co-director of the SEC’s Division of Enforcement, said in the statement. “JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators.”
Senior management failed to adequately update the board’s audit committee on the CIO losses before the first-quarter earnings report, the SEC said. While the SEC didn’t identify individuals involved, it said senior management includes one or more of the following as of May 10, 2012: Chief Executive Officer Jamie Dimon, former Chief Financial Officer Douglas Braunstein, former Chief Risk Officer John Hogan, the company’s then-Controller Shannon Warren and the bank’s general auditor.
The more than $6.2 billion in losses led to the indictment of two former traders this week, the departure of at least four senior managers and a blow to the reputation of Dimon, 57, whose pay was cut in half. JPMorgan restated results and its market value fell by almost $51 billion after disclosing errant bets made by Bruno Iksil, a trader who became known as the London Whale because his positions were so large.
JPMorgan “exercised inadequate oversight over the CIO and failed to implement adequate controls to ensure the full and adequate disclosure of relevant information to senior management” and the board, the Fed said in a consent order.
JPMorgan acknowledged it violated federal securities laws, according to an SEC statement.