JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and other managers sought to hide escalating trading losses by misleading investors and dodging regulators after the cost climbed for three straight months, a Senate probe found.

The largest U.S. bank “mischaracterized high-risk trading as hedging,” and withheld key information from its primary overseer, sometimes at Dimon’s behest, according to a report today by the Senate Permanent Subcommittee on Investigations. The 301-page document also shows how managers manipulated internal risk models and pressured traders to overvalue their positions in an effort to hide growing losses in a “monstrous” credit derivatives portfolio in London.

“We found a trading operation that piled on risk, ignored limits on risk taking, hid losses, dodged oversight and misinformed the public,” Chairman Carl Levin, a Michigan Democrat, told reporters today after his investigators spent nine months combing through 90,000 documents and interviewing current and former executives.

Former Chief Investment Officer Ina Drew, 56, among Wall Street’s most powerful women until she resigned in May four days after the bank disclosed the initial trading losses, will testify tomorrow at a subcommittee hearing in her first public appearance since leaving the New York-based bank. Lawmakers have pushed banks to halt so-called proprietary trading, and regulators are weighing tightening exemptions for hedging.

‘High Risk’

“Mr. Dimon has not acknowledged that what the SCP morphed into was a high-risk proprietary trading operation,” according to the report, referring to the synthetic credit portfolio.

JPMorgan has “repeatedly acknowledged mistakes” in handling the loss, Mark Kornblau, a spokesman for the bank, said in an e-mail.

“Our senior management acted in good faith and never had any intent to mislead anyone,” Kornblau said. The bank cooperated with the investigation and has “already identified many of the issues cited in the report,” he said. “We have taken significant steps to remediate these issues and to learn from them.”

JPMorgan, regarded on Wall Street as one of the best- managed banks in the world, lost more than $6.2 billion over nine months last year in a bet using derivatives, in which the bank wagered on the creditworthiness of companies. The portfolio became “huge” and “monstrous,” according to excerpts of e-mails and recorded conversations from trader Bruno Iksil, nicknamed the London Whale because his portfolio was so large it moved markets.

Synthetic Credit

Bloomberg News first reported on April 5 that Iksil had built an illiquid book of derivatives. The Federal Reserve and Office of the Comptroller of the Currency sought additional information about the trades following media reports.

The portfolio had a $415 million loss on April 10, the first trading day after news reports appeared. JPMorgan’s communications officer met with reporters to say that the activities were for hedging purposes and that regulators were fully aware of them, “neither of which was true,” according to the subcommittee’s report.

“Prior to the media reports in early April 2012, the synthetic credit portfolio had not been mentioned by name in any JPMorgan Chase public filing; over the next month, the SCP received sustained attention in the bank’s public filings, investor calls, and media communications,” the subcommittee wrote in the report.

‘No Hope’

Iksil’s book more than tripled from a net notional size of $51 billion in late 2011 to $157 billion by the time trading was shut down in late March of last year, the report says.

“There’s nothing that can be done, absolutely nothing that can be done,” Iksil said, according to a transcript of a March 16 call with a colleague. “There’s no hope.”

JPMorgan “dodged federal regulators and misled the public by hiding losses, by mismarking credit derivatives’ values,” Senator John McCain, the subcommittee’s ranking Republican, told reporters at a press briefing.

The OCC noticed that JPMorgan began withholding the chief investment office’s daily profit-and-loss report, which shows how much money the unit made or lost on a given trading day, in late January or early February of last year, according to the report. Dimon told executives to stop sending the data “because he believed it was too much information to provide to the OCC,” the report said, citing an interview with JPMorgan’s head OCC examiner Scott Waterhouse.

Risk Downplayed

The bank also said there was a data breach that prompted the company to limit the disclosures. When Dimon found out that then Chief Financial Officer Douglas Braunstein agreed to resume the reports, the CEO “reportedly raised his voice in anger” the report said.

“In contrast to JPMorgan Chase’s reputation for best-in- class risk management, the whale trades exposed a bank culture in which risk limit breaches were routinely disregarded, risk metrics were frequently criticized or downplayed, and risk evaluation models were targeted by bank personnel seeking to produce artificially lower capital requirements,” according to the report.

Dimon and Drew were among bank managers who spoke with the panel’s investigators. Several ex-employees refused to be interviewed, including Achilles Macris and Iksil. The panel said it couldn’t require them to cooperate because they live outside the U.S.

‘Voodoo Magic’

Senate investigators said they found little evidence showing what the bets would have protected against. Dimon told senators last year that the wagers were intended to cushion losses on other holdings in the event of a credit crisis.

Drew said the credit derivatives were intended to hedge JPMorgan’s entire balance sheet, while others said they protected against losses on investments held by the CIO, according to the report.

Patrick Hagan, at one point the CIO’s senior quantitative analyst, told investigators that he was never asked to analyze the bank’s other assets, which would have been necessary to use the bets as a hedge, according to the report.

The credit bets were called a “make believe voodoo magic ‘composite hedge,’” by an examiner at the OCC, according to the report.

The CIO group e-mailed a presentation to Dimon and other executives on April 11 that showed the credit bets were no longer working to protect against losses, the Senate investigators said. It included a chart that showed the portfolio would lose money in a financial crisis.

Days later, Braunstein told investors and analysts on a call to discuss earnings that the credit bets were a hedge that lowered risk. Dimon that day dismissed accounts of the loss as a “tempest in a teapot.”

Levin’s Response

“None of those statements made on April 13 to the public, to investors, to analysts were true,” Levin said. “The bank also neglected to disclose on that day that the portfolio had massive positions that were hard to exit, that they were violating in massive numbers key risk limits.”

Braunstein, who stepped down in January as CFO and is still at the bank, will join Drew before the panel tomorrow. Ashley Bacon, JPMorgan’s acting chief risk officer, and Michael Cavanagh, who led the internal review of the losses and is now co-CEO for the corporate and investment bank, also are scheduled to testify.