S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss
By BEN PROTESS and SUSANNE CRAIG
Regulators
are investigating potential civil violations surrounding the $2 billion
loss that JPMorgan Chase disclosed on Thursday, raising further
questions about trading activities at the nation’s biggest bank.
The Securities and Exchange Commission recently opened a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trades, according to people briefed on the matter, who spoke on the condition of anonymity because the case is not public. Regulators learned about the activities in April, and formally opened an investigation in recent days, the people said.
The inquiry, which is being run out of New York, will probably examine the bank’s past regulatory filings about the internal unit that placed the trades, as well as recent statements from the firm’s top executives.
In April, questions surfaced about the group, called the chief investment office, after reports emerged that a London-based trader was taking large bets that distorted the market. At the time, Jamie Dimon, the bank’s chief executive, publicly dismissed the concerns about the trading activities, calling them a “complete tempest in a teapot.”
On Thursday, JPMorgan revealed that the group had suffered significant losses, which could cost the firm $2 billion or more. A more humble Mr. Dimon on Thursday said “egregious mistakes” were made.
An important avenue for the S.E.C. investigation, the people said, is the firm’s accounting methods relating to the trades. Investigators could take a close look at a measure known as value-at-risk. The company disclosed earlier this year that it changed the way it calculates the metric, which may have masked some of the risk surrounding this trade. On a conference call Thursday, Mr. Dimon said the firm had reverted to the old way of measuring value-at-risk.
The people cautioned that the investigation is at an early stage. No one at JPMorgan has been accused of any wrongdoing. JPMorgan was not immediately available for comment. A spokesman for the S.E.C. declined to comment.
The $2 billion trading loss comes as policy makers put the finishing touches on new industry regulations, including the so-called Volcker Rule that bans banks from making bets with their own money. Banks, including JPMorgan, have been pushing back on some of the rules, saying they will hurt the markets and the broader economy. But JPMorgan’s disclosure on Thursday could provide bank reformers with additional fodder.
“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making,” Senator Carl Levin, a Michigan Democrat, said in a statement on Thursday.
United States and British regulators have been taking a look at the JPMorgan unit for nearly a month, after media reports shined a spotlight on the trading group. The bank started talking with the Federal Reserve and Britain’s Financial Services Authority about the chief investment office in April, according to people with direct knowledge of the matter. The S.E.C. became aware of the group’s activities around the same time.
In the weeks that followed, regulators asked for more information about the unit’s activities. When the losses started to mount, JPMorgan informed regulators in the week prior to Thursday’s official announcement, one of the people said.
“It’s not surprising that we’ve been holding discussions about what has been going on,” said one person, who spoke on condition of anonymity.
Mark Scott contributed reporting from London.
The Securities and Exchange Commission recently opened a preliminary investigation into JPMorgan’s accounting practices and public disclosures about the trades, according to people briefed on the matter, who spoke on the condition of anonymity because the case is not public. Regulators learned about the activities in April, and formally opened an investigation in recent days, the people said.
The inquiry, which is being run out of New York, will probably examine the bank’s past regulatory filings about the internal unit that placed the trades, as well as recent statements from the firm’s top executives.
In April, questions surfaced about the group, called the chief investment office, after reports emerged that a London-based trader was taking large bets that distorted the market. At the time, Jamie Dimon, the bank’s chief executive, publicly dismissed the concerns about the trading activities, calling them a “complete tempest in a teapot.”
On Thursday, JPMorgan revealed that the group had suffered significant losses, which could cost the firm $2 billion or more. A more humble Mr. Dimon on Thursday said “egregious mistakes” were made.
An important avenue for the S.E.C. investigation, the people said, is the firm’s accounting methods relating to the trades. Investigators could take a close look at a measure known as value-at-risk. The company disclosed earlier this year that it changed the way it calculates the metric, which may have masked some of the risk surrounding this trade. On a conference call Thursday, Mr. Dimon said the firm had reverted to the old way of measuring value-at-risk.
The people cautioned that the investigation is at an early stage. No one at JPMorgan has been accused of any wrongdoing. JPMorgan was not immediately available for comment. A spokesman for the S.E.C. declined to comment.
The $2 billion trading loss comes as policy makers put the finishing touches on new industry regulations, including the so-called Volcker Rule that bans banks from making bets with their own money. Banks, including JPMorgan, have been pushing back on some of the rules, saying they will hurt the markets and the broader economy. But JPMorgan’s disclosure on Thursday could provide bank reformers with additional fodder.
“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making,” Senator Carl Levin, a Michigan Democrat, said in a statement on Thursday.
United States and British regulators have been taking a look at the JPMorgan unit for nearly a month, after media reports shined a spotlight on the trading group. The bank started talking with the Federal Reserve and Britain’s Financial Services Authority about the chief investment office in April, according to people with direct knowledge of the matter. The S.E.C. became aware of the group’s activities around the same time.
In the weeks that followed, regulators asked for more information about the unit’s activities. When the losses started to mount, JPMorgan informed regulators in the week prior to Thursday’s official announcement, one of the people said.
“It’s not surprising that we’ve been holding discussions about what has been going on,” said one person, who spoke on condition of anonymity.
Mark Scott contributed reporting from London.
