Tag Archives: London Whale

2nd Circ. Again Tosses ‘London Whale’ Derivative Suit

Law360, New York (December 3, 2015, 5:09 PM ET) — The Second Circuit on Thursday affirmed for a second time a decision dismissing derivative claims that JPMorgan Chase & Co. and its executives failed to fully investigate the bank’s $6 billion “London Whale” trading loss, after receiving clarification from the Delaware Supreme Court.

The Second Circuit said that Thursday JPMorgan’s board had the discretion to investigate claims related to the $6 billion London Whale trading loss that a shareholder has raised. (Credit: AP) The three-judge panel again upheld U.S. District Judge George B. Daniels’ March 2014…

Source: Law360

JPMorgan ‘London Whale’ Traders To Be Deposed Overseas

Law360, New York (October 21, 2015, 2:48 PM ET) — Two former JPMorgan employees who are living overseas are not required to appear in the U.S. for depositions over the bank’s $6 billion “London Whale” trading loss, a New York federal judge said Wednesday, potentially sparing them from arrest on criminal charges.

During a hearing in Manhattan court, Judge George Daniels said he would allow former JPMorgan Chase & Co. traders Javier Martin-Artajo and Julien Grout to sit for depositions in their home countries of Spain and France, respectively. The U.S. Securities and Exchange Commission had…

Source: Law360

JPMorgan Investors Win Cert. In ‘London Whale’ Suit

Law360, Los Angeles (September 29, 2015, 9:50 PM ET) — JPMorgan will have to face a class of potentially hundreds of thousands of investors accusing the bank of misleading them about the riskiness of derivatives trading before the $6 billion “London Whale” trading fiasco, a New York federal judge ruled Tuesday.

A New York federal judge shrugged off on Tuesday JPMorgan’s contentions that some of the class members who bought their shares after the bank partially disclosed some losses were differently situated. (Credit: AP) The investors, led by a group of retirement funds, won their bid…

Source: Law360

‘London Whale’ Appeal Mired by Murky Laws

(CN) – Delaware law does not offer clear direction on how to judge whether JPMorgan Chase’s board adequately investigated its executives’ actions and alleged misstatements in the London Whale debacle, the Second Circuit said.
Bruno Iskil, the former head of Chase’s Synthetic Credit Portfolio, earned the London Whale nickname when he was blamed for $6.3 billion in losses in 2012, stemming from bad bets on credit default swaps he made for the bank.
The bank paid $920 million to U.S. and U.K. regulators in 2013 for its “unsafe and unsound practices” that led to the scandal.
Shareholders, led by Ernesto Espinoza, sued JPMorgan derivatively, seeking to hold its board liable for failing to oversee its traders.
Espinoza challenges JPMorgan’s decision not to take any further action against the alleged wrongdoers, contending that the board’s investigation into his demand was unreasonably narrow.
“Specifically, Espinoza alleges that the board’s investigation only looked into the underlying trading losses, but did not explore certain alleged misstatements that JPMorgan executives made about those losses. Espinoza asserts that these misstatements exposed JPMorgan to significant liability, and should have led the board to take action against the executives involved,” according to the appeal court’s Wednesday opinion.
In particular, CEO James Dimon stated in April 2012 that the media’s attention on the losses were a “complete tempest in a teapot.” Espinoza asserts that this misstatement exposed JPMorgan to litigation, regulatory liability, and inflated the bank’s share price by misleading investors about the scope of JPMorgan’s risk exposure.
Espinoza argues that because the board never investigated the misstatements made by Dimon and others, it never exercised any business judgment that could be entitled to protection under the business-judgment rule.

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Convictions Prove Elusive in JP Morgan’s ‘London Whale’ Trading Case

The case of the London Whale has ended — with a whimper.

Last week, Britain’s Financial Conduct Authority took the unusual step of announcing that it was dropping its investigation and would take no further action against Bruno Iksil, whose risky bets on complex derivative contracts ended up costing JPMorgan Chase $6.2 billion in losses.

Mr. Iksil, who got his catchy cetacean nickname from trading counterparties that marveled at the immense size of his positions, emerged as the latest face of international financial scandal in 2012, when The Wall Street Journal identified him as the mysterious figure at the center of huge derivative bets that were roiling the market.

Since then, JPMorgan Chase has agreed to pay a total of $920 million to resolve accusations by several agencies in the United States and Britain that the bank had misstated financial results and lacked sufficient internal controls to prevent its traders from “fraudulently overvaluing investments,” as the Securities and Exchange Commission put it.

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JPMorgan Investor’s Bid Axed For ‘London Whale,’ RMBS Docs

Law360, Wilmington (April 23, 2015, 10:57 PM ET) — A Delaware Chancery judge on Thursday rejected a JPMorgan Chase & Co. shareholder’s request for books and records relating to the bank’s residential mortgage-backed securities operations and “London Whale” trading fiasco, finding the action was barred by the failure of suits brought by other investors.

At a hearing in Wilmington, Vice Chancellor J. Travis Laster tossed the so-called Section 220 complaint, ruling the dismissal by New York courts of derivative suits targeting the same issues had a preclusive effect on shareholder David Shaev’s ability bring a…

Source: Law360

Full OIG Report on ‘London Whale’ Incident


The 77-page report sheds new light on tensions between the Fed and the Office of the Comptroller of the Currency, which oversaw J.P. Morgan, as well as between Fed staff in Washington and New York.


New York Fed attacked watchdog’s JPMorgan ‘Whale’ probe

The New York Federal Reserve Bank sharply criticized an internal probe carried out by the Fed’s inspector general on the handling of J.P. Morgan’s “London Whale” case, according to a full version of the probe released on Thursday.

The New York Fed said the inspector general was wrong to criticise examiners for failing to prioritise exams of J.P. Morgan’s chief investment office, according to the report.

The full report reveals an unusual and barbed clash between the Fed’s New York branch and its internal auditor. The New York Fed – the central bank’s eyes and ears on Wall Street – faced criticism on several fronts last year. The most damaging was the disclosure of secretly recorded tapes that portrayed New York Fed examiners as hesitant to demand answers and changes from Goldman Sachs officials.

The Fed’s Office of the Inspector General released a 4-page summary report in October that criticised the New York Fed’s handling of the huge JPMorgan credit derivative trading losses in Europe in 2012. The trading position grew so large that traders referred to it as the “London Whale.” The losses were connected to the bank’s chief investment office and ballooned to $6.2 billion (4 billion pounds) by the end of that year.

The 77-page report released on Thursday marked the first time the New York Fed’s criticism of the probe was made public. The initial report contained redactions and was released after freedom of information requests from the media.

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Told ya so!: Regulatory ignorance of JP Morgan London Whale risks

And as a reminder again: Jamie Dimon served on the NY Fed board while he was still CEO and Chairman of JP Morgan Chase. He resigned from the  NY Fed board in 2013. 


Bear in mind, as @ctorresreporter notes, the Fed’s OIG report is a 4-page summary and The Senate released a 300-page report last year… Choose Your Watchdog!!

The Board Should Enhance Its Supervisory Processes as a Result of Lessons Learned From the Federal Reserve’s Supervision of JPMorgan Chase & Company’s Chief Investment Office

In May 2012, media outlets reported that JPMorgan Chase & Company’s (JPMC) Chief Investment Office (CIO) incurred approximately $2 billion in losses due to a complex trading strategy involving credit derivatives. Losses continued over the following months and surpassed $6 billion by the end of 2012. This matter highlighted corporate governance, risk management, and internal control weaknesses at JPMC, which resulted in reputational damage to the institution and considerable congressional, regulatory, and public scrutiny.

In July 2012, we initiated this evaluation (1) to assess the effectiveness of the Board of Governors of the Federal Reserve System’s (Board) and the Federal Reserve Bank of New York’s (FRB New York) consolidated and other supervisory activities regarding JPMC’s CIO and (2) to identify lessons learned for enhancing future supervisory activities.


Our report contains four findings.

First, as part of its continuous monitoring activities at JPMC, FRB New York effectively identified risks related to the CIO’s trading activities and planned two examinations of the CIO, including (1) a discovery review of the CIO’s proprietary trading activities in 2008 and (2) a target examination of the CIO’s governance framework, risk appetite, and risk management practices in 2010. Additionally, a Federal Reserve System team conducting a horizontal examination at JPMC recommended a full-scope examination of the CIO in 2009. However, FRB New York did not discuss the risks that resulted in the planned or recommended activities with the OCC in accordance with the expectations outlined in SR Letter 08-9. As a result, there was a missed opportunity for the consolidated supervisor and the primary supervisor to discuss risks related to the CIO and to consider how to deploy the agencies’ collective resources most effectively.

FRB New York did not conduct the planned or recommended examinations because (1) the Reserve Bank reassessed the prioritization of the initially planned activities related to the CIO due to many supervisory demands and a lack of supervisory resources, (2) weaknesses existed in controls surrounding the supervisory planning process, and (3) the 2011 reorganization of the supervisory team at JPMC resulted in a significant loss of institutional knowledge regarding the CIO. We acknowledge that FRB New York’s competing supervisory priorities and limited resources contributed to the Reserve Bank not conducting these examinations. We believe that these practical limitations should have increased FRB New York’s urgency to initiate conversations with the OCC concerning the purpose and rationale for the planned or recommended examinations related to the CIO. Even if FRB New York had either initiated conversations with the OCC to discuss the planned or recommended examinations in accordance with SR Letter 08-9 or conducted the planned or recommended activities, we cannot predict whether completing any of those examinations would have resulted in an examination team detecting the specific control weaknesses that contributed to the CIO losses.

Second, we found that Federal Reserve and OCC staff lacked a common understanding of the Federal Reserve’s approach for examining Edge Act corporations. In our opinion, this disconnect could result in gaps in supervisory coverage or duplication of efforts.

Third, we found that FRB New York staff were not clear about the expected deliverables resulting from continuous monitoring activities. Enhanced clarity concerning the expected deliverables could improve the effectiveness of this supervisory activity.

Finally, we found that FRB New York’s JPMC supervisory teams appeared to exhibit key-person dependencies. In our opinion, these dependencies heightened FRB New York’s vulnerability to the loss of institutional knowledge.

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Surprise – they knew 2 years before it exploded… did nothing… because (among other reasons) individuals and key-people appeared unwilling to pull the trigger.. and then – even if they had discussed the ‘risks’, the Fed IG says it is unclear whether it would have led to less risk-taking!!?

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So you feel safer now?

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Ironically, just yesterday, two Fed members told banks to fix it… (as WSJ reports)

Federal Reserve officials sent a warning shot across Wall Street on Monday, telling bank executives they must do more to curb excessive risk-taking and improve employee behavior at their firms or face stiff repercussions, including being broken into smaller pieces.

Federal Reserve Gov. Daniel Tarullo and Federal Reserve Bank of New York President William Dudley , in closed-door speeches Monday to bank executives gathered at the New York Fed, said Wall Street must clean up its behavior and image.

Mr. Dudley raised the specter of breaking up big banks, saying if firms don’t prove they can comply with the law, “the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. In that case, financial-stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.”

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So – in conclusion – The Fed admits it knew about the risks of JPMorgan’s London Whale in 2010 (2 years before the blow-up) and did nothing about it, and now, two years later, The Fed tells banks it will get serious…

New York Fed spotted JPMorgan ‘Whale’ risks years before scandal: inspector

The Federal Reserve’s New York branch knew about risks JPMorgan Chase & Co was taking with its massive “London Whale” derivatives bets four years before they imploded, but it failed to act properly to head them off, the U.S. central bank’s inspector general said.

The Fed’s Office of Inspector General said on Tuesday one of the key flaws it uncovered in its probe of the 2008 transaction at the Wall Street bank was the New York Fed’s over-reliance on certain personnel who left the supervisory team in 2011. That created a “significant loss of institutional knowledge” within the team assigned to inspect JPMorgan, the report said.

In what amounts to another recent black eye for the New York Fed’s bank supervision unit, the report also noted that competing supervisory priorities and limited resources contributed to a failure to conduct key follow-up examinations.

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