The U.S. Justice Department and the Federal Bureau of Investigation in New York have begun a criminal probe of JPMorgan Chase & Co. (JPM:US)’s $2 billion trading loss, a person familiar with the matter said.
The U.S. is looking into whether criminal wrongdoing occurred in relation to the losses the bank reported last week, said the person, who declined to be identified because the matter isn’t public. The inquiry is in its most preliminary stage, the person said.
The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, also are examining New York-based JPMorgan’s trading activities, according to people familiar with those probes.
JPMorgan Chief Executive Officer Jamie Dimon said on May 10 that the bank made “egregious” mistakes and that the losses of about $2 billion tied to synthetic credit securities were “self-inflicted.”
Chief Investment Office
The trading occurred in a portfolio of credit investments at a unit of the bank called the Chief Investment Office, which makes trades to balance the bank’s assets and liabilities. The unit made trades in credit default swaps.
The losses, which could increase by $1 billion or more, originated out of a London unit of JPMorgan’s Chief Investment Office, which is generally responsible for managing the bank’s interest rate, foreign currency and other economic risks.
The company was trying to reposition a portfolio of corporate credit derivatives and used a trading strategy that was “flawed, complex, poorly conceived, poorly vetted and poorly executed,” Dimon told shareholders today at the bank’s annual meeting in Tampa, Florida.
At the end of an investigation, the U.S. may consider filing mail, wire and securities fraud charges, which give prosecutors “enormous” discretion, said Ellen Podgor, a professor at Stetson University College of Law in St. Petersburg, Florida.
‘Don’t Need Much’
“You don’t need much if the government decides it would like to proceed,” Podgor said in a telephone interview.
Larry Hamermesh, a former lawyer with the SEC who is now a professor at Widener University School of Law, said an investigation into whether criminal wrongdoing occurred may take some time.
“Just because things fail doesn’t mean that there’s a crime,” Hamermesh said in a telephone interview.
He said the U.S. may want to scrutinize the trader who took the position and supervisors who “bear the responsibility for what was said to investors.”
“These cases are not easy to win and criminal liability under securities law depends on a show of intention to mislead,” Hamermesh said. “If it’s simply a screw-up that’s not going to get the government to home base with a jury.”
Joseph Evangelisti, a spokesman for the bank, declined to comment on the criminal probe. Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment. Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn, New York, where JPMorgan has some of its operations, also declined to comment.
The probe was reported earlier by the Wall Street Journal.
To contact the reporters on this story: Patricia Hurtado in New York at firstname.lastname@example.org; Seth Stern in Washington at email@example.com
To contact the editors responsible for this story: Michael Hytha at firstname.lastname@example.org; Steven Komarow at email@example.comJPMorgan Chase building in New York.Photographer: Justin Lane/EPA Jamie Dimon, chairman and chief executive officer of JPMorgan Chase Co. Photographer: Tim Boyle/Bloomberg May 15 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner, Sheila Bair, former chairman of the Federal Deposit Insurance Corporation, and Richard Bove, an analyst at Rochdale Securities, offer their views on JPMorgan Chase Co.'s $2 billion trading loss and Chief Executive Officer Jamie Dimon. This report also contains comments from U.S. Republican Senators Bob Corker of Tennessee and Rob Portman of Ohio; Amar Bhide, a professor at Tufts University; Sarat Sethi, a principal and portfolio manager at Douglas C. Lane Associates; Paul Miller, an analyst at FBR Capital Markets Corp.; Simon Johnson, a professor at the Massachusetts Institute of Technology, and Lisa Lindsley, director of capital strategies at the American Federation of State, County and Municipal Employees. (Source: Bloomberg) May 15 (Bloomberg) -- Erik Schatzker report on JPMorgan's shareholder meeting. He speaks on Bloomberg Television's "Money Moves." (Source: Bloomberg)