The "London Whale" trading scandal, once dismissed by JPMorgan Chase & Co CEO Jamie Dimon as a "tempest in a teapot," is costing the largest U.S. bank $920 million in penalties and a rare admission of wrongdoing.
Settlements with U.S. and British regulators, made public on Thursday, include citations for poor risk controls and financial reporting systems and failure to inform regulators about deficiencies in risk management that had been identified by bank management. The penalties include $300 million to be paid to the U.S. Office of the Comptroller of the Currency, $200 million to the Federal Reserve, $200 million to the U.S. Securities and Exchange Commission and 137.6 million pounds ($219.74 million) to the UK's Financial Conduct Authority.
JPMorgan called the settlements of the civil probes "a major step in the firm's ongoing efforts to put these issues behind it." But the deals leave unresolved a criminal probe by U.S. prosecutors into the debacle that cost the bank $6.2 billion in losses on trades in credit derivatives last year.
Even as JPMorgan was hailing the settlements, it said it had received a legal notice that the staff of another regulator, the U.S. Commodity Futures Trading Commission, intends to recommend an enforcement action against the bank for its derivatives trading.
Bruno Iksil, the trader whose big bets earned him the nickname London Whale, has signed a cooperation agreement with prosecutors and has not been charged with any wrongdoing. Two other traders who worked with him in London, Javier Martin-Artajo and Julien Grout, have been criminally charged by U.S. prosecutors over their role in the scandal, accused of trying to hide the mounting losses.
Dimon, in a statement issued by the company, said, "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them."
George Canellos, co-director of the SEC's enforcement division, said in statement, "At its core, today's case is about transparency and accountability, and JPMorgan's admissions are a key component in that message." He said the bank admitted that it "broke the law - because JPMorgan's egregious breakdowns in controls and governance put its millions of shareholders at risk and resulted in inaccurate public filings."
JPMorgan also faces other investigations into areas that include possible bribery in hiring practices in China and potentially fraudulent sales of mortgage securities.
The bank has been under intense scrutiny from the U.S. government since May 2012, when Dimon disclosed that the firm was losing billions of dollars on derivatives deals that had been questioned a month earlier in press reports.
Dimon initially criticized those reports as a "tempest in a teapot." He has repeatedly apologized for that remark and said the bank was "stupid" in handling the trades from a London desk of the bank's Chief Investment Office. While Dimon is not cited by name in the SEC's administrative order, the regulatory filing notes that he is included in its references to "senior management."
The settlement announcements reveal some new details about the scandal, which has been the subject of congressional hearings. For example, the Chief Investment Office's own assessment of the value of its credit derivatives made other bank officials so uncomfortable that one senior investment banking executive consulted an outside lawyer before signing documents that would go in the company's public financial reports, according to the SEC's order.
But many of the settlement details have come out previously in a congressional report on the trading scandal or in the criminal indictments against Martin-Artajo and Grout.