By David Henry and Emily Flitter
Sept 19 It's $1 billion in payouts that JPMorgan
Chase & Co most likely wants to forget.
In agreements with regulators totaling $1 billion and made
public on Thursday, the nation's biggest bank settled four civil
investigations into its "London Whale" trading scandal and two
more into the wrongful billing of credit-card customers.
The deals, which involve five authorities from the United
States and one from the UK, are a milestone in the company's
push to clean up its legal affairs but leave JPMorgan exposed to
additional costs and embarrassment.
The bank still faces criminal probes into the trading
scandal, its conduct during an energy trading investigation,
sales of mortgage securities in the United States and possible
bribery in China. Investigators are also looking into its role
in setting benchmark interest rates known as LIBOR.
The settlements include $920 million of penalties for
JPMorgan's London Whale trading scandal, which Chief Executive
Jamie Dimon at first dismissed as a "tempest in a teapot" and
ultimately resulted in $6.2 billion in losses. The deals
included an admission of wrongdoing, which has been rare in past
settlements made by the U.S. Securities and Exchange Commission.
A second set of settlements includes $80 million of payments
for billing of credit-card customers for indentity-theft
protection services that they did not receive. The deals, made
with the U.S. Office of the Comptroller of the Currency and the
Consumer Financial Protection Bureau, come after the company
issued $309 million of refunds to customers.
The Comptroller of the Currency also on Thursday ordered
JPMorgan to improve its consumer debt-collection practices. That
order did not include financial penalties and involved
allegations made public more than two years ago.
The London Whale deals, reached with the UK's Financial
Conduct Authority and the U.S. Federal Reserve, SEC and
Comptroller of the Currency, resolve the biggest civil probes
into the trading debacle. The deals include citations against
JPMorgan for poor risk controls and failure to inform regulators
about deficiencies in risk management identified by bank
The scandal took on the London Whale nickname that hedge
funds had given to Bruno Iksil, a trader at JPMorgan's Chief
Investment Office in London, for the enormous size of the
positions he took for the company.
ADMITTING THE FACTS
By coordinating the announcements, the regulators delivered
a round $1 billion punishment in a single day. Regulators have
been criticized by lawmakers and the public for not bringing
more cases or sending Wall Street executives to jail for
financial crisis-era misdeeds.
The deal follows a decision by the SEC to allow fewer firms
to settle without admitting or denying the facts of cases. In
August, the SEC reached a settlement with hedge fund manager
Philip Falcone, its first big case to include an admission of
But George Canellos, co-director of the SEC's enforcement
division, cautioned in a statement that officials will not
demand admissions in all future settlements.
Dimon and other JPMorgan executives had already admitted
mistakes in the Whale debacle. Starting the day Dimon disclosed
in May 2012 that the Whale trades were losing billions of
dollars, he has apologized for the "tempest in a teapot" remark.
He also testified before Congress that bank was "stupid" in
handling the trades at its Chief Investment Office.
The enforcement actions left some people dissatisfied
because they did not blame any individuals specifically for
Senator Carl Levin, a Michigan Democrat and chairman of the
Senate Permanent Subcommittee on Investigations, issued a
statement pointing out that his panel had found that "senior
bank executives made a series of inaccurate statements." He said
there is still time for other civil and criminal investigations
to hold people accountable.
David Weinstein, a former federal prosecutor who is now a
partner at Clarke Silverglate in Miami, said, "Somebody else has
to answer for this conduct rather than just paying money."
Dimon has said that JPMorgan executives did not intend to
mislead anyone about the Whale losses, which the bank concluded
were initially understated by its traders. Two traders have been
indicted on conspiracy and fraud charges and Iksil has agreed to
cooperate with prosecutors.
Dimon, in a statement issued by the company on Thursday,
said, "We have accepted responsibility and acknowledged our
mistakes from the start, and we have learned from them and
worked to fix them."
In April, Dimon told shareholders that fixing risk controls
had become bank's top priority and that some projects aimed at
building the company's business had been put aside.
JPMorgan called the Whale settlements "a major step in the
firm's ongoing efforts to put these issues behind it."
But the deals leave unresolved other issues that have helped
drive the bank's legal costs to $5 billion a year.
The company continues to face a criminal probe by U.S.
prosecutors into the London Whale scandal, despite Dimon's
public insistence that no bank executives intentionally misled
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 in the London Whale debacle.
The state of Massachusetts is also investigating, the bank
said. And, despite the Comptroller of the Currency's order on
debt collections, a group of 13 states is investigating those
"You are seeing the regulators ratchet up the heat on the
banks," said analyst Charles Peabody of Portales Partners. "If
you are too big to manage, they are going to make you pay."
The bank has been under intense scrutiny from the U.S.
government since May 2012, when Dimon disclosed the mounting
Thursday's civil penalties follow orders in January from the
Office of the Comptroller of the Currency and the Federal
Reserve directing JPMorgan to improve its risk control systems
and step up its anti-money launder safeguards.
The total penalties, which are among the highest ever paid
by a bank, are well short of the $1.92 billion that London-based
HSBC agreed to pay last year to settle money laundering
Fines are determined by laws governing the amount each
agency can impose for each violation of a rule, and then are
fine-tuned through negotiations between the regulators and the