Articles Posted in JP Morgan Chase

To settle civil and criminal charges alleging violations of the Foreign Corrupt Practices Act, JPMorgan Chase (JPM) will pay more than $264M: $130M to the U.S. Securities and Exchange Commission, $72M to the U.S. Department of Justice, and $61.9M to the Federal Reserve Board of Governors. The settlements come following a probe that went on for several years into the bank’s hiring practices in Asia.

As part of the agreement, JPMorgan Securities (Asia Pacific) Limited (JPMorgan APAC) admitted that it established the “Sons and Daughters” referral program in 2006 to give preference to job candidates with ties to upcoming client deals. According to authorities, the bank hired 100 interns and full-time employees because foreign officials referred them. Some of these referrals were relatives of these officials. In order to be hired, a candidate had to have direct ties with a “business opportunity.”  The Justice Department has called the program “bribery.”

The DOJ’s release reports that among the admissions made related to the resolution was that in 2009, a Chinese government official told a senior JPMorgan APAC  banker that if a certain referred candidate were hired this would “significantly influence” the role the bank would have in an upcoming IPO for a company owned by the Chinese state. The banker notified senior colleagues, who spent several months attempting to bring the candidate into an investment banking position in New York. Even though this referred candidate did not have the qualifications for the job, senior JPMorgan APAC bankers created a position for this individual, and the bank was granted a lead role in the initial public offering. JPMorgan APAC also admitted that referred candidates were given the same salary and titles as entry-level investment bankers even though their tasks were “ancillary,” such as proofreading.

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In New York, the Appellate Division, First Department, a state appellate court, is allowing Aozara Bank’s (AOZOF) mortgage-backed securities fraud lawsuit against JPMorgan & Chase (JPM) to proceed. The Japanese bank, which had brought MBS claims against a number banks, is alleging aiding and abetting fraud and fraud related to the banks’ creation, marketing, and/or sale of high risk securities.

Aozara had invested close to $560M by 2009 in at least 35 collateralized debt obligations that a number of banks had structured. It sued not just JPMorgan but also Barclays Bank (BARC), Deutsche Bank Securities Inc. (DB), Credit Suisse (CS), UBS AG (UBS), Goldman Sachs Group (GS), Credit Agricole, and Morgan Stanley (MS) in 2013.

In the collateralized debt obligation lawsuit against JPMorgan, the First Department reversed a ruling issued earlier by the Manhattan Supreme Court. The appellate panel has now found that the Japanese bank  had properly stated claims for breach of the duty of good faith and fair dealing and also fraud.  Aozora contends that JPMorgan, which is Bear Stearns successor, depicted certain CDOs as legitimate investments even as it used them to get rid of risky assets that were toxic. The appellate panel said that JPMorgan  has not demonstrated that its claims in offering documents gave Aozora proper notice that JPMorgan defendants had colluded to accept the toxic CDO assets from Bear Stearns’ balance sheets. The ruling said that Aozora’s lawsuit included enough facts to support its reasonable inference that fraud and scienter had occurred.

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 Nomura Home Equity Loan, Inc. and Nomura Asset Acceptance Corporation have agreed to jointly pay over $3M to settle allegations that they engaged in the sale of faulty residential mortgage-backed securities (RMBS) to the Western Corporate Federal Credit Union and the U.S. Central Federal Credit Union. The National Credit Union Administration brought the RMBS fraud case on behalf of the  two corporate credit unions.
 
It was in 2011 that the NCUA Board, while serving as liquidating agent for both financial institutions, brought the claims against the Nomura entities. The RMBS lawsuit was brought in federal district courts in Kansas and California.
The $3M settlement dismisses NCUA’s pending cases against the two firms. By settling, neither firm is denying or admitting to the alleged wrongdoing.

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The U.S. Securities and Exchange Commission is awarding over $4M to a whistleblower for providing original information that led to a successful fraud case. This is individual is the 34th whistleblower that the SEC’s program has awarded since 2011, upping the total amount granted in such awards to over $111M.
 
In what was the second biggest award issued by the regulator to date, he SEC awarded $22M to an to an ex- Monsanto Co. financial executive last month. The individual had reported alleged accounting violations involving Roundup, the company’s weed killer. According to media reports, Monsanto offered distributor rebates to raise sales but moved the costs into the following fiscal year. As a result, the company moved up its revenue while postponing the reduction that resulted from the costs. 
Under the SEC Whistleblower program, individuals who voluntarily give the regulator unique information that leads to a successful enforcement case are entitled to 10-30% of the sanctions collected when that amount is over $1M. Since the program’s inception five years ago, the Commission has received over 14,000 tips. 

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A U.S. district court judge has approved a settlement reached at the end of last year between JPMorgan Chase & Co. (JPM) and pension funds related to trades made by Bruno Iksil, who earned the nickname “London Whale” because of his huge market-moving positions in credit derivatives. In their class action securities case, the plaintiffs accused the firm of using its chief investment office in London as a secret hedge fund and hiding up to $6.2M in losses.

Even though the office was supposed to be primarily for managing risk, the plaintiffs believe that it was making high-risk trades for profit, including trading in complex credit derivatives. Depositors’ money was purportedly used in secret for making certain trades. Shareholders claim that JPMorgan knew about the increased risks it was taking and hiding them.

JPMorgan has not admitted to wrongdoing by settling this deal. However, it was also fined over $1B by regulators in the U.K. and the U.S. for management deficiencies related to the London Whale scandal.

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Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

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U.S. District Judge Jesse Furman has turned down the request by Barclays Plc (BARC), Bank of America Corp. (BAC), Deutsche Bank AG (DB), Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), BNP Paribas SA, Credit Suisse Group AG (CS), HSBC Holdings Plc, Goldman Sachs Group Inc. (GS), UBS AG (UBS), JPMorgan Chase & CO. (JPM), Wells Fargo & CO. (WFC), and Nomura Holdings Inc. to dismiss the antitrust lawsuits accusing them of working together to rig the ISDAfix. The benchmark rate is used to establish prices on commercial real estate mortgages, interest-rate swap transactions, and other securities. Another defendant is ICAP Plc, which brokered transactions that set the rate for ISDAfix.

Furman said that plaintiff Alaska Electrical Pension Fund and other investors have brought up “plausible allegations” that there may have been a conspiracy between the defendants that allowed them to collude with one another. The investors are seeking billions of dollars in losses they believe they sustained because ISDAFix was allegedly rigged. In this case, the judge let the breach-of-contract claims and antirust claims proceed to trial but dismissed the other claims.

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Bruno Iksil, the man dubbed the London Whale, has finally spoken out. Iksil, a former trader for JPMorgan Chase & Co. (JPM), was blamed for up to $6.2B in losses—a massive sum, hence the nickname. Unlike others involved, however, Iksil has been able to avoid prosecution after reaching a deal in which he agreed to help U.S. authorities with their cases and testify against others involved.

In a letter to Bloomberg, Iskil said that managers in the London chief investment office “repeatedly” told him to execute the strategy that led to the losses. He noted that the nickname he was given, “London Whale,” implies that one person was responsible for the trades involved when, he contends, others were involved in the debacle. Iksil said that his responsibility was to execute a strategy that senior management had put forth, approved, supervised, and ordered.

He maintains that he told superiors that there was a risk of huge loss with a trading strategy that they wanted him to execute, in part to lower the unit’s risk-weighted assets. Despite his concerns, said Iksil, his supervisors continued to tell him to continue with the strategy.

The trades involved were credit-swap index tranches. Tranches let investors bet on different levels of risk among a number of companies. If a borrower doesn’t meet its obligation, then the credit swaps must pay the buyer at face value. If t debt is defaulted, then the value the buyer must be paid is less.

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JPMorgan Chase 7 Co. (JPM) reported a double-digit drop in investment banking revenues, along with a $500 increase in provisions set aside for losses expected on energy loans. The latter is a result of declining oil prices, market volatility, regulator pressure, low interest rates, and other issues. Crude oil dropping to about $32/barrel has not helped.

According to Forbes, previously, the bank had set aside $815M to cover lending losses in the energy sector. The firm also has exposures to the extent that JPMorgan has put aside $350M for credit losses related to mining. The bank also is involved in $4.1B of commercial real estate lending in areas that are energy sensitive and a $2.7B business banking book in the gas and oil industry.

The Business Recorder reports that the firm’s portfolio for oil and gas is $43 billion. Its latest projections are a departure from last month, when JPMorgan told investors that it expected to make incremental increases to loss reserves related to energy-related loans.

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The UK’s Financial Conduct Authority is fining former JPMorgan Chase (JPM) executive Achilles Macris approximately $1.1M for failing to cooperate and communicate properly with regulators during the agency probe into the London Whale fiasco. Although Macris is now agreeing to settle the securities charges, he continues to defend himself. He insists that he stayed “above and beyond any reasonable” transparency standards and that he is only agreeing to resolve this case because the F.C.A. had accepted his contention that he did not mislead anyone on purpose. The FCA would not comment on Macris’ statements about the settlement.

The former JPMorgan executive was in charge of the firm’s chief investment office in London, which was supposed to invest funds for the bank and help offset possible losses. Unfortunately, a bad bet made by the unit on credit derivatives cost the bank $6.2B.

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