On September 19, 2013, as widely reported in the media, JP Morgan consented to and was assessed fines by four international regulators totaling US $920 Million related to what has been colloquially referred to as the “London Whale” trades during 2012.These trades caused the Bank to suffer losses of US $6.2 Billion.
There is little I can add to the facts of this matter that already are set forth in detail in all the regulatory complaints, especially those of the UK Financial Conduct Authority and US Securities and Exchange Commission; JP Morgan’s own study of this incident issued during January 2013; and the media reports.
However, the reported history of this matter, as well the apparent pendency of an action by the Commodity Futures Trading Commission, makes me think of two things:
1. no matter how good they are, all financial services firms remain vulnerable to individual employees doing bad things. Unless a firm’s culture and infrastructure are sufficiently robust, these bad things can go undetected for a period of time causing big losses and profound regulatory expense (not to mention potential private litigation expenses and a loss of reputation harming business too); and
2. new anti-manipulation authority given to the CFTC in 2010 as part of Dodd Frank is very broad, and the way the Commission has implemented this authority through rule adoption is broader still. Industry participants must carefully consider their proprietary trading activities where intent and proof of an artificial price may no longer be required for a successful CFTC manipulation prosecution.
Financial services firms must continue to address these realities and take appropriate actions.