JPMorgan Chase to Pay $920M in ‘London Whale’ Settlement
JPMorgan Chase (NYSE:JPM) forged an agreement with a slew of U.S. and U.K. regulators on Thursday to fork over $920 million and admit wrongdoing in the London Whale trading fiasco.
Regulators charged JP Morgan, the largest U.S. bank by assets, with lax controls, failure to inform the board of the mounting Whale losses and "unsafe and unsound practices."
While the settlements represent progress by JP Morgan in its countless regulatory and legal headaches, the deal does not include the Commodities Futures Trading Commission, meaning the bank’s total London Whale price tag will likely be higher.
All of this is on top of more than $6 billion in losses tied to the failed trading strategy, which first emerged as a problem last year.
Thursday's settlement involved the Securities and Exchange Commission, the Federal Reserve, the Office of the Comptroller of the Currency and the U.K.'s Financial Conduct Authority.
“We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them,” Jamie Dimon, who nearly lost his chairman title in the aftermath of the Whale losses, said in a statement.
"We will continue to strive towards being considered the best bank-- across all measures -- not only our shareholders and customers, but also by our regulators,” he said.
As part of a more aggressive effort by the SEC, JPMorgan agreed to not only pay $200 million but also admitted to violating federal securities laws. Up until recently, the agency allowed banks to “neither admit nor deny wrongdoing,” despite paying hefty fines.
The SEC faulted JPMorgan for its internal controls, saying it failed to ensure traders were properly valuing the giant trading portfolio of the bank’s chief investment office. The agency also said senior management failed to inform the bank’s audit committee about the “severe breakdowns in CIO’s internal controls.”
JPMorgan admitted the facts underlying the SEC’s charges, the agency said.
“While not every case will be appropriate for admissions of wrongdoing, the SEC required JPMorgan to admit the facts in the SEC’s order -- and acknowledge 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,” George Canellos, co-director of the SEC’s Division of Enforcement, said in a statement.
Last month the SEC filed fraud charges against former JP Morgan traders Javier Martin-Artajo and Julien Grout, alleging they exploited “massive shortcomings” in the bank’s internal controls.
The SEC said the $200 million fine, which will be placed in a fund for compensation of investors hurt by the incident, is unprecedented for an internal controls case.
Only three of the SEC's five commissioners voted on the JP Morgan case due to potential conflicts of interest, FOX Business confirmed.
Mary Jo White, the SEC chairman recused herself because JP Morgan is a client of her former employer, Debevoise & Plimpton. Republican commissioner Daniel Gallagher previously served as a partner at Wilmer Cutler Pickering Hale and Dorr, which is representing JP Morgan in the Whale case.
Shares of JP Morgan fell 0.90% to $52.93, trimming their 2013 gain to 20.4%.
In a consent order, the Federal Reserve fined JP Morgan $200 million for deficiencies in its oversight, management and controls governing the CIO. The central bank also cited JP Morgan for failure to appropriately inform its board.
“Our company has learned from its mistakes, and our board is confident that our management team is fully committed to ensuring they don’t recur,” said Lee Raymond, JP Morgan’s lead director.
JP Morgan also agreed to shell out $300 million to the OCC, the bank’s front-line regulator. The agency cited JP Morgan with “unsafe and unsound practices.”
The penalties and trading losses from the London Whale incident “serve as important reminders to all bankers of the importance of prudent controls, strong governance and effective risk management,” Thomas Curry, the Comptroller of the Currency, said in a statement.
Lastly, JP Morgan reached a 137.6 million pound ($220 million) settlement with the U.K.’s FCA.
JP Morgan still faces a likely penalty from the CFTC.
In a regulatory filing the bank said it received a so-called “Wells notice” from the agency on September 16 notifying the company that CTC staff intends to recommend an enforcement action tied to the London Whale incident. “The bank will be responding to the notice in due course,” JP Morgan said in the SEC filing.
FOX Business reporter Julie VerHage contributed to this report.