JPMorgan admits it broke securities laws in ‘London Whale’ case


NEW YORK — JPMorgan Chase & Co. has made a rare declaration for Wall Street: The nation’s biggest bank admitted it broke the law.

The financial giant acknowledged Thursday that it violated securities laws and agreed to pay fines of $920 million as part of settlements over the “London Whale” trading debacle. The Securities and Exchange Commission and other government authorities alleged the bank suffered widespread breakdowns in controls and management.

Regulatory settlements are commonplace for big financial firms. But admitting to violations was seen as a first for a major U.S. bank after the financial crisis prompted calls for a crackdown on Wall Street wrongdoers.


“It’s a huge embarrassment,” said Erik Oja, a banking analyst at S&P; Capital IQ who covers JPMorgan. “The admission of guilt is a landmark.”

The SEC has historically let firms and their executives escape without admitting fault in its civil cases. The agency has favored the concession to help bring swift ends to cases that could prove costly and risky to litigate.

However, SEC Chairwoman Mary Jo White — who took over the agency in April — has stiffened its posture.

George Canellos, the SEC’s co-director of enforcement, said, “JPMorgan’s egregious breakdowns in controls and governance put its millions of shareholders at risk.”

The “Whale” losses stemmed from wrong-way bets made by JPMorgan’s London office involving complex derivatives. Traders there amassed a huge position that eventually swelled, becoming too difficult for the bank to unwind.

The transactions have already cost the bank more than $6 billion in trading losses and stunned Wall Street when they came to light in 2012.


The scandal also tarnished the image of Chief Executive Jamie Dimon, once dubbed the “King of Wall Street” for navigating his bank out of the financial crisis largely unscathed.

But despite repeated apologies, shake-ups at the bank and pledges to beef up compliance, the saga has continued to bedevil Dimon and the bank.

Federal prosecutors in Manhattan last month accused two former mid-level employees of covering up the trading losses. The bank said it continues to cooperate extensively with the government.

“We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them,” Dimon said in a statement.

The London Whale case not only raised the specter of risky, out-of-control Wall Street behavior, it also renewed calls for getting tough on the financial industry.

Regulators have been criticized by some in Congress for settling cases against financial firms without forcing such admissions.


Rep. Maxine Waters (D-Los Angeles) said the fines “send a powerful message to Wall Street that when it engages in irresponsible behavior, it will be held accountable.”

But some in Washington said the settlements didn’t go far enough.

“The size of the penalties is testimony to the great damage risky derivatives bets can do, and that’s important,” said Sen. Carl Levin (D-Mich.), whose subcommittee conducted a lengthy investigation of the trades. “However, the whole issue of misinforming investors and the public is conspicuously absent from the SEC findings and settlement.”

Other critics noted that no individual executives were named either.

“The behavior and culture on Wall Street must change, and that will only happen when CEOs and other senior executives are personally charged and held responsible,” said Dennis Kelleher, president of the financial watchdog group Better Markets.

The settlements with the regulators — which also included the Federal Reserve, the Office of the Comptroller of the Currency, and the British Financial Conduct Authority — may not be the last of JPMorgan’s troubles. The SEC and federal prosecutors have said their investigations are continuing.

And JPMorgan’s admission could invite more civil lawsuits and government investigations into the trades.

“The door is wide open,” said Cornelius Hurley, a former attorney at the Federal Reserve who is director of Boston University’s Center for Finance, Law & Policy. “Having admitted to the underlying facts makes those facts irrefutable.”


JPMorgan said in a regulatory filing that staff members of the Commodity Futures Trading Commission planned to recommend filing a related enforcement action. Earlier this year, the bank said it could potentially face as much as $6.8 billion in legal costs beyond what it set aside in litigation reserves.

Also on Thursday, federal regulators said JPMorgan had agreed to pay $389 million in refunds and penalties for illegally charging credit card customers for identity theft protection and other add-on services they didn’t receive or authorize. The bank already has paid the refunds — $309 million to more than 2.1 million customers, according to the Consumer Financial Protection Bureau and the OCC. The bank also agreed to fix the problems and pay a total of $80 million in civil penalties for the violations.

The OCC also leveled a cease-and-desist order regarding JPMorgan’s collections litigation operation but had yet to determine how much customers should be compensated.