Tags: sec | jpmorgan | billion | loss

NYT: SEC to Probe JPMorgan's $2 Billion Trading Loss

Friday, 11 May 2012 04:56 PM

The Securities and Exchange Commission has opened a preliminary investigation into JPMorgan's $2 billion trading loss that rattled markets in a probe targeting the bank's accounting and disclosure policies, the New York Times reports.

Regulators first noticed the bank's trading activities in April, and formally opened an investigation in recent days, sources tell the Times.

"The case, which is being run out of New York, will likely examine the bank’s past regulatory filings about the internal unit that placed the trades — as well as recent statements from the firm’s top executives," the newspaper reports on its web site

Reports surfaced in April that a London-based trader at the bank was making noticeably large bets in the markets, which the bank's CEO Jamie Dimon described as a "complete tempest in a teapot."

One former regulator himself says at first glance, it appears the bank has reason to be embarrassed but probably didn't break any laws.

"I don't have any doubt that they are terribly upset and embarrassed by this situation. They are going to address and control weaknesses and then fix them," William M. Isaac, former chairman of the Federal Deposit Insurance Corp. (FDIC), tells Newsmax TV.

"We ought to let management and the board deal with this situation and not have the government micromanage it."

The market is already on edge anticipating the implementation of the Volcker Rule, which would ban banks from trading with their own money.

The rule forms part of the Dodd-Frank financial reform bill but hasn't rolled out.
Some say the JPMorgan trade may have revealed a loophole in the Volcker Rule, as the trades in question may have been made as part of risk-management operations and not for outright financial gain.

"What does this say about the long-term effectiveness of the Volcker Rule? For all we know, these JPMorgan trades could have been in compliance with the hedging exemption," says Jeff Berman, a partner at Clifford Chance in New York, according to Reuters.

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Friday, 11 May 2012 04:56 PM
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