JP Morgan has settled with regulators and acknowledged the $6 billion London Whale trading debacle was a result of reckless behavior, the Commodities Futures Trading Commission said today.
JP Morgan will admit some wrongdoing and pay a $100 million fine.
“On February 29, just ahead of the month-end testing of their marks, the traders believed the portfolio’s situation was grave. That day, desperate to avoid further losses, the traders developed a resolve, as they put it, to ‘defend the position,’” the CFTC writes. “Recognizing that the sheer size of their position in IG9 10Y had the potential to affect or influence the market, the traders recklessly sold massive amounts of protection on the IG9 10Y. They were short protection and they sold more protection.”
The “wrongdoing” concession represents a broader shift from Washington regulators, who for decades let banks more or less off the hook with a financial slap on the wrist but no admission of guilt. The New York Times’ Ben Protess and Jessica Silver-Greenberg reported last night:
For the government, an admission by JPMorgan could provide a template for pursuing other admissions in Wall Street cases. Already, according to people briefed on the matter, the Justice Department is pushing JPMorgan to admit that from 2005 to 2007, it sold mortgage securities to investors without fully warning of the risks.
JP Morgan recently announced it will set aside billions of dollars to cover legal expenses associated with several federal investigations.
Last week, the bank reported its first quarterly loss under CEO Jamie Dimon.