FBI Launches Investigation Of JPMorgan Chase For Illegal Speculation


The FBI has confirmed they have launched a criminal investigation into JP Morgan Chase over their recently announced $2 billion loss in ‘synthetic’ securities.

The FBI has confirmed recently reported rumors that they are launching a criminal investigation into JP Morgan Chase over a $2 billion loss on trades in ‘synthetic’ securities which as Washington’s Blog reports below is nothing more than double speak for illegal speculation.

The announcement makes the FBI is the fourth government agencies investigating the scandal. The DOJ, the CFTC and the SEC who each have launched their own investigation.

The news also comes as JP Morgan just announces the London Whale, who is being used as the scapegoat for the scandal, is said to be leaving the firm.

The entire story is still fishy as their still is no explanation of what those ‘synthetic’ securities actually were but there are plenty of stories doing damage control for JP Morgan claiming that The Whale was just the victim of hedge funds who sought to profit by placing bets against the whale’s trades.
The scandal continues to steal headlines as the European debt crisis spins out of control with a run on Greek banks being the latest development.

JP Morgan Used “Hedginess” to Engage in Illegal Speculation
Jamie Dimon Thumbs Nose at Volcker Rule by Pretending that Big Speculative Bets are Hedges

Smart people like Sajiat Das, Karl Denninger, Tyler Durden, Yves Smith and Janet Tavikoli have all demolished JP Morgan’s argument that it’s recent multi-billion loss was caused by a hedge gone wrong.

But former senior S&L prosecutor – and current professor of economics and law – Bill Black provides the best take-down of the faux hedges:

The claim from out of JPMorgan is nobody was looking very carefully at the supposed hedge, and the hedge didn’t perform to offset losses, instead it increased the losses and increased the losses dramatically. And supposedly, no one was looking, and no one adjusted for this. And they woke up, and they had a $2 billion loss. So that’s the story from JPMorgan [which] doesn’t make sense.


If you have distressed European debt [the underlying asset holding that Dimon against which JPM’s so-called “hedge” was made], you’re supposed to have already reserved against the losses in it. So, why hedge the position at all? Just sell it. Get rid of these incredibly risky assets before they can suffer any additional losses. If you’ve already got loss reserves, you don’t even have to recognize a loss, because you’ve already reserved for it. So, you shouldn’t have had to hedge, period.

Second, if you were going to hedge, he should have hedged. And the way you would hedge something like this is to buy a credit default swap protection against the bad assets. That would hedge. In other words, if you lost on the value of the European debt, the credit default swap would go up in value, and you would be protected against loss. Instead, they have allegedly bet in the opposite direction by buying this derivative of a derivative. If the European debt lost value, the derivative of the derivative was also likely to lose value. Well, that’s not a hedge. That’s a double speculation in the same direction. You’re doubling down on the bet.

And the reason you’re calling it a hedge is because it’s illegal, under the Volcker Rule, to speculate in this fashion. So the story coming out of JPMorgan doesn’t make any sense as a financial matter. It seems reasonably clear that this is faux hedges. This is, you know, to hedging like truthiness is to truth. So this is hedginess: not really a hedge, but you call it a hedge to evade the law. This is the kind of scenario that smaller businesses may call in a Criminal Investigator for, but at the scale it’s at here it’s obvious why this has gone a step above straight to the FBI.


Even when the Volcker Rule was adopted, over their opposition and over the opposition of the Federal Reserve and of Treasury Secretary Timothy Geithner, who remains true to his former boss, Jamie Dimon, after that, they gutted the rule—at least the draft rule to implement the Volcker Rule. And unless it is changed, the Volcker Rule will be essentially unenforceable, because you’re allowed, under the current draft, to simply call something a hedge, even though it operates in the exact opposite of a hedge. And voilà, this hedginess is OK, and the losses just mount up and produce the next disaster.

See this for further details

Source:Washington’s Blog

RT Reports:

FBI begins investigation of JPMorgan Chase

Executives at JPMorgan Chase might not be too up in arms over their recent $2 billion trading boner, but that doesn’t mean the FBI is ready to let the Wall Street giant walk away without reprimand.

RT – Executives at JPMorgan Chase might not be too up in arms over their recent $2 billion trading boner, but that doesn’t mean the FBI is ready to let the Wall Street giant walk away without reprimand.

In the wake of an in-house trading goof that cost JPMorgan Chase billions and brought one of their top execs to resign as chief investment officer, the US Federal Bureau of Investigation says that they are now examining the events surrounding the snafu and are in the early stages of a probe into the bank.

The investigation, which was only confirmed on Wednesday by the New York Times, is expected to consider various accounting practices and public disclosures regarding the trades that lent to the recent multi-billion-dollar blunder.

In their report, the Times claims that no execs at JPMorgan are specifically linked to any allegations of wrongdoing, but that such investigations are commonplace in cases where such large amounts were at stake. That doesn’t mean, however, that anyone is exactly in the clear.

“The FBI looks for evidence of crimes and goes after people who it alleges are criminals. They want to send people to jail. The SEC pursues all sorts of wrongdoing, imposes fines and is half as scary as the FBI,” Erik Gordon, a professor in the law and business schools at the University of Michigan, tells Reuters.

The newswire confirms that both the US Federal Reserve and Securities and Exchange Commission have already opened up inquires of their own into the matter, in addition to the FBI’s preliminary probe being conducted on behalf of the Justice Department.

Earlier this week, JPMorgan Chase Chairman and CEO Jamie Dimon addressed the issue with shareholders and said, “This should never have happened.”

“I can’t justify it. Unfortunately, these mistakes were self-inflicted,” added Dimon.

After the initial fallout, disclosed on Friday, shares in JPMorgan plummeted tremendously, costing the company as much as $17 billion in market capitalization. For Dimon, the timing couldn’t have come at a worse time — the bank’s top execs descended on Tampa, Florida on Tuesday for their annual shareholders summit where it was impossible to ignore the latest mishap.

“There are many lessons here and many changes in policy and procedures that are already being implemented, and in addition, all corrective actions will be taken as necessary,” said to the audience in Tampa this week.

Although Dimon walked out of Tuesday’s meeting clinging to his role as CEO, it might not last for much longer.

“We’re weary of mistakes,” shareholder activist Seamus Finn told Dimon, reports NPR. “As shareholders, we will continue to hold you to a very high standard. But we can’t help wondering if you’re listening and hearing the many voices that have been speaking out on these issues.”

“I would suggest that JPMorgan take their business to Las Vegas because it’s just a gamble,” Senate Majority Leader Harry Reid added to reporters this week.

Source: RT

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