An investigation into a multibillion-dollar loss at JPMorgan Chase & Co. is heading into its final stage with authorities poised to bring civil charges, the latest legal blow to the nation’s biggest bank.
After more than a year of gathering evidence about the trading blunder in London, the Securities and Exchange Commission is expected to strike a settlement with the bank as soon as this fall, according to people briefed on the case. The bank is also bracing to pay a fine to a financial regulator in Britain, one person said.
In recent weeks, JPMorgan’s lawyers have wrangled with the SEC over the contours of the settlement. While the regulator has indicated that it will not charge executives, the people said, it is aiming to extract some admission of wrongdoing from the bank. If JPMorgan agrees, that decision would represent a reversal for the agency after decades of allowing defendants to “neither admit nor deny wrongdoing.”
The SEC has scrutinized the bank over whether its London traders falsified records to hide losses from executives in New York. The SEC, the people said, could cite the bank for lax controls that allowed the traders to distort the value of the bets.
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The inquiry heated up after the bank acknowledged last summer that it underestimated the losses. JPMorgan restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the valuations.
A parallel criminal investigation, led by the FBI and federal prosecutors in Manhattan, is also ramping up. The authorities, after uncovering internal emails and phone recordings, suspect that the traders knew the losses would amount to more than the $2 billion estimate the bank initially provided to investors on May 10, 2012, say the people briefed on the matter.
The losses have since swelled to more than $6 billion.
When federal investigators met this spring with Jamie Dimon, the bank’s chief executive, some of the emails enraged him, said people briefed on the meeting. Dimon’s face reddened, they said, as he professed outrage at the employees’ 2012 emails.
Dimon, who is not suspected of any wrongdoing, told investigators that he was unaware traders were obscuring the losses when he held the May 2012 call.
Still, the trading losses left a rare stain on his reputation. Traders in London had made outsize wagers on credit derivatives — one became known as the “London whale” because of the size of the bet — pointing to a lack of controls at a bank once hailed for its risk management.
The trading blowup, reigniting broader concerns about risk taking on Wall Street, prompted congressional hearings that featured Dimon, claimed the jobs of several senior JPMorgan executives and even cost the CEO millions of dollars in compensation he forfeited in the aftermath of the losses.
Yet it is hardly JPMorgan’s only legal woe. Losing its vaunted reputation as Washington, D.C.’s favorite bank, JPMorgan has become a magnet for scrutiny over the last couple years, drawing investigations from at least eight federal agencies, a state regulator and two European nations.
In addition to the trading loss, the authorities are investigating the bank in connection with its financial crisis-era mortgage business.
The bank, for example, disclosed Wednesday that it faced a criminal and civil investigation from federal prosecutors in California, who questioned whether it sold shoddy mortgage securities to investors in the run-up to the financial crisis.
JPMorgan declined to comment. An SEC spokesman could not be immediately reached for comment.