by Pam Martens and Russ Martens, Wall St On Parade:
Last Wednesday, JPMorgan Chase, the publicly-traded parent of the largest federally-insured bank in the United States as well as a five-count felon, revealed in a filing with the Securities and Exchange Commission that on top of the $348 million it paid out in March to two of its banking regulators for sketchy trading violations involving “billions” of trades on 30 global trading venues, it “expects to enter into a resolution with a third U.S. regulator that will require the Firm to, among other things, pay a civil penalty of $100 million….” (See “Trading Venues Investigations” on page 168 of the SEC filing at this link.) JPMorgan Chase did not name this third regulator but Bloomberg News reported that it is the Commodity Futures Trading Commission.
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The two federal banking regulators that imposed the trading fines in March are the Office of the Comptroller of the Currency (OCC), which fined JPMorgan Chase Bank $250 million, while the Federal Reserve fined the bank holding company $98.2 million. The OCC said the misconduct occurred since at least 2019. The Fed said the bank had engaged in the misconduct over the span of nine years, from 2014 to 2023.
Now here is where you need to pay very close attention. The OCC is the regulator of national, federally-insured banks – those allowed to operate across state lines. The Federal Reserve is the regulator of bank holding companies. Neither of these “bank” regulators are empowered to investigate securities trading. That’s because licensed traders are not allowed to be employed as such by federally-insured banks. Licensed traders can only be employed as such by broker-dealers, which are regulated and supervised at the federal level by the Securities and Exchange Commission.
The OCC’s March order specifically names the federally-insured bank (JPMorgan Chase Bank, N.A.) as the target of its trading fine. The Federal Reserve names the bank holding company (JPMorgan Chase) as the target of the fine but it references the Federal Deposit Insurance Act (which pertains to federally-insured banks) as well as “unsafe and unsound banking practices” which refer to federally-insured banks, not broker-dealers.
It’s the job of the Securities and Exchange Commission to investigate misconduct involving “billions” of trades on 30 global trading venues. We reached out yesterday to the SEC’s press office to learn why it was missing in action from this investigation involving serious trading misconduct over a nine-year span. We received no response.
The OCC told us yesterday that “…the OCC does not comment on enforcement actions beyond what is posted on our website.” The Fed responded with this: “…we don’t have anything to share here beyond the order itself and the press release.”
To understand why our radar went on high alert when two “bank” regulators are settling trading violations with the largest taxpayer-backstopped bank in the United States, you need to understand that JPMorgan Chase was the target of an intense investigation and 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations in 2013 for using hundreds of billions of dollars in deposits from its federally-insured bank to speculate in derivative trading in London. The bank lost $6.2 billion of depositors’ money according to the Senate report. The case became infamously known as the “London Whale” scandal. The bank paid its regulators $920 million to settle the matter and dodged an FBI investigation without criminal charges being brought.
During Senate hearings on the case, the late Senator Carl Levin, Chair of the Permanent Subcommittee on Investigations, said JPMorgan Chase Bank “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.” The late Senator John McCain, Co-Chair of the Subcommittee at the time, had this to add:
“This case represents another shameful demonstration of a bank engaged in wildly risky behavior. The ‘London Whale’ incident matters to the federal government because the traders at JPMorgan were making risky bets using excess deposits, portions of which were federally insured. These excess deposits should have been used to provide loans for main-street businesses. Instead, JPMorgan used the money to bet on catastrophic risk.”
The woman supervising these insanely risky London Whale trades taking place in London for JPMorgan Chase Bank was Ina Drew, who was located in New York. But Ms. Drew couldn’t legally supervise the licensed traders in London because she didn’t have a trading license. She couldn’t have a trading license according to the self-regulator FINRA, because she was employed by a federally-insured bank, not a broker-dealer.
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