More than a year after a group of traders at JPMorgan Chase caused a multibillion-dollar loss, government authorities on Thursday imposed a $920 million fine on the bank and shifted scrutiny to its senior management.
Extracting the fines and a rare admission of wrongdoing from JPMorgan, the nation’s largest bank, regulators in Washington and London took aim at a pervasive breakdown in controls and leadership at the bank. The deal resolves investigations from four regulators: the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.
The regulators cited “deficiencies†in “oversight of the risks,†assessment of controls and development of “internal financial reporting.†The regulatory orders attributed significant blame to senior management, who failed to elevate concerns about the losses to the bank’s board.
“While grappling with how to fix its internal control breakdowns, JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information,†George S. Canellos, co-director of the S.E.C.’s enforcement division, said in a statement. Under the deal with the S.E.C., the bank acknowledged that it violated federal securities laws.
Regulators were also kept in the dark, authorities said. The bank “failed†to turn over “significant†information to regulatory examiners inspecting the trades.
“Bank management must also ensure open and effective communication with supervisors so that we can effectively do our jobs,†Thomas Curry, the comptroller of the currency, said in a statement. “Anything less is unacceptable and will not be tolerated.â€
Despite the assault on senior management, not one executive was named in the cases. Still, the actions could dent the reputation of Jamie Dimon, the bank’s chief executive. Mr. Dimon has won widespread acclaim for navigating the bank through the financial crisis in better shape than its rivals.
The cases exposed a weaker side of JPMorgan, long known for that skillful management of risk. The “severe breakdowns†detailed in the orders, authorities say, allowed the group of traders in London to go unchecked even as they amassed the risky position and later covered up their losses.
Two of those traders have since been charged criminally.
“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,†said Mr. Canellos, the S.E.C. official.
The S.E.C. also cited JPMorgan for misstating its financial results. Last July, the bank restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the traders’ valuations of losses.
JPMorgan agreed to pay $300 million to the comptroller’s office, and about $200 million to the S.E.C. and each of the other agencies.
