Trading Hearings Put Focus Back on JPMorgan’s Chief

Jamie Dimon, the influential chief of JPMorgan Chase, watched from afar on Friday while in Washington his top lieutenants were questioned by a Senate panel over a multibillion-dollar trading loss.

An uncomfortable spotlight has swung back on Mr. Dimon all the same, as the hearing and the panel’s report detailed his role in the trading blowup, potentially creating fresh challenges for a chief executive long praised for his risk-management prowess.

The 57-year-old chairman and chief executive of the nation’s largest bank is unlikely to face a serious threat to his power at a time when he is reporting record profits.

Some investors and even members of the bank€™s board, however, are growing frustrated with what one shareholder called his “off-putting arrogance.”

Two board members are concerned about the repercussions of Mr. Dimon’s statements on an earnings call last April that dismissed news reports about the trades as a “tempest in a teapot,” say people briefed on the board’s thinking.

The concern is that those statements â€" made months after Mr. Dimon learned the trades had breached the firm’s internal alarm system hundreds of times, according to the Senate report â€" could put the bank in a precarious situation with regulators investigating the trades.

And government officials who would speak only anonymously say that Mr. Dimon, faulted in the Senate report for strong-arming regulators, is also losing sway with some authorities in Washington.

Timeline: JPMorgan Trading Loss

Mr. Dimon has already apologized for the $6 billion trading loss, and his compensation has been halved.!

And he does maintain cordial ties to several important lawmakers, including Senator Elizabeth Warren, the Massachusetts Democrat and a fierce critics of the bank. Last week, he met with Treasury Secretary Jacob J. Lew.

Still, the recent attention to the trading debacle could diminish Mr. Dimon’s influence in Washington at a time when the final drafts of important bank regulations are still being written. It also could provide momentum to a vocalminority of investors seeking to loosen Mr. Dimon’s grip on the bank.

“It’s clear from the Senate report and Friday’s hearing that senior executives not only misinformed investors and regulators about the excessive risks the bank was taking, but also withheld this information from their own board,” said John C. Liu, the New York City comptroller who has invested $500 million worth of JPMorgan shares on behalf of public pension funds. “Mr. Dimon’s failure on this score comes from the hubris of having too much power placed in his hands.”

Mr. Liu hopes to bolster support for a shareholder proposal that would split JPMorgan’s chief executive and chairman roles. The nonbinding measure received 40 percent backing last year and is expected to gain new votes.

But it could still fall short. And Mr. Dimon, ! a native ! of Queens, is showing few signs of changing.

He continues to scold regulators for their crackdown on Wall Street risk-taking. Last summer, he told an audience that the so-called London Whale â€" the JPMorgan trader who placed the outsize derivatives trades at the center of the bank’s losses â€" has been “harpooned.”

And at the bank’s investor day last month, Mr. Dimon jokingly dismissed a question from an analyst, Mike Mayo, by saying “I’m richer than you.”

“When Jamie gets challenged, you get an image that he’s back at a Queens playground, ready for a fight,” Mr. Mayo of Crédit Agricole said.

The report, issued by the Senate’s Permanent Subcommittee on Investigations, also angered Mr. Dimon, according to a person close to the executive. By his reckoning, the report exaggerated claims that the bank had misled regulators about the trading loss.

“Our management always said what they believed to be true at the time,” said Joe Evangelisti, a bank spokesma.. “In hindsight, we discovered some of the information they had was wrong.” He added that “The New York Times is blowing out of proportion a lighthearted exchange between” Mr. Dimon and Mr. Mayo.

Mr. Dimon’s supporters, including several shareholders, also argue that he has good cause to be arrogant. Even with the trading loss, Mr. Dimon in 2012 produced the bank’s most profitable year ever.

He also was quick to strike a note of contrition when the trading losses spun out of control last year. And while he was not asked to testify on Friday, he did appear at two Congressional hearings last summer.

“Jamie apologized and took responsibility on live television, multiple analyst calls, and in testimony before Congress and the Senate,” Mr. Evangelisti said.

But Mr. Dimon’s critics point to the Senate report, which revealed that he was informed for months about potential problems with the trading position at the bank’s chief investment office. Rather than rein in! the risk! , the subcommittee found that Mr. Dimon had allowed the bank to alter its internal alarm system in January 2012, enabling the traders to continue building the big bets. While Mr. Dimon has said he did not recall authorizing the shift, the subcommittee cited an e-mail in which he said: “I approve.”

Two months later, when chief investment office executives met with a “risk policy” committee of the bank’s board, they failed to sound the alarms about the souring bet. The revelation suggests that Mr. Dimon possessed a wider window into the problems than his fellow board members.

After slashing Mr. Dimon’s compensation in half, to $11.5 million, JPMorgan board members have largely remained unified in support of Mr. Dimon. Under Mr. Dimon, the bank has earned record profits and its stock has risen 27 percent over the last four months.

After the trading loss, board members note, Mr. Dimon took swift action to fortify the bank’s risk controls and unwind the trades. Mr. Dimon has reshufled JPMorgan’s executive ranks, fired traders involved in the losses and clawed back millions of dollars in compensation.

“So long as JPMorgan continues to perform, I assume he will have the board’s support,” said Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation, who noted that the bank’s performance “has been far superior” to rivals. “Given the size and complexity of JPMorgan’s operations, what would their alternatives be”

But a small fraction of the 11-member board is unhappy with Mr. Dimon, according to the people briefed on the board’s thinking. Tho! se member! s fault the chief executive for relying on assurances from his deputies that trades were manageable. There is also concern about the bank’s relationship with its regulators.

Since the trading debacle, regulators have adopted a more vigilant stance with JPMorgan, according to two government officials embedded at the bank, saying that trust has waned.

The Senate report also paints a critical picture of Mr. Dimon’s defiant stance with the bank’s primary regulator, the Office of the Comptroller of the Currency. For a brief period in August 2011, Mr. Dimon stopped providing profit-and-loss reports about the investment bank to regulators, because he was concerned about a security breach. During an August 2011 meeting with the Comptroller’s examiner-in-charge at JPMorgan to discuss the hated reports, Mr. Dimon took an adversarial tone, according to testimony on Friday from the examiner, Scott Waterhouse. Mr. Dimon pushed the regulator to explain why he needed that “level of information,” arguing that oversight could still be done “without it.”

That attitude appeared to seep into the broader ranks of JPMorgan. Examiners who asked for more information were routinely met with resistance, the report shows.

When regulators with the comptroller’s office pressed for details in early 2012 about variables the bank was using to calculate its stress test, the bank resisted.

“Even that was treated like a blasphemous request,” said an examiner who insisted on anonymity for fear of retribution.

Trading Hearings Put Focus Back on JPMorgan’s Chief

Jamie Dimon, the influential chief of JPMorgan Chase, watched from afar on Friday while in Washington his top lieutenants were questioned by a Senate panel over a multibillion-dollar trading loss.

An uncomfortable spotlight has swung back on Mr. Dimon all the same, as the hearing and the panel’s report detailed his role in the trading blowup, potentially creating fresh challenges for a chief executive long praised for his risk-management prowess.

The 57-year-old chairman and chief executive of the nation’s largest bank is unlikely to face a serious threat to his power at a time when he is reporting record profits.

Some investors and even members of the bank€™s board, however, are growing frustrated with what one shareholder called his “off-putting arrogance.”

Two board members are concerned about the repercussions of Mr. Dimon’s statements on an earnings call last April that dismissed news reports about the trades as a “tempest in a teapot,” say people briefed on the board’s thinking.

The concern is that those statements â€" made months after Mr. Dimon learned the trades had breached the firm’s internal alarm system hundreds of times, according to the Senate report â€" could put the bank in a precarious situation with regulators investigating the trades.

And government officials who would speak only anonymously say that Mr. Dimon, faulted in the Senate report for strong-arming regulators, is also losing sway with some authorities in Washington.

Timeline: JPMorgan Trading Loss

Mr. Dimon has already apologized for the $6 billion trading loss, and his compensation has been halved.!

And he does maintain cordial ties to several important lawmakers, including Senator Elizabeth Warren, the Massachusetts Democrat and a fierce critics of the bank. Last week, he met with Treasury Secretary Jacob J. Lew.

Still, the recent attention to the trading debacle could diminish Mr. Dimon’s influence in Washington at a time when the final drafts of important bank regulations are still being written. It also could provide momentum to a vocalminority of investors seeking to loosen Mr. Dimon’s grip on the bank.

“It’s clear from the Senate report and Friday’s hearing that senior executives not only misinformed investors and regulators about the excessive risks the bank was taking, but also withheld this information from their own board,” said John C. Liu, the New York City comptroller who has invested $500 million worth of JPMorgan shares on behalf of public pension funds. “Mr. Dimon’s failure on this score comes from the hubris of having too much power placed in his hands.”

Mr. Liu hopes to bolster support for a shareholder proposal that would split JPMorgan’s chief executive and chairman roles. The nonbinding measure received 40 percent backing last year and is expected to gain new votes.

But it could still fall short. And Mr. Dimon, ! a native ! of Queens, is showing few signs of changing.

He continues to scold regulators for their crackdown on Wall Street risk-taking. Last summer, he told an audience that the so-called London Whale â€" the JPMorgan trader who placed the outsize derivatives trades at the center of the bank’s losses â€" has been “harpooned.”

And at the bank’s investor day last month, Mr. Dimon jokingly dismissed a question from an analyst, Mike Mayo, by saying “I’m richer than you.”

“When Jamie gets challenged, you get an image that he’s back at a Queens playground, ready for a fight,” Mr. Mayo of Crédit Agricole said.

The report, issued by the Senate’s Permanent Subcommittee on Investigations, also angered Mr. Dimon, according to a person close to the executive. By his reckoning, the report exaggerated claims that the bank had misled regulators about the trading loss.

“Our management always said what they believed to be true at the time,” said Joe Evangelisti, a bank spokesma.. “In hindsight, we discovered some of the information they had was wrong.” He added that “The New York Times is blowing out of proportion a lighthearted exchange between” Mr. Dimon and Mr. Mayo.

Mr. Dimon’s supporters, including several shareholders, also argue that he has good cause to be arrogant. Even with the trading loss, Mr. Dimon in 2012 produced the bank’s most profitable year ever.

He also was quick to strike a note of contrition when the trading losses spun out of control last year. And while he was not asked to testify on Friday, he did appear at two Congressional hearings last summer.

“Jamie apologized and took responsibility on live television, multiple analyst calls, and in testimony before Congress and the Senate,” Mr. Evangelisti said.

But Mr. Dimon’s critics point to the Senate report, which revealed that he was informed for months about potential problems with the trading position at the bank’s chief investment office. Rather than rein in! the risk! , the subcommittee found that Mr. Dimon had allowed the bank to alter its internal alarm system in January 2012, enabling the traders to continue building the big bets. While Mr. Dimon has said he did not recall authorizing the shift, the subcommittee cited an e-mail in which he said: “I approve.”

Two months later, when chief investment office executives met with a “risk policy” committee of the bank’s board, they failed to sound the alarms about the souring bet. The revelation suggests that Mr. Dimon possessed a wider window into the problems than his fellow board members.

After slashing Mr. Dimon’s compensation in half, to $11.5 million, JPMorgan board members have largely remained unified in support of Mr. Dimon. Under Mr. Dimon, the bank has earned record profits and its stock has risen 27 percent over the last four months.

After the trading loss, board members note, Mr. Dimon took swift action to fortify the bank’s risk controls and unwind the trades. Mr. Dimon has reshufled JPMorgan’s executive ranks, fired traders involved in the losses and clawed back millions of dollars in compensation.

“So long as JPMorgan continues to perform, I assume he will have the board’s support,” said Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation, who noted that the bank’s performance “has been far superior” to rivals. “Given the size and complexity of JPMorgan’s operations, what would their alternatives be”

But a small fraction of the 11-member board is unhappy with Mr. Dimon, according to the people briefed on the board’s thinking. Tho! se member! s fault the chief executive for relying on assurances from his deputies that trades were manageable. There is also concern about the bank’s relationship with its regulators.

Since the trading debacle, regulators have adopted a more vigilant stance with JPMorgan, according to two government officials embedded at the bank, saying that trust has waned.

The Senate report also paints a critical picture of Mr. Dimon’s defiant stance with the bank’s primary regulator, the Office of the Comptroller of the Currency. For a brief period in August 2011, Mr. Dimon stopped providing profit-and-loss reports about the investment bank to regulators, because he was concerned about a security breach. During an August 2011 meeting with the Comptroller’s examiner-in-charge at JPMorgan to discuss the hated reports, Mr. Dimon took an adversarial tone, according to testimony on Friday from the examiner, Scott Waterhouse. Mr. Dimon pushed the regulator to explain why he needed that “level of information,” arguing that oversight could still be done “without it.”

That attitude appeared to seep into the broader ranks of JPMorgan. Examiners who asked for more information were routinely met with resistance, the report shows.

When regulators with the comptroller’s office pressed for details in early 2012 about variables the bank was using to calculate its stress test, the bank resisted.

“Even that was treated like a blasphemous request,” said an examiner who insisted on anonymity for fear of retribution.

Divided Views of an Insider Trading Fine

Not many Wall Street executives, let alone hedge funds, could write a $616 million check and remain solvent.

But Steven A. Cohen and his fund, SAC Capital Advisors, have done exactly that, agreeing to pay that amount to settle two insider-trading lawsuits brought against it by the government.

Inside SAC’s Stamford, Conn., headquarters, the resolution of the civil actions â€" announced Friday by the Securities and Exchange Commission â€" was seen as a big victory. In a statement, the fund, which neither admitted nor denied wrongdoing, called the settlements “a substantial step toward resolving all outstanding regulatory matters.”

SAC investors also viewed the news favorably, because it removed the fund’s exposure to litigation related to alleged insidr trading by two former employees.

The Blackstone Group, SAC’s largest outside client with about a $550 million investment, views the settlements as a positive development, according to a person familiar with Blackstone’s thinking. This person cautioned, however, that it was still too early to say what Blackstone will decide to do come mid-May, the next deadline for investors to ask for their money back.

Investors in SAC funds will be paying close attention to the criminal investigation into possible insider trading by Mr. Cohen and his employees. Mr. Cohen, 56, has not been charged with any wrongdoing, and has told his employees and investors that he has acted appropriately at all times.

Friday’s settlements â€" for $602 million and $14 million â€" were criticized by a number of rival hedge fund managers and securities law! yers as not tough enough. Despite the S.E.C.’s trumpeting the $602 million payment as the largest-ever settlement of an insider trading case, critics said that the commission could have sought a harsher punishment.

“While $616 million would normally be a massive penalty, for Cohen this is basically a drop in the bucket,” said Bradley D. Simon, a criminal defense lawyer and former federal prosecutor in New York. “There is also no debarment or admission of wrongdoing.”

Nor have SAC’s legal problems had a substantial effect on its operations so far. Last month, investors had asked to withdraw $1.7 billion from the $15 billion fund, an amount that SAC said will not affect its business. And because more than half of SAC’s assets belong to Mr. Cohen, the fund is largely protected from the damaging effects of withdrawals.

“Most investors will view these settlements as a major step in the right direction,” said Steven B. Nadel, a lawyer at Seward & Kissel who represents hedge funs. “However, some clients may not be fully satisfied until the S.E.C. says that it is no longer pursuing any further inquiries against SAC or Steve Cohen.”

S.E.C. officials made clear on Friday that Mr. Cohen and his employees are not out of the woods. George S. Canellos, the commission’s acting enforcement director, emphasized that the settlements â€" the first time SAC has settled government allegations â€" do not prevent future charges against individuals, including Mr. Cohen. Then, speaking broadly, Mr. Canellos said, “There’s a lot more to come in insider-trading cases.”

The United States attorney’s office in Manhattan, which has worked closely with the S.E.C. in the government’s broad insider-trading inquiry, continues to examine possible misconduct at SAC, according to people briefed on the investigation. Federal prosecutors have tied at least nine former or current SAC employees to insider trading while at the fund. Four have pleaded guilty.

Prosecutors, thes! e people ! said, are now weighing whether to file a criminal case against Michael Steinberg, a longtime SAC portfolio manger. If indicted, Mr. Steinberg, 40, would be the most senior employee charged in the government’s investigation of SAC.

Mr. Steinberg is implicated in the smaller of the two cases that SAC settled Friday. In that case, SAC agreed to pay $14 million to resolve related to charges that a former SAC analyst was part of an insider-trading ring that illegally traded shares in the technology companies Dell and Nvidia.

The analyst, Jon Horvath, pleaded guilty last September and said that he passed on secret information about the two technology stocks to his supervisor at SAC, who was Mr. Steinberg. And in court papers filed Friday, the S.E.C. said that Mr. Horvath passed the information to a second SAC portfolio manager.

The second prtfolio manager is Gabe Plotkin, another senior SAC trader, according to a person with direct knowledge of the investigation who requested anonymity because he was not authorized to discuss it publicly.

A lawyer for Mr. Steinberg, Barry Berke, said in a statement that his client “did absolutely nothing wrong.” He added: “At all times, his trading decisions were based on detailed analysis as well as information that he understood had been properly obtained through the types of channels that institutional investors rely upon on a daily basis.”

An SAC spokesman issued a statement on behalf of Mr. Plotkin, who remains employed by the fund. “Gabe Plotkin has not been accused of wrongdoing and has done nothing wrong,” said the spokesman, Jonathan Gasthalter. “He has built a successful career on a commitment to sound fundamental research.”

Both Mr. Steinberg and Mr. Plotkin showed up on e-mails that emerged during a recent trial of two traders at other hedge funds who were ! convicted! as part of the Dell and Nvidia insider trading conspiracy.

In an e-mail from August 2008, sent days before Dell’s quarterly earnings announcement, Mr. Horvath divulged details about Dell’s financial data to Mr. Steinberg and Mr. Plotkin.

“I have a secondhand read from someone at the company,” Mr. Horvath wrote. “Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: “Yes normally we would never divulge data like this, so please be discreet. Thanks.”

In another e-mail that month, Mr. Steinberg told Mr. Horvath and Mr. Plotkin about a conversation he had had with Mr. Cohen about conflicting views of Dell inside SAC. Mr. Plotkin owned a large Dell position, while Mr. Steinberg was short, meaning that he thought Dell would decline in value.

“Guys, I was talking to Steve about Dell earlier today and he asked me to get the two of you to compare notes before the print” â€" meaning before the company’s earnings release â€" “as we are on oposite sides of this one,” wrote Mr. Steinberg.

The legal pressure on Mr. Cohen intensified last November, when prosecutors charged Mathew Martoma, a former SAC portfolio manager, with trading in the drug stocks Elan and Wyeth based on secret information from a doctor related to drug trials. Mr. Cohen was involved in the trades at the center of the Martoma case, but the government has not alleged that Mr. Cohen possessed any secret information.

SAC agreed to pay $602 million Friday to end its potential civil liability related to the Elan and Wyeth investments, which the government said allowed the fund to make profits â€" and avoid losses â€" totaling $275 million. Mr. Martoma has pleaded not guilty and refused the government’s overtures to become an informant and cooperate in a case against Mr. Cohen.

Critics of Friday’s s! ettlement! s say that Mr. Cohen, a multibillionaire who lives in a 35,000-square-foot home in Greenwich, Conn., has bought his way out of trouble. Because SAC has been implicated in numerous different insider-trading cases, the critics said, it should face stiffer penalties than a fine with no admission of liability. The settlements still require the approval of a federal judge.

The S.E.C. could have imposed an array of additional punishments, legal experts say. Among other things, it could have named Mr. Cohen as a defendant on a legal theory of control-person liability, alleging that he failed to properly supervise his employees. It also could have sought the revocation of SAC’s securities license and prohibited it from managing money for clients. Even the fine itself could have been substantially higher under securities laws.

The fine is being paid by SAC Capital Advisors, the management company that operates the SAC fund. That means that Mr. Cohen, who owns 100 percent of the management company, is efectively making the $616 million payment out of his own pocket.