Articles Posted in JP Morgan Chase

JPMorgan Chase Had No Treasurer When Chief Investment Office Made Trades Resulting In More than $2B Loss, Reports WSJ

Published on: May 19, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to the Wall Street Journal, during five of the months when JPMorgan Chase’s (JPM) Chief Investment Office made the trades that has led to over $2 billion in losses, the financial firm lacked a treasurer. Also, the executive appointed to head up department’s risk management might not have had the necessary experience to do the job. A few ex- and current employees of the financial firm have alluded to poor decisions in staffing as a reason that bad positions were allowed to go unchecked.

Apparently, until the appointment of Sandie O’Connor as treasurer was announced in March, the last person to hold that position was Joseph Bonocore. He left the financial firm in October 2011, which was before trading losses soared. Prior to leaving, he expressed general worries about risks that were being made by the JPMorgan’s London office, which is where many of the questionable trades originated. (He also had previously served as the investment unit’s chief financial officer for about 11 years.) Now, questions are being raised by those on the outside as to how a bank as big as JPMorgan could go so long without a treasurer.

As for its chief risk officer, Irving Goldman, he is related by marriage to JPMorgan executive Barry Zubrow. Goldman was moved into the post this February, one month after Zubrow was made the bank’s chief of corporate regulatory affairs. Goldman’s background in trading is extensive. He previously worked for Salomon Brothers, Credit Suisse First Boston, and Cantor Fitzgerald (CANTRP), where he also was president of its asset management and debt capital markets divisions. A JPMorgan spokesperson defended Goldman’s professional background, saying it wasn’t uncommon for a risk manager to be heavy on trading experience.

JPMorgan Chase Shareholders File Securities Lawsuits Over $2B Trading Loss

Published on: May 17, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Two securities lawsuits have been filed on behalf of shareholders and investors of JPMorgan Chase & Co. (JPM) over the financial firm’s $2 billion trading loss from synthetic credit products. According to CEO Jamie Dimon, the massive loss is a result of “egregious” failures made by the financial firm’s chief investment officer and a hedging strategy that failed. Both complaints were filed on Tuesday in federal court.

One securities case was brought by Saratoga Advantage Trust — Financial Services Portfolio. The Arizona trust is seeking to represent everyone who suffered losses on the stock that it contends were a result of alleged misstatements the investment bank had made. Affected investors would have bought the stock on April 13 (or later), which is the day that Dimon had minimized any concerns about the financial firm’s trading risk during a conference call.

Per Saratoga Advantage Trust v JPMorgan Chase & Co., the week after the call, losses from the trades went up to about $200 million a day. The Arizona Trust is accusing Dimon and CFO Douglas Braunstein of issuing statements during that conversation that were misleading and “materially false,” as well as misrepresenting not just the losses but also the risks from major bets placed on “derivative contracts involving credit indexes reflecting corporate bonds interest rates.”

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI

Published on: May 15, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the wake of JPMorgan Chase’s (JPM) announcement that it lost $2 billion in a trading portfolio that is supposed to hedge against the risks that it takes against its own money, the Securities and Exchange Commission, the Federal Bureau of Investigation, the Federal Reserve and other regulators are launching their respective investigations to find out exactly what happened. JPMorgan is the largest bank in the US.

As the financial firm’s stock plummeted nearly 7% in after-hours trading after the announcement, its CEO, Jamie Dimon, attributed the losses to “many errors, sloppiness and bad judgment.” He also said that the portfolio, which consisted of derivatives, ended up being “riskier” and not as effective as an economic hedge as the financial firm had previously thought.

Also seeing drops in their stocks following JPMorgan’s announcement of its massive trading loss were other banks, including Bank of America (BAC), Morgan Stanley (MS), Citigroup (C) and Goldman Sachs (GS).

Now, the SEC and other regulators are looking into whether possible civil violations were involved in JPMorgan’s massive loss. The Commission had recently opened a preliminary probe into the financial firm’s public disclosures about its trades and accounting practices.

According to The New York Times, questions regarding JP Morgan’s chief investment office, which is in charge of its hedging activities, were raised in April following reports that a trader in London was taking large bets that were “distorting the market.” Dimon, at the time, dismissed worries about the bank’s trading activities.

The FBI is also looking into potential wrongdoing related to the $2 trading loss.

Known for its excellence in trading until now and earning up to $5.4 billion of securities gains last year, JPMorgan’s chief investment officer has now seen a reversal of fortune. Per The New York Times, the financial firm’s problems may have begun with its bond portfolio, which was valued at $379 billion in March.

Just 30% of the portfolio had been invested in securities that the federal government had guaranteed—a change from 2010 when government guaranteed bonds made up 42% of the portfolio.

Signs of trouble with JPMorgan’s trading strategy started to brew at the end of March when the market went against corporate bonds. Yet during its first-quarter earnings call in mid-April, Dimon did not give any indication that there were problems with the bank’s trading.

Last week, however, Dimon told a different story by announcing the $2 billion trading loss. He said the investment bank’s problems were caused in part by its value-at-risk measure, which underestimated the losses on hedge funds that depended on credit derivatives. Yet were the trades even actual hedges? Banks have been known to perform elaborate trades that at first seemed to be a hedge but eventually become a bad bet.

SEC Opens Review of JP Morgan, The Wall Street Journal, May 11, 2012

F.B.I. Begins Preliminary Inquiry Into JPMorgan, The New York Times, May 15, 2012

More Blog Posts:

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court, Institutional Investor Securities Blog, June 29, 2011

Investors Want JP Morgan Chase & Co. To Explain Over $95B of Mortgage-Backed Securities

Published on: December 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Institutional investors that placed their money in over $95B in mortgage-backed securities want the trustees overseeing JP Morgan & Chase. Co.-issued securities to figure out whether certain loans shouldn’t have been included as a result of faulty underwriting. US Bank, Bank of New York Mellon, Wells Fargo & Co., HSBC, and Citibank are the trustees.

PIMCO and BlackRock Inc. are two of the institutional investors requesting the investigation. According to their legal representatives, the group of investors represent over 25% of voting rights on 243 residential mortgage-backed securities. The institutional investors want to know whether mortgages that were not eligible ended up included in the collateral backing the bonds. The investor group is the same one that reached an $8.5 billion securities settlement with Bank of America. (The 22 investors include the Federal Reserve Bank of New York, Black Rock Inc., Goldman Sachs Asset Management, MetLife Inc., and PIMCO). However, the settlement is still pending and has been challenged by other mortgage bondholders.

Related to this current requested probe, JP Morgan and its different arms put out the securities between 2005 and 2007. Included were bonds from Washington Mutual and Bear Stearns. About $450 billion in residential MBS were issued by JP Morgan to investors between 2005 and 2008. Approximately $169 billion of that principal is outstanding.

A lot of the loans were not originated at JP Morgan, but the investment bank and its other entities did buy them. JP Morgan has contented that it should be the originator that should buy back the loans that were part of the securities contract.

According to the New York Times, if investors were to settle with JP Morgan by applying the same loss ratio used in arriving at the Bank of America agreement, this figure would probably hit about $1.9 billion. Meantime, JP Morgan must contend with approximately $31 billion in securities class-action cases.

Because of mortgage-related concerns, beginning in 2010, JP Morgan placed $8.5 billion into its reserves for litigation. At the end of the third quarter, the investment bank’s mortgage repurchase reserves were $3.6 billion.

Meantime, state attorneys generals and the Federal Housing Finance Agency continue to look at how investment banks handled mortgage-backed securities leading up to the housing market. More securities litigation from investors is expected.

Investors target JPMorgan over $95 billion of RMBS, Gulf News, December 16, 2011

Mortgage Investors Put J.P. Morgan in Cross Hairs, The Wall Street Journal, December 17, 2011

Bank of America in $8.5 billion settlement, CNN, June 29, 2011

More Blog Posts:
Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Bankruptcy Judge Grants MF Global Permission to Use $21M from JPMorgan Chase

Published on: December 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Bankruptcy Judge Martin Glenn says that MF Global Holdings Inc. can use approximately $21 million in cash collateral from JPMorgan Chase & Co, which is its mortgage lender. In issuing this decision, Glenn overruled customer objections that this money could be part of the $1.2B that has gone missing from their accounts. MF Global and JP Morgan have arrived at an agreement over how the cash will be used.

At the start of MF Global’s bankruptcy, JPMorgan had already consented to let the brokerage firm use $26M. This was per an agreement that would give the investment bank a lien on all MF Global assets.

It was just earlier this month that Glenn ruled that MF Global Inc. clients could recover 72% of what they lost when the broker-dealer filed for bankruptcy. Ruling against objections made by the brokerage firm’s creditors, he approved trustee James Giddens’ request. Per Glenn’s decision, MF Global’s clients can receive another $2.2 billion distribution, which lets them get back .72 on the dollar.

While the majority of the transfers were to go out within a few days, some were expected to take up to four weeks. In a separate decision, the Glenn approved transferring approximately 330 MF Global client securities accounts to Perrin, Holden & Davenport Capital Corp. MF Global has already moved approximately 38,000 commodities accounts to other financial firms.

Glen plans to tackle the issue of physical goods distribution, such as silver and gold bars, next month. Clients have complained about not being able to get their share of ownership of such items, which cannot be physically divided. HSBC Holdings Plc (HSBA) has even filed a lawsuit against Giddens. The financial firm is trying to determine whois the owner of the 15 silver bars and five gold bars underlying several Comex contracts between a client and MF Global.

Previous payouts to commodity clients are already at about $2 billion. However, some customers have said they didn’t receive any money from these initial payments.

In other MF Global-related news, CME Group has stopped issuing grants through its primary foundation in the wake of the brokerage firm’s bankruptcy filing. The Chicago-based commodities exchange had issued $22 million to Chicago-area schools and charities in the last five years. CME has said that it will continue to support charitable organizations through other corporate foundations and programs.

In November, CME said it would give ex- MF Global customers the $50 million that was held by CME Trust. Originally meant to assist traders, the trust had turned into a primary source of charitable giving for the exchange operator.

Exclusive: CME Trust’s charity grants halt on MF failure, Reuters, December 18, 2011

MF Global Wins Permission to Use JPMorgan’s Cash as Judge Suggests Probe, Bloomberg, December 14, 2011

MF Global clients get back 72 cents on the dollar, Bloomberg/Investment News, December 9, 2011

More Blog Posts:
$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011

MF Global Shortfall May Be More than $1.2B, Says Trustee, Stockbroker Fraud Blog, November 26, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed

Published on: September 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has thrown out some of the Securities and Exchange Commission charges against GSCP (NJ) managing director Edward Steffelin for his alleged involvement in a JP Morgan Securities LLC collateralized debt obligation deal. GSCP (NJ) was the collateral manager for the CDO transaction.

While JP Morgan Securities settled for $153.6 million the SEC’s allegations that it misled investors about the CDO deal by agreeing to pay $153.6 million, Steffelin opted to fight the charges. He claimed that there was no reason for him to think that the CDO offering documents were problematic. He argued that nothing had been left out and nobody was “defrauded.”

In district court, Judge Miriam Goldman Cedarbaum granted Steffelin’s motion to dismiss the SEC’s 1933 Securities Act Section 17(a)(3) claims against him. Per the Act, any person involved in the sale or offer of securities is prevented from taking part in any transaction or practice that would deceive or be an act of fraud against the buyer. Cedarbaum said it would be a “big stretch” to conclude that Steffelin owed the investors that bought the CDO a fiduciary duty. However, she decided not to throw out the SEC’s securities claims related to the 1940 Investment Advisers Act, which has sections that make it unlawful to sell or offer securities to get property or money as a result of an omission or material misstatement. The act also prevents investment advisers from taking part in a transaction or practice that performs a deception or fraud on a client.

The SEC’s charges revolved around a JPM-structured CDO called Squared CDO 2007-1. It mainly included credit default swaps that referred to other CDOs linked to the housing market. Per the Squared CDO’s marketing collaterals, GSCP was noted as the one choosing the portfolio’s deals. What wasn’t included in the disclosure was the fact that Magnetar Capital LLC, a hedge fund, played a key part in choosing the CDOs and had a short position in over 50% of the assets. This meant that Magneta Capital stood to gain financially if the CDO portfolio failed.

JP Morgan Securities is JP Morgan Chase affiliate. Under the terms of its $153.6 million settlement, the financial firm agreed to fully pay back all monies that investors lost. By agreeing to settle, JP Morgan Securities did not admit to or deny wrongdoing. Other large financial firms that have settled SEC securities fraud cases related to CDOs in the last 16 months include Citigroup, which recently reached a $250 million settlement and Goldman Sachs, which settled its case with the SEC last year for $550 million.

More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rackoff, Institutional Investor Securities Blog, November 9, 2011

Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court, Institutional Investor Securities Blog, October 27, 2011

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

***This post has been backdated.

Washington Mutual Bank Bondholders’ Securities Fraud Lawsuit Against J.P. Morgan Chase & Co. is Revived by Appeals Court

Published on: June 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The D.C. Circuit Court of Appeal has revived a securities fraud lawsuit filed by bondholders of the now failed Washington Mutual Bank against JP Morgan Chase & Co. (JPM.N). The plaintiffs had accused the investment bank of causing them to suffer financial losses because it purchased the thrift’s assets at a “fire sale” price.

Per the securities complaint, insurers American National Insurance Co., Farm Family Life Insurance Co., American National Property and Casualty Insurance Co., National Western Life Insurance Co., and Farm Family Casualty Insurance Co. are accusing JP Morgan of exerting pressure on the U.S. Federal Deposit Insurance Corp. so it would force the $1.9 billion sale of Washington Mutual. They contend that as a result, what used to be the biggest savings and loan in the country with $307 billion in assets was “drastically undervalued,” which allowed the financial firm to pick out the best assets at the expense of the plaintiffs, whose bond investments lost their value.

The appeals court panel’s decision reverses a federal district judge’s ruling last year dismissing the complaint. The judge had said that the bondholders need to have pursued all administrative revenues before filing their securities fraud lawsuit, which is one of a number of complaints stemming from the FDIC’s seizure of WaMu in 2008. WaMu’s holding company immediately filed for bankruptcy and is still waiting for a judge to grant the permission required to allow it to give creditors $7 billion.

The appeals court’s decision came just one day after the WaMu bankruptcy reorganization plan was challenged by Aurelius Capital Management. The hedge fund said that WaMu was denied access to approximately $4 billion that JP Morgan was improperly holding. Aurelius claims that as a result, this settlement is currently of greater value to JP Morgan than WaMu.

Related Web Resources:
Aurelius withdraws support of WaMu bankruptcy plan, Bloomberg Businessweek/AP, June 23, 2011

Court revives WaMu bondholder suit vs JPMorgan, Reuters, June 24, 2011

American National Insurance Co.

Farm Family Life Insurance Co.

National Western Life Insurance Co.

Farm Family Casualty Insurance Co.

More Blog Posts:
JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities, June 23, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions

Published on: June 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, the National Credit Union Administration Board filed two securities fraud lawsuits accusing a number of financial institutions of misrepresenting the risks involved in the mortgage-securities that they sold to investors. The federal credit union is seeking a combined $800 million.

JP Morgan Securities LLC, Novastar Mortgage Funding Corp, and RBS Securities Inc. are just a few of the defendants, who are accused of committing securities fraud against five wholesale credit unions. Both mortgage-backed securities lawsuits claim that large investment banks sold securities to institutional investors that held subprime loans as Triple-A rated investments. The financial firms allegedly omitted material facts, including that the securities were larded with loans issued to borrowers at high risk of default. The defendants are accused of getting the wholesale credit unions to purchase over $3 billion in mortgage-backed securities that, according to The Wall Street Journal, were “destined to perform poorly.” Subsequently, the credit unions became 5 of the over 40 in the US that have failed since 2009. It has since been up to the approximately 7,000 remaining credit unions to take on some of the loans, while charging higher interest rates to stay in operation. Meantime, the failures of the credit unions have forced NCUA to take on about $50 billion in battered bonds that are currently valued at a fraction of their original value.

When a borrower defaults on a loan payment, the value of the mortgage-backed security suffers. The NCUA’s complaint says that as a result, the credit ratings assigned too many mortgage-backed securities that the credit union purchased collapsed in short order. The NCUA plans to file more securities fraud complaints. Goldman Sachs will likely be among the new defendants.

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

National Credit Union Administration Board sues big banks for $800M, Biz Journals, June 20, 2011

National Credit Union Administration

More Blog Posts:
MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators, Institutional Investor Securities Blog, April 16, 2011

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business, Stockbroker Fraud Blog, May 18, 2011

Securities Practices of JPMorgan Chase & Goldman Sachs Under Investigation by Federal Investigators

Published on: May 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Federal investigators are taking an even closer took at the securities-related practices of JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS ). In a May 6 Filing with the Securities and Exchange Commission, JPMorgan reported that an investigation into its municipal derivatives securities practices is being conducted by the SEC, the US Justice Department, the Office of the Comptroller of the Currency, the Internal Revenue Service, and a number of state attorneys general. The investment bank and Bear Stearns are under investigation for possible tax, antitrust, and securities-related violations related to “the sale or bidding of guaranteed investment contracts and derivatives to municipal issuers.” The SEC’s Philadelphia office is recommending that the commission file civil charges against JPMorgan.

Meantime, in its May 9 filing to the SEC Goldman Sachs revealed that the Commodity Futures Trading Commission is looking at the clearing-services practices that Goldman subsidiary Goldman Sachs Execution and Clearing LP provided to a broker-dealer. Goldman is also being investigated by the Justice Department over matters “similar” to a European Commission probe into anti-competitive practices involving credit default swap transactions.

Goldman’s filing notes that CFTC staffers verbally notified GSEC that it will recommend that the commission bring charges related to supervision, aiding and abetting, and civil fraud over the financial firm providing a broker-dealer client with clearing services. The charges are being recommended because of allegations that GSEC knew or should have known that subaccounts belonged to the broker-dealer’s customers and were not the client’s “proprietary accounts.”

Related Web Resources:

Wall Street inquiry expands beyond Goldman Sachs, Los Angeles Times, May 14, 2011

Office of the Comptroller of the Currency

Commodity Futures Trading Commission

More Blog Posts:

Motion for Class Certification in Lawsuit Against J.P. Morgan Securities Inc. Over Alleged Market Manipulation Scam Granted in Part by Court, Stockbroker Fraud Blog, July 23, 2010

Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases

Published on: February 3, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Ambac Assurance Corp., a mortgage insurance company, claims that not only did JP Morgan Chase & Co. resist repurchasing loans from Bear Stears-created bonds, but also, it demanded that a lender buy back the bad mortgages. Ambac made the claim in a proposed amended securities lawsuit against Bear Stear’s EMC Mortgage unit. JP Morgan now owns Bear Stearns.

Ambac filed its securities lawsuit in 2008, claiming that ex-Bear Stearns mortgage executives that currently head mortgage divisions at Bank of America, Goldman Sachs, and Ally Financial defrauded and cheated investors, while hiding their actions from the public. Its complaint lists more than $600 million in claims with $1.2 billion in damages from the bad mortgage securities that it insured against and invested in. The insurer is now adding the claim of fraud to its case.

According to the complaint, on March 11, 2008, Bear Stearns, who had bought loans and packaged them into bonds for investors to buy, sought to have a lender repurchase mortgages in bonds that Syncora Guarantee Inc. had insured because it claimed that they did not meet promised standards of quality. This, at the same time that Bear Stearns refused, per Syncora’s demands, that it buy back the loans over the same flaws.

Bear traders allegedly sold the toxic mortgage securities to investors and then resold the bad loans with early payment defaults to banks that originated them. Because investors were not notified that the time allowed for early default payments had been cut, this allowed the investment bank to swiftly securitize defective loans without giving investors time conduct due diligence.

Former EMC analysts have stepped forward admitting that they were ordered to falsify loan-level performance data and that the information was passed on to ratings agencies, who would then approve Bear’s billion-dollar deals. They also claim that senior traders were taking money that should have gone to the security holders that bought the bonds and loans from Bear. Due diligence standards were allegedly ignored. Executives allegedly made tens of millions of dollars in compensation.

Ambac claims that Bear knew that what traders were doing in its mortgage trading division yet chose to conceal the defective loans and ignore contractual obligations. The insurer is now holding JP Morgan accountable for the accounting fraud that began at Bear. Ambac also contends that JP Morgan has continued to ignore the vast off-balance sheet exposure linked to its contractual repurchase agreements.

Related Web Resources:
E-mails Suggest Bear Stearns Cheated Clients Out of Billions, The Atlantic, January 25, 2011

Ambac Says JPMorgan Refused Mortgage Repurchases It Also Sought, Bloomberg Businessweek, January 25, 2011

JP Morgan and Chase, Institutional Investors Securities Blog, February 3, 2011