The U.S. Commodity Futures Trading Commission issued an order Wednesday bringing and settling charges against JPMorgan, which it said violated the new Dodd-Frank prohibition Photo: Kent Wang against manipulative conduct.
By selling a staggering volume of swaps in a short period of time, JPMorgan, acting through its traders in London, recklessly disregarded the principle on which market participants rely, that prices are established based on legitimate forces of supply and demand, the commission said.
After a 17-month investigation, the commission has found the bank liable for violating the Commodity Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and commission regulations.
“In Dodd-Frank, Congress provided a powerful new tool enabling the CFTC for the first time to prohibit reckless manipulative conduct,” said David Meister, the commission’s director of enforcement. “As this case demonstrates, the commission is now better armed than ever to protect the market from traders, like those here, who try to ‘defend’ their position by dumping a gargantuan, record-setting, volume of swaps virtually all at once, recklessly ignoring the obvious dangers to legitimate pricing forces.”
In addition to paying a $100 million penalty, JPMorgan agreed to continue to carry out improvements to its supervision and control system in connection with swaps trading activity.
Wednesday’s settlement with the commission comes at a time when JPMorgan is in talks with the Justice Department to resolve unrelated claims dating back to the 2008 financial crisis, according to the article “JPMorgan Pays $100 Million, Admits Fault in London Trades.”
This latest government action is just one in a long string of settlements the bank has agreed to.
In September, JPMorgan Chase agreed to pay $1 billion due to actions by other agencies, including the Securities and Exchange Commission, also for the London Whale trading scandal. The agencies charged the bank with misstating financial results and lacking effective controls to prevent its traders from overvaluing investments to hide hundreds of millions of dollars in trading losses.
In January, JPMorgan was one of 10 banks to pay an $8.5 million settlement for faulty mortgage and foreclosure procedures.
In July last year, JPMorgan agreed to pay $92 million to resolve allegations that the company engaged in illegal and anti-competitive practices related to municipal bond derivative transactions.
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest these proceeds, or to hedge interest rate risk. A competitive bidding process or direct negotiations often award these transactions.
In March 2012, JPMorgan was one of five financial institutions that agreed to a $25 billion settlement for mortgage misconduct.