The Resolution Law Group: JPMorgan Could Settle “London Whale” Fiasco for $800M

According to a source knowledgeable about negotiations, JPMorgan Chase & Co. (JPM) could pay at $800 million in penalties in the investigations conducted by regulators over the “London Whale” trading scandal. The regulators are the Federal Reserve, the Securities and Exchange Commission, the British Financial Conduct Authority, and the US Office of the Comptroller Currency. The announcement of the settlement is expected shortly.

The trading fiasco involved JPMorgan trading in complex derivatives, which were amassed by a trader who was dubbed the London Whale. The traders are accused of betting on credit derivatives, which let them wager on the supposed health of certain companies. Authorities contend that when the positions began to go bad, the traders valued them in a way that was too positive. The trades would cost the financial firm over $600 billion.

Following the debacle, the bank said that it made changes to internal controls. JPMorgan maintains that it was the one that detected the traders’ questionable activities and notified the authorities.

According to those in the know, as part of the settlement with regulators, the financial firm will admit it should have detected the problem sooner and that its lax controls let traders in their London unit construct the risky position and conceal the losses. The admissions come in the wake of the SEC’s recent reversal of its longtime policy that used to let all banks settle without denying or admitting to wrongdoing.

Also, JPMorgan has yet to resolve matters with the Commodity Futures Trading Commission, which is the regulator that oversees the market where the London Whale losses happened. The agency has been looking at whether the firm amassed a position so huge that it was able to manipulate the market for derivatives and it reportedly plans to impose its own penalty later this year.

This week, a formal indictment was announced against two ex-JPMorgan employees. Prosecutors filed criminal charges against, trader Julien Grout and manager Javier Martin-Artajo last month for allegedly concealing losses from the trades by overstating their positions’ value in the purported hopes that hundreds of millions of dollars in losses would go undetected. They are charged with falsifying bank records, wire fraud, and contributing to regulatory filings that were false.

However, both men are still in Europe and extraditing them could be difficult if not impossible. A third trader, Bruno Kisi, has not been charged. He is the one that was dubbed the London Whale because his wagers were so big. However, Iksil and authorities in New York arrived at a nonprosecution deal which involves him cooperating against Grout and Martin-Artajo.

Meantime, the Federal Bureau of Investigation and federal prosecutors are still looking into the bank’s losses in the London Whale fiasco.

If you feel you are the victim of Bank Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.




Pension Plans’ Shareholder Derivative Claims Against UBS is Reinstated by 1st Circuit Appeals Court

The U.S. Court of Appeals for the First Circuit has reinstated the shareholder derivative claims filed by two Puerto Rican pension funds against UBS Financial Services Inc. (UBS) Judge Kermit Lepez said that following de novo review—a district court had dismissed the case on the grounds that a failure to properly plead demand futility was subject to such an examination—it seemed to him that the plaintiffs’ allegations sufficiently show reasonable doubt about six fund directors’ ability to assess the former’s demand to bring this action with the independence and disinterest mandated by Puerto Rican law.

The two pension funds are the owners of shares in closed-end funds that made investments, which were not successful, through UBS entities. Their investment adviser and fund administrator is UBS Trust, which is a UBS Financial affiliate.

According to the court, UBS Financial, which has been Puerto Rico’s Employee Retirement System (ERS) financial adviser for more than five years, underwrote $2.9B of ERS-issued bonds. Meantime, the UBS Trust bought approximately $1.5B of the ERS bonds and then sold them to funds. At issue is about $757M in bonds that the two Puerto Rican funds purchased.

Unfortunately, within a year of when they were issued, the bonds value dropped 10%, lowering the funds’ value. They then went on to file their lawsuit against UBS Trust, UBS Financial, and the director of the funds claiming that the defendants took part in a manipulative trading scam to make it look as if there was market interest when the point was to raise prices so that other investors would buy.

The defendants sought to have the case dismissed, claiming that the directors of the funds did not get a presuit demand first while the plaintiffs neglected to note why there was no point to submitting this type of demand. The lower court granted their motion. Now, however, the appeals court says that the securities case can proceed.

If you, your family, friends, neighbors or associates have a shareholder Derivative Claim, please contact our law firm at (203) 542-7275 for a confidential, no obligation consultation.