Tag Archives: Jpmorgan Chase

Banks probed over automated forex deals

Wall Street banks are facing the threat of new and more damaging allegations about their rigging of foreign exchange markets, as New York’s banking regulator intensifies a probe into computer-driven currency trading — raising the prospect that the total penalties arising from the scandal will exceed the $10bn already paid.

The New York Department of Financial Services, run by Benjamin Lawsky, has become increasingly convinced that banks have been systematically abusing forex markets through the use of automated trades driven by computer algorithms, according to people familiar with its investigation.

Findings from the probe may indicate more widespread market abuse than US and UK authorities disclosed on Wednesday, when detailing their settlement with six global banks, the people added.

They pointed out that this $5.6bn settlement related to allegations of market manipulation in the forex spot market — but Mr Lawsky’s probe covers electronic trading, which accounts for the majority of forex transactions.

Trading platforms at Barclays and Deutsche Bank are being scrutinised by the DFS, and the regulator has also subpoenaed information from BNP Paribas, Credit Suisse, Goldman Sachs and Société Générale.

Its investigation into Barclays is the most advanced, and several bank employees have been called to give evidence, according to people familiar with the case. So far, the probe has led the agency to suspect that the bank intentionally sought to gain unfair advantages over clients and counterparties through its forex trading platform, the people claimed.

The DFS has reached similar initial conclusions in its Deutsche Bank probe but, as it is only at the document review stage, it is not as advanced as the Barclays investigation, the people said.

They added that the DFS investigations into the banks that received subpoenas are at an earlier stage and no initial conclusions have been reached.

All of the banks declined to comment.

On Wednesday, the US Department of Justice and other agencies announced that they had reached a $5.6bn settlement with Barclays, Citigroup, JPMorgan Chase, Royal Bank of Scotland and UBS over a series of allegations of foreign exchange manipulation.

However, while the DFS was one of the agencies involved in the settlement with Barclays, its trading platform investigation remains separate.

The regulator has jurisdiction over banks that hold a New York state banking license — which includes many foreign banks but excludes most domestic groups, which are overseen by other regulators.

On Wednesday, Mr Lawsky announced he would be leaving the agency in late June. He plans to start his own law and consulting firm, in addition to becoming a visiting scholar at Stanford University as part of the school’s cyber initiative.

Whoever replaces Mr Lawsky at the DFS is expected to continue his hardline approach to dealing with Wall Street banks, people familiar with the case said.


Man Who Said No to Soros Builds BlueCrest Into Empire

When BlueCrest Capital Management LLP founder Michael Platt expanded into stocks this year to compete with Millennium Management LLC and SAC Capital Advisors LLP for traders, he tapped an unusual funding source: his banks.

He received a $750 million loan from 16 banks in July, enabling his hedge-fund firm, which oversees $34.2 billion, to hire at least 25 equity money managers and provide them with capital to start trading immediately, said two people with knowledge of the loan, who asked not to be identified because it isn’t public. Typically, hedge funds need to persuade clients to invest in new ventures and expand gradually, the people said.

HSBC Holdings Plc (HSBA), Citigroup Inc. (C),JPMorgan Chase & Co. (JPM) were among the banks eager to burnish their relationship with Europe’s third-biggest hedge-fund firm, which pays banks tens of millions of dollars a year in fees for trading and other services. The loan shows Platt’s clout as one of Wall Street’s most coveted clients and how aggressive he is to keep gathering assets and add new investing strategies, investors and executives at other funds said.

“I can’t think of any other examples like this,” said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a Darien, Connecticut-based firm that advises hedge funds on fundraising. “It’s just the nature of finance where if you are big and successful, people want to do business with you. If you are small and struggling, then it’s wait and see.”

Soros Rebuffed

Bankers and former colleagues describe Platt, 45, as a tough negotiator. He’s also loathe to cut deals that might cost him money, even when the person sitting on the other side of the table is hedge-fund royalty. After George Soros decided in 2011 to stop managing money for outside clients and turn his hedge-fund firm into a family office, the billionaire investor went to other money managers to ask whether they would oversee some of his $25.5 billion of assets.

Among those Soros spoke to was Platt, saying he would like him to take on more than $1 billion, while paying BlueCrest a 0.5 percent management fee and a 10 percent performance fee, according to a person with knowledge of their discussion. Platt thanked Soros, 83, for the meeting and declined the offer, saying plenty of investors were willing to pay BlueCrest 2-and-20, the industry standard of charging a 2 percent management fee and 20 percent of any profits, the person said.

Michael Vachon, a spokesman for Soros, and BlueCrest declined to comment on the meeting.

JPMorgan shuts foreign diplomats’ accounts

JPMorgan Chase is closing the accounts of current and former foreign government officials, sparking an angry reaction to its drive to avoid penalties for anti-money laundering violations.

The sweeping action by the largest US bank by assets has prompted a complaint to regulators from José Antonio Ocampo, the former finance minister of Colombia. A respected economist who was nominated to become president of the World Bank, Mr Ocampo accused JPMorgan of discrimination, as its policy only applies to non-Americans.

José Antonio Ocampo es uno de los economistas más destacados del país y goza de reconocimiento a nivel global, tanto, que fue candidato a presidir el Banco Mundial.

“Friday was hell for me,” Mr Ocampo told the Financial Times. “I had all my money frozen. I am being treated like a criminal.”

JPMorgan said it was closing the Chase accounts and stopping the credit cards of all current and former non-US senior government officials because of increased compliance costs. Banks are obliged to subject the accounts of such “politically exposed persons” to added scrutiny. The ban affects 3,500 accounts.

“The worst part of it was JPMorgan was trying to sell investment products a week before a call from the compliance SWAT team,” said the son of a former European diplomat whose family was affected by the bank’s clampdown.

The ban could theoretically extend to Tony Blair, the former UK prime minister, even though he works for JPMorgan, although one person familiar with the situation said it did not apply to JPMorgan’s private bank, which caters to wealthy individuals.

JPMorgan Chase & Co is closing the accounts of current and former foreign government officials in an attempt to avoid the compliance costs associated with them - AFP Photo.

“Friday was hell for me . . . I had all my money frozen. I am being treated like a criminal”

– José Antonio Ocampo, the former finance minister of Colombia

Fines for any anti-money laundering violations have increased dramatically and JPMorgan has paid billions of dollars for a variety of transgressions in the past year. As a result, the bank is engaged in a simplification drive, cutting riskier business lines and customers, including stopping serving embassies.

“This decision is not a reflection on how these customers have handled their accounts, but rather a result of our focus on internal controls – our number one priority right now,” the bank said.

Diplomats in New York often bank with JPMorgan partly because of convenience: it has a branch opposite the UN.

Foreign officials have had a hard time getting accounts for years in the US, according to diplomats, with HSBC, the internationally focused UK-based bank, proving one alternative to reticent US banks.

But JPMorgan’s move is more draconian than rivals such as Citigroup. “We use Citi and they are treating us well,” said one African diplomat.

Mr Ocampo, a customer of JPMorgan for 10 years and a permanent resident of the US, wrote to the US Consumer Financial Protection Bureau to complain that he was a victim of discrimination.

He asked the regulator “not only to reverse this decision of JPMorgan Chase with respect to my accounts and those of my family members, but actually to explicitly forbid all US banks for . . . [engaging] in such discriminatory and arbitrary practices”.

Biggest US banks forced to hold $68bn in extra capital

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S., on Tuesday, Oct. 23, 2012. Federal Reserve Chairman Ben S. Bernanke, who is seeking to spur the economy with a third round of so-called quantitative easing, has said his stimulus works by lowering borrowing costs and encouraging investors to seek higher-yielding assets. Photographer: Andrew Harrer/Bloomberg

US regulators have held out the prospect of more draconian measures after ratcheting up capital requirements for the biggest US banks – from JPMorgan Chase to Goldman Sachs – forcing them to hold at least $68bn in additional capital.

A new “leverage ratio” will force the eight largest US banks to hold a minimum of 5 per cent equity to total assets to absorb losses in a crisis and proposes adopting a more stringent way of calculating the rule.

The leverage ratio is supposed to be a backstop to other capital rules that are “risk-weighted”. It does not allow banks to use their own models, which some critics have warned allows institutions to game the system.

It is tougher than a new international metric that requires banks to reach a 3 per cent minimum of equity to assets and potentially hinders the profitability of the eight banks affected – Bank of America, Bank of New York Mellon, Citigroup, Goldman, JPMorgan, Morgan Stanley, State Street and Wells Fargo – compared with their rivals in Europe.

Dan Tarullo, the Fed governor in charge of regulation, indicated that he wanted to go further. He signalled that the Fed might impose an additional risk-based capital charge on the biggest US banks, bringing it “to a higher level than the minimum agreed to internationally” to discourage short-term wholesale funding.

Investment banks such as Morgan Stanley and Goldman, which do not have the same deposit base as retail banks such as Wells Fargo, might have most to lose if Mr Tarullo succeeded in imposing an additional capital surcharge.

He has highlighted the problem of bank dependence on short-term wholesale funding on numerous occasions. But his comments were a new hint at the potential severity of the regulatory response.

On Tuesday, the Fed, the FDIC and the Office of the Comptroller of the Currency finalised the criteria for big banks to have a more than 5 per cent leverage ratio at the holding company level and at least 6 per cent at the bank subsidiary level.

“The supplementary leverage ratio is a more reliable measure that is simpler to calculate, understand and enforce than the subjective risk-weighted measures, and it provides a highly useful initial assessment of a bank’s balance sheet strength,” said Federal Deposit Insurance Corporation vice-chairman Thomas Hoenig, a strong proponent of the new rule.

US regulators also said they were considering adopting the same changes to how assets in the leverage ratio are calculated as the international Basel Committee on Banking Supervision proposed in January.

Banks have until January 1, 2018 to comply with the leverage ratio. Fed staff said the leverage ratio was likely to have limited effect on monetary policy, even though it could depress demand for certain low-risk, low-return assets.

The Fed said that could affect interest rates or reduce liquidity in short-term funding markets, but added that the agency has a “flexible and diverse policy toolkit that can offset most, if not all, unwanted pressures”.

Banks pay out $100bn in US fines

U.S. flags hang on the facade of the New York Stock Exchange near a Wall Street sign in New York, U.S., on Tuesday, April 15, 2008. U.S. stocks rose for the first time in three days, led by financial and energy shares, on better-than-forecast earnings at regional banks and record prices for oil and gasoline. Photographer: Jin Lee/Bloomberg News

Wall Street banks and their foreign rivals have paid out $100bn in US legal settlements since the financial crisis, according to Financial Times research, with more than half of the penalties extracted in the past year.

The sum reflects a substantial shift in political attitudes towards banks, as regulators and the Obama administration seek to counter perceptions that bankers have got off lightly for their role in the financial crisis.

The milestone comes amid signs that banks’ legal costs could rise further, with a number of large banks still under investigation by the task force set up by Barack Obama in 2012 and the political backlash still under way.

During stress tests last week, the Federal Reserve found that the biggest banks could still face a further $151bn bill for operational risk, repurchasing soured mortgage bonds and dealing with the falling value of buildings they own. Lawyers believe the bulk of this estimate is made up of expected litigation costs, suggesting the Fed is concerned that banks have misjudged badly their legal exposure.

Last week’s $885m deal between Credit Suisse and the Federal Housing Finance Agency took the settlements to $99.5bn, of which $15.5bn came from foreign banks, according to an FT study of 200 fines and restitutions since 2007. Just over $52bn of the total was paid out in 2013 alone. America’s six big banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Morgan Stanley and Goldman Sachs – had combined earnings of $76bn in 2013, just short of their collective peak in 2006.

The settlements and restitutions range from a high of $13bn, agreed to by JPMorgan Chase in a deal with the justice department, to fines as low as $1m. They span penalties levied by agencies such as the Commodity Futures Trading Commission and mortgage repurchases from Fannie Mae and Freddie Mac, the quasi-governmental US mortgage insurers.

The White House toughened its line from 2012 after complaints from Congress and Democratic voters about the failure to punish big banks for their role in the crisis compared to the impact on the broader community.

Chart: Top four fined banks

Despite the large headline number and huge fines paid by individual banks, critics say they may have little impact on institutions with the capacity to easily absorb such penalties.

“The fines can be viewed as [a] ‘cost of doing business’,” said Anat Admati, of Stanford University. “They don’t get at the heart of the problem, and aren’t effective to change behaviour, because the strong incentives by individuals within the banks to keep engaging in the same practices remain in place.”

However, Tony Fratto, of Hamilton Place Strategies in Washington, said the fines were “very substantial, in some cases orders of magnitude larger than anything we’ve seen in the past”, and came on top of higher compliance costs imposed after the crisis.

The fines can be viewed as [a] ‘cost of doing business’. They don’t get at the heart of the problem, and aren’t effective to change behaviour, because the strong incentives by individuals within the banks to keep engaging in the same practices remain in place– Anat Admati, Stanford University

“If the goal is not to shutter banks, but to impress upon them the public interest in adhering to the law, and to better account for risk, the fines go beyond what was necessary,” he said.

The more aggressive approach came after years in which the Obama administration had been criticised for not extracting enough big penalties from banks or pressing criminal charges against top executives.

The justice department and Eric Holder, the attorney-general, in particular, were repeatedly taken to task by Congress and sections of the media for failing to go after financial institutions.

In March last year, Mr Holder acknowledged before a congressional committee that some banks were “too large” to prosecute without risking a “negative impact” on the economy.

Since then, his approach has significantly toughened, along with the ratcheting up of pressure on Capitol Hill.

Two senators, Elizabeth Warren, a Democrat and an outspoken critic of Wall Street, and Tom Coburn, a Republican, introduced a bill in January that would force agencies to reveal the details of settlements reached with banks and other companies accused of wrongdoing.

Ms Warren earlier this month again called into question the effectiveness of regulatory enforcement in light of the recent pay increase for JPMorgan Chase’s CEO Jamie Dimon.

At a Senate Banking Committee hearing, she questioned how Mr Dimon could receive a “fat pay bump” to $20m in 2013, a 74 per cent increase from the previous year, even after the bank had paid out record fines.

“I’m not confident the enforcement system is doing nearly enough,” said Ms Warren, adding that the settlements did not appear to be translating into a deterrent for bad behaviour.

The fines cover the banks’ practices in the foreclosure business, lending practices, market manipulation and fraudulently issuing mortgage-backed securities.

Additional reporting by Tom Braithwaite in New York

A Standoff of Lawyers Veils Madoff’s Ties to JPMorgan Chase

Bernard L. Madoff at the federal courthouse in Manhattan on March 12, 2009, when he pleaded guilty to fraud.

It remains one of Wall Street’s most puzzling mysteries: What exactly did JPMorgan Chase bankers know about Bernard L. Madoff’s Ponzi scheme?

A newly obtained government document explains why — five years after Mr. Madoff’s arrest spotlighted his ties to JPMorgan and later led the bank to reach a $2 billion settlement with federal authorities — the picture is still so clouded.

The document, obtained through a Freedom of Information Act request, reveals a behind-the-scenes dispute that tested the limits of JPMorgan’s legal rights and raised alarming yet unsubstantiated accusations of perjury at the bank. More broadly, the document highlights the legal hurdles federal authorities can face when investigating a Wall Street giant.

That dispute, which positioned JPMorgan against the government and ultimately one government agency against another, traced to the point after Mr. Madoff’s arrest in December 2008. Around that time, JPMorgan’s lawyers interviewed dozens of bank employees who potentially crossed paths with Mr. Madoff’s company.

Federal regulators at the Office of the Comptroller of the Currency sought copies of the lawyers’ interview notes, the government document and other records show, hoping they would open a window into the bank’s actions. The issue gained urgency in 2012, according to the records, when the comptroller’s office conducted its own interviews with JPMorgan employees and discovered a “pattern of forgetfulness.”

Suspicious that the memory lapses were feigned, the regulators renewed their request for the interview notes held by JPMorgan’s lawyers.

But JPMorgan, which produced other materials and made witnesses available to the comptroller’s office, declined to share those notes. In its denial, the bank cited confidentiality requirements like the attorney-client privilege, a sacrosanct legal protection that essentially prevents an outsider from gaining access to private communications between a lawyer and a client.

Even after the comptroller’s office referred the issue to the Treasury Department’s inspector general, which sided with the regulator, the fight dragged on for months. Invoking a rare exception to attorney-client privilege, the inspector general argued that the lawyers’ interviews were essentially “made for the purpose of getting advice for the commission of a fraud or crime.”

In other words, if the accusations were true, JPMorgan employees either duped lawyers into covering up wrongdoing, or, worse, the lawyers themselves helped obstruct the investigation.

The accusation, the government document showed, led to a debate in Washington over how far to press JPMorgan when the bank was sure to fight and a judge would be free to set a harmful precedent for future cases.

Those concerns, and skepticism about the Treasury inspector general’s accusations, drove the Justice Department to reject the move to revoke attorney-client privilege. In the government document — a letter to the Treasury inspector general, or O.I.G., dated Sept. 12, 2013 — the civil division ruled that “unfortunately, O.I.G. has provided no basis — and we have not independently uncovered any basis — for suggesting that” the interview notes were “made for the purpose of facilitating a crime or a fraud.”

While the ruling applied to the Madoff case alone, it could have broader implications as regulators weigh the costs of future fights and the likelihood of passing muster with the Justice Department. And despite being an exceptional case — banks and their regulators typically settle disputes over attorney-client privilege without the Justice Department getting involved — the ruling illustrated a persistent tension over the privilege that continues to shape the government’s pursuit of financial fraud.

Even though the Justice Department is loath to undermine the privilege between a bank and its lawyers, a move that could prompt a reprimand from Congress and the courts, it also wants to appear tough on crime after the financial crisis. In the letter to the Treasury Department’s inspector general, the civil division’s leader declared that “I share your commitment to using all available tools to combat financial fraud,” noting that the division had sued Standard & Poor’s and Bank of America over their roles in the crisis.

And federal authorities worry that Wall Street might take the privilege too far — particularly in an era when banks facing a torrent of federal scrutiny are hiring dozens of law firms to conduct internal investigations alongside the government. As those investigations proceed, banks have invoked a number of protective firewalls, including attorney-client privilege and the work product doctrine, which shields interview notes and other documents that bank lawyers drafted in anticipation of litigation.

“Why hire a lawyer to do an internal investigation? It’s because you get the privileges,” said Bruce A. Green, a former federal prosecutor who is now a professor at Fordham Law School, where he directs the Louis Stein Center for Law and Ethics. “Otherwise, you’d save a little money and hire a consultant or accountant.”

In a statement, a spokesman for the Treasury Department’s inspector general said the office was “still considering if additional steps are warranted.”

The Justice Department’s civil division, which last year helped reach a record $13 billion settlement over JPMorgan’s sale of questionable mortgage securities, said in the Madoff letter that it stood “ready to work with you to develop an alternative that might better address the relevant regulatory concerns.”

JPMorgan, which served as the primary bank for Mr. Madoff’s company, declined to comment for this article.

In the past, a JPMorgan spokesman, Joe Evangelisti, has noted that the bank poured significant resources into bolstering its controls since Mr. Madoff’s arrest. He also remarked that “we do not believe that any JPMorgan Chase employee knowingly assisted Madoff’s Ponzi scheme,” which was an “unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.”

The Madoff case is not the only one on Wall Street to raise questions about attorney-client privilege. Bank of America and Citigroup have had their own run-ins with authorities over whether to waive the privilege in a limited way during litigation, though those matters were resolved without the Justice Department intervening. And in an investigation into JPMorgan’s potential manipulation of energy markets, the Federal Energy Regulatory Commission challenged the bank’s assertion that attorney-client privilege protected certain emails.

Regulators also have pushed for access to handwritten interview notes and other findings that arose from an internal investigation conducted by a bank’s lawyers. While that push raises concerns about undermining the work product doctrine — and some bank lawyers have already reported a growing reluctance to be candid in private correspondence with bank employees — regulators say they are often unsatisfied with only a summary of the lawyers’ findings.

“We remind the banks that we’re your supervisor, you’re not our supervisor,” Thomas C. Baxter Jr., general counsel of the Federal Reserve Bank of New York, said at a recent panel discussion on attorney-client privilege held by Fordham Law School and the Cardozo School of Law.

Mr. Baxter added, however, that “we’re reasonable people.”

There are limits on what regulators can do if a bank balks at a demand for documents. If a fight ensues, the decision to challenge the privilege rests with the Justice Department.

In organized crime and terrorism cases, legal experts say, the Justice Department often exercises the so-called crime-fraud exception to the privilege. To do so, the Justice Department must show facts at the outset “to support a good faith belief by a reasonable person” that a judge’s review of the communications in question might establish that the crime-fraud exception would apply.

The JPMorgan case was not so clear cut. When the inspector general argued for the crime-fraud exception to invalidate the privilege, the Justice Department concluded that the evidence did “not suffice to justify” pursuing that claim.

In the letter outlining its decision, the Justice Department noted that memory lapses among JPMorgan employees “occurred in only a handful of the dozens of interviews conducted” by the comptroller’s office. The interviews, according to the letter, were conducted three-plus years after the events in question occurred. It is unclear why it took the comptroller’s office so long to interview bank employees.

The letter further says that the inspector general “has not identified any evidence affirmatively suggesting that the lapses in memory resulted from perjury,” adding that the “accusation of criminal collaboration depends entirely on speculation.” If the Justice Department were to pursue the subpoena, the letter said, the action would “risk developing negative precedent that could result in harm to the long-term institutional interests of the United States.”

Although the decision limited the view inside JPMorgan, the comptroller’s office and federal prosecutors in Manhattan still penalized the bank for its failure to sound the alarms about Mr. Madoff. The settlements, announced in January, amounted to roughly $2 billion.

Criminal Action Is Expected for JPMorgan in Madoff Case

Bernard L. Madoff, right, at Federal District Court in Manhattan in 2009. He is serving a 150-year sentence in a federal prison.

JPMorgan Chase and federal authorities are nearing settlements over the bank’s ties to Bernard L. Madoff, striking tentative deals that would involve roughly $2 billion in penalties and a rare criminal action. The government will use a sizable portion of the money to compensate Mr. Madoff’s victims.

The settlements, which are coming together on the anniversary of Mr. Madoff’s arrest at his Manhattan penthouse five years ago on Wednesday, would fault the bank for turning a blind eye to his huge Ponzi scheme, according to people briefed on the case who were not authorized to speak publicly.

A settlement with federal prosecutors in Manhattan, the people said, would include a so-called deferred-prosecution agreement and more than $1 billion in penalties to resolve the criminal case. The rest of the fines would be imposed by Washington regulators investigating broader gaps in the bank’s money-laundering safeguards.

The agreement to deferred prosecution would also list the bank’s criminal violations in a court filing but stop short of an indictment as long as JPMorgan pays the penalties and acknowledges the facts of the government’s case. In the negotiations, the prosecutors discussed the idea of extracting a guilty plea from JPMorgan, the people said, but ultimately chose the steep fine and deferred-prosecution agreement, which could come by the end of the year.

Until now, no big Wall Street bank has ever been subjected to such an agreement, which is typically deployed only when misconduct is severe. JPMorgan, the authorities suspect, continued to serve as Mr. Madoff’s primary bank even as questions mounted about his operation, with one bank executive acknowledging before the arrest that Mr. Madoff’s “Oz-like signals” were “too difficult to ignore,” according to a private lawsuit.

JPMorgan, which declined to comment for this article, has repeatedly said that “all personnel acted in good faith” in the Madoff matter. No one at JPMorgan has been accused of wrongdoing and the bank was not the only one to miss Mr. Madoff’s fraud, which duped regulators and clients for decades.

In recent months, the bank has emphasized that it is scaling back businesses that could be vulnerable to money laundering and cutting ties to certain clients.

Jamie Dimon, the bank’s chief executive, made a reference to the settlement talks at an industry conference on Wednesday, saying: “You read about Madoff in the paper the other day. We have to get some of these things behind us so we can do our job.”

The looming settlements would come on the heels of JPMorgan’s reaching a record $13 billion settlement over its sale of troubled mortgage securities before the financial crisis.

The scrutiny has taken a toll on JPMorgan, undercutting its leverage in negotiations and casting the bank as a symbol of Wall Street risk-taking. That stigma also sapped the influence that JPMorgan once used to shape policy in Washington, people briefed on the matter said, where regulators are increasingly skeptical of the bank’s lobbying.

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