JPMorgan must pay a total of $920 mn in fines and admit to wrongdoing for hiding trading losses in 2012.
The investment bank intentionally misstated financial results and was negligent in lacking effective internal controls to prevent traders from overstating investments to conceal massive losses, the SEC says in a cease-and-desist order.
The case stems from more than $6 bn in trading losses that were covered up by exaggerated asset valuations and eventually forced JPMorgan to restate earnings.
The SEC ordered JPMorgan to pay a fine of $200 mn, to be set aside to potentially compensate investors harmed by the bank’s actions. The fine comes at the same time as a $300 mn penalty levied by the Office of the Comptroller of the Currency, a $200 mn fine by the Federal Reserve, and a fine of about $220 mn by UK regulator the Financial Conduct Authority.
The bank was also forced to admit to at least seven ‘facts’, including that it carried out ‘woefully deficient accounting’, failed to update its audit committee on key data, and that ‘JPMorgan senior management knew the firm’s investment banking unit used far more conservative prices’ to shave almost $770 mn off trading losses.
The admission of wrongdoing, which has been absent in all previous settlements with investment banks, marks the second such action since the SEC adopted a policy of forced admissions earlier this year. Last month, the SEC forced an admission of wrongdoing from a hedge fund manager for using fund money for personal expenses and engaging in a short squeeze of a Canadian corporate bond.
‘JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,’ says George Canellos, co-director of the SEC’s division of enforcement, in a press statement.
‘While grappling with how to fix its internal control breakdowns, JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators.’
