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Criminal Probe into JPMorgan $2 Billion Loss

Criminal Probe into JPMorgan $2 Billion Loss

On Tuesday, the FBI announced it would be opening an inquiry into the $2 billion trading loss JPMorgan Chase reported late last week. Specifically, it will be focusing on “high risk” trades.

Interestingly, this announcement didn’t seem to affect investors – nor did it affect this twisted loyalty that’s been extended to CEO Jamie Dimon. In effect Dimon got a pass for this latest blunder. Is this wise, especially in current economic times? Is Dimon truly untouchable? Pressure’s on for the bank to reclaim some of the losses; yet Dimon still received approval for his annual $23 million pay package on Tuesday.

Meanwhile, Dimon is wooing the press with promises to do the right thing. He says it might even include “more disciplinary action against those responsible”.

Legitimate Probe?

Now, many are wondering just how dedicated it is with this “probe” and say it’s just a move in the public’s eye to make it appear legitimate.

The FBI looks for evidence of crimes and goes after people who it alleges are criminals. They want to send people to jail. The SEC pursues all sorts of wrongdoing, imposes fines and is half as scary as the FBI,

said Erik Gordon, a professor in the law and business schools at the University of Michigan.

Even if the FBI is just going through the motions, it appears the losses have also gained the attention of the U.S. Securities and Exchange Commission and the Federal Reserve, both of which have opened inquiries.

Shares Rise

JPMorgan suffered significant losses immediately following the announcement; however, on Tuesday, those same shares rose 1.3 percent to close at $36.24. The stock is down more than 11 percent since the trading losses were disclosed, which equates to just more than $17 billion in market capitalization.

Obama Administration Speaks

Meanwhile, U.S. Treasury Secretary Timothy Geithner insists JPMorgan’s losses strengthened the case for reform. He went on record and said,

I think this failure of risk management is just a very powerful case for … financial reform… the test of reform is not whether you can prevent banks from making mistakes … the test of reform should be: ‘Do those mistakes put at risk the broader economy, the financial system or the taxpayer?’

Congress is getting in on the publicity too. It’s finally decided to take a definitive stand in response to JPMorgan’s “mistake”. “I would suggest that JPMorgan take their business to Las Vegas because it’s just a gamble,” Senate Majority Leader Harry Reid, a Democrat who represents Nevada, told reporters.

Senator Richard Shelby, the top Republican on Senate Banking Committee, wants answers via a hearing with Dimon and regulators. Now, talk is a delay on any bills regarding regulation might be further delayed, all courtesy of the JPMorgan scandal.

If taxpayers are chalking this up to the usual rhetoric by highly-paid bank officials, fat politicians and a resistance to make significant changes, they’re not alone. Dimon has long since been controversial and for reasons few understand, he’s also been the “fair haired child” of the banking industry, despite is less than stellar reputation and track record. The fact that JPMorgan survived the 2008 disaster that annihilated other banks, this might be less to do with the bank’s resilience and more about its “take no prisoners” mentality to make it work at any cost.

Volcker Rule

Could these situations have anything to do with the slow-moving Volcker Rule? And did this massive loss violate the Volcker Rule, even though it’s not officially in place? It’s a part of the Wall Street reform law passed in response to the financial crisis and its goal is to ban risky trading by banks for their own profit, a strategy sometimes referred to as proprietary trading.

Dimon said Tuesday that he believes it is important for the bank to continue to be able to hedge against risk, but that he also recognizes the need for rules that “ensure hedging doesn’t morph into something different…what this hedge morphed into violates our own principles in terms of complexity and risk”.

Dimon Stripped of Some Power?

During the ongoing meetings, it was revealed shareholders might be considering a proposal that calls for the appointment of an independent chairman, which would strip Dimon of some of his power. It doesn’t have the support of all its directors.

The bank’s board of directors remains vehemently opposed to the idea based the belief that it would cause “uncertainty, confusion and inefficiency in board and management function and relations.” It’s believed that despite the media coverage of this being a “massive” or “catastrophic” loss, it really won’t affect the bank and that the loss is already absorbed.

If that’s the case, then why the strong demands and assurances from those in the know? If it’s truly nothing more than a hiccup for the company, why present it under a veil of scandal?

Meanwhile, protesters were on site with their signs full of criticism and anger towards the bank and specifically, Dimon, who’s been a favorite among the Occupy movers and shakers.

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Copyright © 2022 | Image: CBS News | Categories: Financial News

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