How Many Government Agencies Does It Take to Investigate JPMorgan?

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At least five government agencies are probing into JPMorgan’s massive derivatives trading loss, now estimated at $3 billion and counting. But these necessary investigations may be compromised by secrecy, lack of resources and the Obama administration’s close ties with Wall Street. Here’s a summary of active and proposed investigations.

SEC (Securities and Exchange Commission)

The SEC first learned that something might be amiss back in April, when reports emerged that a trader known as the “London whale” was making large bets on credit derivatives that distorted the market. At the time, JPMorgan CEO Jamie Dimon dismissed concerns, calling them a “tempest in a teapot.” On May 10, Dimon announced the $2 billion loss; the next day it was reported that the SEC had opened a preliminary investigation into the company’s accounting practices and public disclosures about the trades. The case is not public, but anonymous sources have specified that no one at JPMorgan had been accused of any wrongdoing.

FBI/Department of Justice

A few days later, the FBI leaked that it too was investigating.

As Erik Gordon, a professor at the University of Michigan explained to Reuters, “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.”

But Peter Boyer and Peter Schweizer, writing in the Daily Beast, say that the Obama administration’s cozy relationship with Wall Street means that even the FBI isn’t all that scary in this case.

“Obama’s Department of Justice has not yet prosecuted a single top executive from a major Wall Street firm,” they point out. “It is not known what possible criminal actions at JP Morgan Chase the Department of Justice is investigating. But, based on the department’s record so far, Jamie Dimon and his team likely have little to fear.”

CFTC (Commodity Futures Trading Commission)

In a rare move, the CFTC publicly announced that they’d also launched an investigation earlier this month, looking at potential violations of the Commodity Exchange Act, including potential manipulation. Commissioner Bart Chilton cautioned against drawing any early conclusions saying in an interview with The Wall Street Journal that “nobody should take the existence of this investigation as [evidence] we’ve uncovered any wrongdoing.”

Senate Banking Committee

The Senate Banking Committee kicked off a round of hearings Tuesday morning with testimony from the heads of the SEC and CFTC. Both complained that they are underfunded and that this hinders their ability to regulate. “Imagine if, all of a sudden, there are eight times the number of teams on the [football] field, but only seven refs,” Gary Gensler, the chairman of the CFTS said. “There would be would be mayhem on the field. The fans would lose confidence.” Another hearing is scheduled for June 6 and will include regulators from the Federal Reserve and Office of the Comptroller of the Currency.

Jamie Dimon is expected to testify before the committee sometime in the near future. But, as Lee Fang points out in The Republic Report, Dimon may be safe here as well. “That’s because the staff director for the Senate Banking Committee is none other than a former J.P. Morgan lobbyist, Dwight Fettig,” Fang writes.

Independent Investigation? 

Economist Simon Johnson says that what we really need is “an independent, detailed, specific investigation to establish who knew what when and what kind of wrongdoing management was engaged in.”

“When two planes almost collide at an airport, there is a full investigation run by the National Transportation Safety Board – an independent federal agency comprised of experts not beholden or reporting to any airline executive,” Johnson says. “We should do the same for ‘near misses’ or significant unexpected and unexplained losses incurred by large firms in the financial sector.”

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  • thecornerangel

    Bring Spitzer back.  

  • Carly

    Bill Moyers, I love everything you stand for!!

  • Anonymous

    The only one listed in whom I’d have any hope would be the CFTC.  But they’d better move fast before the corporate-owned pols finish de-fanging them.

  • http://oracleofburbank.blogspot.com Mark Etprophet

    Seriously? The CFTC, headed by Brooksley Borne in the 1990s, had tried to regulate derivatives but was ridiculed and scorned for sticking up for the American public. She was shot down by Greenspan, his cronies, Congress, and some of the same people in office now, eventually leading to her resignation.

    Do you really think anything has changed since then? It’s all just a show.

  • Anonymous

     I searched in vain for the post to which you seem to be replying, a ringing endorsement of an agency blissfully unaffected by events such as plutocratic attacks on its very existence or Born’s ouster.

    Since I was forced to conclude that you were, in fact, replying to my post, may I suggest a rereading which might reveal it as more near-lament than unalloyed devotion?  More rueful hope than cocksure revelation?

    I confess only to a dimming optimism that there remains in the current wreckage of CFTC some small shard of integrity and regulatory power. 

       

  • http://profile.yahoo.com/MPHIFUTQ6EJMDWUA7VHL2MRK24 CHRIS

    The corruption continue. Nothing has change since the crises of 2008, LBHI, GM, WAMU, CIT etc.

  • Anonymous

    ” Wall Street big shots making over 23 million a year or more cannot
    use the excuse of stupidity. They do not make mistakes but they do
    anything, take any RISK to make money. They know everything about
    their company they develop a culture which gives permission for
    certain action to be taken without their direct consent. This is a
    coverup we only discover the outrageous RISK when it fails. These
    people are the smartest people in the room , even when something is
    discovered they made so much money that they higher lawyers never
    settle ,rarely go to jail and never have to change their lifestyle. We
    investors suffer and have lifestyle changes not only because we do
    make mistakes , but because these unscrupulous geniuses have taken
    away everyone’s confidence When they say JPM lost 2bil to 5bil IMHO
    they leave out one huge point. This unacceptable risk management
    causes untold losses to investors portfolio as this is just one more
    thing that reduces confidence. Risk management is the issue, these
    firms making outrageous big bets actually do not have any risk
    management we have all read the WSJ article which pointed out the risk
    manager at JPM was some top executive brother in law who had no
    experience in these trades. I do not accept Jamie Dimon that this was
    a stupid situation , this is a built in culture only when the stupid
    trades fails is there any concern. Just like the AIG problem top
    management did not want to know about this they just wanted it to
    work. Bottomline I and many other investors are being ruined by these
    actions we do our homework we take conservative risk and these big
    time operators take all kinds of risk which no matter what will ever
    change their lifestyle, which we cannot control and it cost us our
    savings because as I said before nobody has any confidence in the
    market