U.S. investigates whether JPMorgan traders hid losses

Fri Jul 13, 2012 5:56pm EDT
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By David Henry and Aruna Viswanatha

(Reuters) - U.S. federal investigators are looking at whether JPMorgan Chase & Co traders hid trading losses that have since grown to $5.8 billion, according to a person familiar with the matter, after the bank said its own probe found reason for suspicion.

JPMorgan, the largest U.S. bank, said it believes it will lose at most another $1.7 billion from the bad credit trades. Problems at the group that made the bets, the Chief Investment Office, have been fixed, said Chief Executive Jamie Dimon. CIO traders had used derivatives to bet on corporate debt.

Investors cheered the bank for capping losses and taking steps to ensure it avoids similar bad bets in the future. JPMorgan's shares rose 6 percent on Friday.

Even with the trading losses, JPMorgan earned nearly $5 billion overall in the second quarter, thanks to its strong performance in areas such as mortgage lending.

The trading losses may be mostly over, but with the disclosure that traders may have lied about their losses, regulatory and legal consequences will linger for some time. Blame for the problems at the CIO office may go further up the management chain to some of the most senior executives at the firm, lawyers said.

The source said that federal criminal investigators are looking at people at JPMorgan in London, where the CIO's risky bets were placed. The criminal investigation began in earnest in the past few weeks after JPMorgan's internal investigation uncovered that CIO traders may have intentionally masked losses, said the source, who is not authorized to speak about the matter and declined to be identified.

"I see little doubt that someone is going to get charged with fraud," said Bill Singer, a lawyer at Herskovits in New York who provides legal counsel to securities industry firms, and publishes the BrokeandBroker website.

Authorities ranging from the FBI to the U.S. Securities and Exchange Commission are probing the bank. The SEC could charge JPMorgan with weaknesses in oversight and internal controls, said James Cox, a securities law expert at Duke University.   Continued...

People are seen in the lobby of JP Morgan Chase's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton