JPMorgan disclosed possible misconduct to feds ahead of earnings

Mon Jul 16, 2012 6:09pm EDT
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By Matthew Goldstein and Jennifer Ablan

NEW YORK (Reuters) - In a matter of days, the two-month-old criminal investigation into a $5.8 billion trading loss at JPMorgan Chase & Co. -- known as the "London Whale" blunder -- was transformed from dormant to potentially explosive.

Last Thursday, the day before JPMorgan reported its highly anticipated second-quarter earnings, the bank informed U.S. authorities that an internal investigation had found evidence that three London traders may have tried to hide the losses in some of their positions, said people familiar with the matter.

Late on Thursday evening, JPMorgan also decided it needed to restate its first-quarter earnings as a result.

The bank's disclosure has breathed new life into the criminal investigation that up until last week lacked evidence of a smoking gun pointing to wrongdoing in the bank's Chief Investment Office, said three people familiar with the matter.

Before last week's disclosure, the criminal probe largely had focused on the personal trading of some CIO traders, two of those sources said. The authorities were looking for evidence that some in London may have sold shares of JPMorgan in advance of the firm's May 10 disclosure that it could lose a minimum of $2 billion on the derivatives trades gone awry.

Now the investigation is focused on whether three JPMorgan employees in London committed fraud in reporting on their transactions. The bank is cooperating with authorities.

JPMorgan's chief executive, Jamie Dimon, and some of his top lieutenants did not learn about the potential misconduct by some CIO employees until early last week, said these sources, who were not authorized to speak publicly on the matter.

A federal prosecutor assigned to the investigation did not return calls seeking comment. A U.S. Securities and Exchange Commission attorney overseeing the matter also did not return phone calls.   Continued...

The lobby of JP Morgan headquarters is photographed through it's front doors in New York May 11, 2012. REUTERS/Eduardo Munoz