Analysis: JPMorgan faces sea of trouble resolving "Whale" probe

Fri Aug 31, 2012 1:04am EDT
 
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By David Henry and Emily Flitter

NEW YORK (Reuters) - The fallout from a nearly $6 billion trading loss at JPMorgan Chase & Co looks like it will haunt the big U.S. bank and its high-profile chief executive, Jamie Dimon, for months to come.

U.S. authorities are interviewing witnesses in both the United States and Europe to determine if three former London-based traders and others who worked with them at JPMorgan tried to hide some of the mounting losses during the first quarter of this year, said people familiar with the situation.

The situation presents several challenges to U.S. authorities: the potentially irregular trading occurred in London; and it was carried out by non-U.S. citizens, such as French national Bruno Iksil, who became known in the market as the "London Whale" for the size of his positions.

That translates into different rules for different jurisdictions and could raise extradition issues if any individuals are charged.

Meanwhile, the bank's own internal investigation, which first uncovered evidence in July that the London traders may have deliberately understated the first-quarter loss, is far from finished. A person familiar with the internal probe, but who is not authorized to speak publicly about it, said "there is a lot more work to do" for the team, which has numbered more than 100 lawyers.

Dimon initially referred to what has become a scandal as a "tempest in a teapot". He later tried to portray it as an isolated risk management problem that the bank has corrected.

Lawyers say because JPMorgan is the biggest bank in the United States and Dimon is one of Wall Street's most visible chief executives, U.S. criminal investigators are not going to simply accept the findings of the bank's internal investigation - no matter how thorough they may be.

"I think they are quite careful to not stop with looking at the narrative presented by the bank," said Daniel Richman, a professor at Columbia Law School and a former federal prosecutor.   Continued...

 
A man walks past JP Morgan Chase's international headquarters on Park Avenue in New York July 13, 2012. REUTERS/Andrew Burton