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JPMorgan prepares to fight CFTC charges: Sources

Kate Kelly and Kayla Tausche
Monday, 7 Oct 2013 | 2:55 PM ET
JPM to fight CTFC charges
Monday, 7 Oct 2013 | 2:54 PM ET
CNBC's Kate Kelly reports JPMorgan is preparing to fight charges from the CTFC, denying manipulation credit derivative markets.

JPMorgan Chase has denied Commodity Futures Trading Commission charges that it manipulated certain credit markets as part of its doomed "London Whale" trades, according to two people familiar with the matter, indicating the bank is prepared to fight the regulator's case in court.

The CFTC notified JPMorgan on Sept. 16 that its staff was recommending that the Commission charge the bank for artificially inflating prices of certain corporate-credit derivatives during 2012. JPMorgan was given 14 calendar days to either respond to the notification, known as a Wells notice, or settle the charges. In order to settle, the CFTC was seeking some tough terms, said people familiar with the matter at the time: a payment of up to $100 million and an admission of wrongdoing.

(Read more: JPM shakes off 'Whale' to nab top spot for fees)

The so-called London Whale trades, a series of corporate-credit derivative positions the bank took on in its U.K. office during 2011 and 2012 that eventually created losses of more than $6 billion, have proved disastrous for the large depositor. In addition to the financial drain, JPMorgan has in the last year faced an executive reshuffling, the indictment of two former traders, and a slew of regulators and legal fines of close to $1 billion.

In the days after the Wells notice's issuance, the CFTC softened its settlement stance, according to one person familiar with the matter—though others deny that's the case. Regardless, JPMorgan opted to deny the charges in the Wells, setting the stage for a protracted legal battle. A formal lawsuit from the CFTC would require approval by the agency's commissioners.

(Read more: JPMorgan audit director admits bank mistakes)

As of Monday—a week after JPMorgan's response—that approval had not been secured, said a person familiar with the matter, who said the situation is still "evolving." And talks have no doubt slowed as a result of the government shutdown, which has kept much of the CFTC's staff home from work for the past week. (Case in point: in an automatic response to a reporter e-mail, a senior spokesman for the agency stated, "I will answer your e-mail when the government reopens.")

—By Kate Kelly and Kayla Tausche.

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