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Hedge Funds Worry About JPMorgan Probe

Tuesday, 15 May 2012 | 2:15 PM ET
JP Morgan sign
Bloomberg via Getty Images
JP Morgan sign

Hedge fund managers on the other side of the trades that resulted in over $2 billion in losses at JPMorgan Chase are worried about reports that the Justice Department is investigating the matter, according to a person familiar with the matter.

Several hedge funds took up large trading positions in the credit derivatives market, after they came to believe a London-based trader at JPMorgan had built up a position so large that it was distorting the market. London-based CQS and Blue Mountain Capital were two of the hedge funds on the other side of the JPMorgan trade, according to sources cited by Reuters.

Neither CQS nor Blue Mountain Capital were immediately available to comment.

The managers at two different funds (not those named above), who spoke on the condition that neither they nor their funds be named for this story, do not believe they engaged in any wrong-doing and do not expect to be accused of any violations of securities laws. But they fear a probe into the losses at JPMorgan could wind up with requests for statements and documents from their traders.

“We’ve got clean hands in this. But no one wants to be hauled before the FBI,” one of the managers said.

The other hedge-fund manager said that he expected answering questions from authorities would be time-consuming and require costly legal representation.

“It’s a headache no one wants—especially when you haven’t done anything wrong. Do you want the Feds reading your emails?” he said.

The Justice Department declined to comment.

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