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CFTC Said to Open Inquiry Into JPMorgan Loss

Ben Protess
Friday, 18 May 2012 | 11:10 PM ET

A federal investigation into JPMorgan Chase’s multibillion-dollar trading loss widened Friday as regulators pursued a new line of inquiry.

JP Morgan Chase
CNBC.com
JP Morgan Chase

The Commodity Futures Trading Commission opened an enforcement case, people briefed on the matter said, making it the third federal agency to examine the trading loss.

The agency joins the Securities and Exchange Commission and the Federal Bureau of Investigation, which are also examining possible wrongdoing at the bank, the nation’s biggest by assets.

The various investigations are all preliminary. No one at JPMorgan has been accused of any wrongdoing.

The commodity commission’s members also voted on Friday to publicly disclose the existence of their investigation soon, an uncommon step that occurs only in the most serious cases. Last year, the agency confirmed that it was investigating the collapse of MF Global, the brokerage firm that misused customers’ money.

In the JPMorgan matter, the C.F.T.C. will potentially examine, among other things, whether the bank’s trading affected the market for credit derivatives — which lie at the heart of the bank’s trading debacle.

While the agency is not the bank’s front-line regulator, it does have jurisdiction over the derivatives industry. It started tracking the bank’s trading in April, one person said, after reports emerged that a London-based trader was taking large bets in credit derivatives that distorted the market. But it was not until recently that the agency opened a formal investigation.

The agency’s chairman, Gary Gensler, is expected to disclose the investigation when he testifies on Tuesday before the Senate Banking Committee. It is unclear whether he will offer additional insight into the scope of the case.

The S.E.C. and the F.B.I. office in New York are examining JPMorgan’s accounting practices and public disclosures surrounding the risky trades.

Both of those inquiries are likely to examine JPMorgan’s regulatory filings that mention the chief investment office, which is the internal unit that placed the trades, and recent statements from the firm’s top executives.

On April 13, Jamie Dimon, the bank’s chief executive, publicly played down the concerns about the unusual trading by the “London whale,” calling them a “complete tempest in a teapot.”

On May 10, the bank disclosed that it had lost at least $2 billion in trading, blaming “errors, sloppiness and bad judgment.” A bet with credit derivatives, meant to be a hedge, was “poorly constructed and poorly monitored,” according to Mr. Dimon. The losses are now believed to have grown by at least another $1 billion.

Federal prosecutors in New York have also contacted the bank.

A spokeswoman for JPMorgan did not immediately respond to a request for comment.

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