UPDATE 1-JPMorgan to pay $150 million in ‘London Whale’ US class action

20 Jan 2016 | Author: | No comments yet »

DeWine announces settlement with JPMorgan Chase.

JPMorgan Chase & Co. agreed to pay $150 million to settle investors’ claims it hid as much as $6.2 billion in losses caused by a trader called the London Whale. Tom Hayes, the former UBS Group AG and Citigroup Inc. trader dubbed “Rain Man” by ex-colleagues, had his jail sentence for rigging Libor cut to 11 years after judges said his punishment was too harsh.NEW YORK: US regulators fined JPMorgan Chase $307 million Friday for failing to disclose conflict of interests to clients when it recommended proprietary investment products over third-party options.JPMorgan Chase will pay more than $US300 million ($422 million) to settle allegations it didn’t inform clients properly about numerous conflicts of interest in how it managed customers’ money over a half decade.A group of US and European pension funds have reached a $150 million settlement with JP Morgan relating to the so-called “London Whale” trading losses. “We believe that the settlement represents an excellent recovery after more than three years of litigation.”Sweden’s AP7 alongside public pensions from Ohio, Arkansas, and Oregon made up the lead plaintiffs in the lawsuit, which was filed in 2012.

The settlement was disclosed in papers filed on Friday in federal court in Manhattan and would resolve a class action lawsuit filed in the wake of the scandal that emerged in 2012. A panel of three of the U.K.’s most senior judges reduced the 14-year sentence, one of the country’s longest for a non-violent criminal, following a two-day hearing. The largest US bank by assets didn’t tell customers it reaped profit by putting their money into mutual funds and hedge funds that generated fees for the company, the SEC said in announcing $US267 million in penalties and disgorgement against JPMorgan. It comes in a 2012 class-action lawsuit that alleged JPMorgan Chase issued false and misleading statements regarding its trading activity, describing risky and speculative trading strategies as mere “hedges” or “risk management” devices. The lawsuit stemmed from oversight by JPMorgan’s Chief Investment Office of a synthetic credit portfolio that caused the $6.2-billion loss and was linked to traders in the bank’s London office including Bruno Iksil, the so-called London Whale.

The court upheld Hayes’s conviction for conspiracy to defraud. “We are of the view that taking into account all the circumstances — in particular his age, his non-managerial position in the two banks, and his mild Asperger’s condition — that the overall sentence was longer than was necessary to punish the appellant and to deter others,” the judges said in a written statement. The settlement includes everyone who purchased JP Morgan common stock between April 13 and May 21, 2012. “Misleading investors with wrong or incomplete information is unacceptable and causes real damage,” said Ohio Attorney General Mike DeWine. “Ohio’s pension funds, like all investors, expect companies to provide accurate information so they can appropriately judge the risk of an investment. Hayes was the first individual to face trial for rigging the London interbank offered rate since investigators started probing the benchmark seven years ago.

He was accused of masterminding an elaborate four-year campaign to rig the yen variant of Libor that involved more than 20 individuals at half a dozen firms in three countries. JPMorgan admitted disclosure failures from 2008 to 2013 related to two units that manage money – its securities subsidiary and its nationally chartered bank. The Attorney General says the trading losses incurred by JPMorgan Chase caused the bank’s stock value to plummet resulting in a billion dollars of investor losses. Former traders Javier Martin-Artajo and Julien Grout have been criminally charged in the United States with hiding losses linked to Iksil, who has been cooperating with prosecutors. That includes a $40m fine the bank will pay to the Commodities and Futures Trading Commission in a parallel case. “Clients are entitled to know whether their adviser has competing interests that might cause it to render self-interested investment advice,” said Julie Riewe, co-chief of the SEC enforcement division’s asset management unit.

JPMorgan has enhanced its disclosures over the last two years in an effort at “full transparency in client communications,” bank spokesman Darin Oduyoye told AFP. That included not telling customers of a retail product, Chase Strategic Portfolio, that was designed to favour in-house mutual funds, or that the bank might put them into a higher-fee fund when a lower-fee version of the same fund was available. The AG says In the next few weeks, all class members will be notified of their status in the class by a claims administrator appointed by the court, and will receive additional information about filing a claim. The settlement caps about two years of investigations, during which the government deposed asset-management executives and issued subpoenas for internal documents. Monday’s ruling will have been closely watched by the more than a dozen individuals scheduled to stand trial for manipulating the $350 trillion benchmark over the coming months. “Those currently standing or awaiting trial on similar charges may be feeling slightly comforted by the reduction in Hayes’s sentence,” said Elly Proudlock, a London-based lawyer at WilmerHale. “That said, it remains a high sentence by U.K. standards and has arguably raised the bar,” Proudlock said. “Not bound by precedent due to the novel nature of the benchmark-rigging allegations, the Court of Appeal has sent a powerful message of deterrence.” “The court must make clear to all in the financial and other markets in the City of London that conduct of this type, involving fraudulent manipulation of the markets, will result in severe sentences of considerable length,” the panel said.

The $US307 million in fines and disgorgement accounts for a little more than 1 per cent of the company’s annual operating profit, or about a month of those at its asset-management division. The settlement, announced on the Friday before Christmas, didn’t go far enough, Dennis Kelleher, a lawyer who runs consumer advocacy group Better Markets, said. “The conduct involves steering clients into proprietary products so brokers get higher commissions and JPMorgan gets good asset-management numbers,” said Kelleher, who said the practices remained costly for customers, additional disclosures notwithstanding. “This wasn’t a rogue trader. It’s a five-year pattern.” The SEC’s inquiries looked into JPMorgan Asset Management, a unit that grew rapidly after the 2008 financial crisis, as new regulations crimped areas including hedge-fund and proprietary trading operations that have traditionally been lucrative for Wall Street firms.

It also had the highest percentage growth in asset inflows of any large manager in the five years through 2014, ending the year with $US1.7 trillion under management, a February presentation to investors said.

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