JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

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is not as important as quarter-end.” 664
Mr. Martin-Artajo likely viewed the quarter-end as more
important because, as part of their mandatory SEC filings, corporations registered with the SEC
have to file a financial statement that is made public and whose accuracy must be attested to by
the Chief Executive Officer and Chief Financial Officer. In addition, at quarter-end, federally
insured banks have to file with the FDIC call reports with financial information whose accuracy
also has to be attested to by bank management.
(2) Mismarking Peaks
The end of the first quarter was March 31, 2012. The last business day was Friday,
March 30. As the quarter-end approached, the SCP losses deepened rather than abated. CIO
personnel responded by booking even more favorable prices more often than before to minimize
the reported losses.
Data later compiled by the JPMorgan Controller’s office as part of a special assessment
of the SCP marks during the first four months of the year indicates that the mismarking likely
peaked in March. The data showed that, for 18 selected SCP marks as of March 31, 2012, with
respect to 16 of those marks, the CIO had booked a value equal to the price at the extreme
boundary of the bid-ask spread, had booked one mark almost at the extreme, and had even
booked one mark outside of the bid-ask spread. All of this led to more favorable values for the
SCP book than would have been provided by marking at the midpoint, which helped minimize
the SCP losses. 665 While similar analyses by the Controller’s office of selected CIO marks at the
end of January and February also showed marks using more favorable prices than those at the
midpoint, none of those marks had gone so far as to use a price at the extreme edge of the bidask
spread. 666
The OCC noticed the same trend when it examined the March marks. As one OCC
examiner put it: “New marks increase loss [$]472m[illion] for March. … Instead of marking to
mid, in most cases longs were marked at offer and shorts a[t] bid.” 667
In its January 2013
management report, JPMorgan Chase also acknowledged the mismarking:
“[F]rom at least mid-March through early April, the Synthetic Credit Portfolio’s
losses appear to have been understated. … [O]n a number of days beginning in at
least mid-March, at the direction of his manager, [a CIO trader] assigned values to
certain of the positions in the Synthetic Credit Portfolio that were more beneficial
to CIO than the values being indicated by the market. The result was that CIO
underreported the losses, both on a daily basis and on a year-to-date basis.” 668
664
JPMorgan Chase Task Force interview of Javier Martin-Artajo, CIO (partial readout to the Subcommittee on
9/6/2012).
665
See chart examining 18 SCP marks as of March 31, 2012, 5/10/2012 JPMorgan Chase Controllers special
assessment of CIO’s marks, January to April 2012, at 17, JPM-CIO 0003637-654, at 653, reprinted in part below.
666
Id., the charts examining 18 SCP marks as of January 31 and as of February 29, 2012, reprinted in part below.
667
7/10/2012 email from Fred Crumlish, OCC, to Mike Brosnan and Scott Waterhouse, OCC, “Company lost
confidence in March marks,” OCC-SPI-00055687.
668
2013 JPMorgan Chase Task Force Report, at 46. See also id., at 53 (“Unlike the January and February monthend
prices, the marks for March 30 were not generally at or near the mid.”) and 89 (“From at least mid-March