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

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million before adjustment to the boundary of the VCG valuation range … and
$495 million after adjustment.” 813
In other words, after finding a $512 million difference between what the CIO reported and what
would have been reported if the CIO had used the midpoint prices, the Controller then shaved off
$17 million from that difference by disallowing certain reported marks that were so extreme they
fell outside the VCG’s range of permitted deviations from the midpoint prices. 814 After
changing those marks to reflect the extreme edge of the VCG’s allowed valuation range, 815 the
Controller’s office determined that the CIO’s reported losses were still $495 million less than
what would have been reported if the book had been marked at the midpoint. 816
Internally, two days before it issued the memorandum summarizing its assessment, a
senior official in the Controller’s office confronted the head of the CIO’s equity and credit
trading office in London about the data showing the CIO had changed the way in which it valued
the SCP book, providing more favorable marks in March than in January. 817
In a telephone
conversation, Alistair Webster, head of Corporate Accounting Policies for Europe, the Middle
East, Africa and Asia, had the following exchange with Javier Martin-Artajo:
Mr. Webster: “So if I look at those back in January, the front office marks were all
either mid or somewhere, you know, close to mid.”
Mr. Martin-Artajo: “Right.”
Mr. Webster: “That …”
Mr. Martin-Artajo: “In terms of conservative and aggressive. That, that, that’s what
you’re asking?”
Mr. Webster: “Well, it’s subtly different. It’s subtly different.”
813 5/10/2012 JPMorgan Chase Controllers special assessment of CIO’s marks, January to April 2012, at 9, JPM-
CIO 0003637-654, at 645. See also Subcommittee briefing by JPMorgan Chase (8/15/2012) (JPMorgan Chase also
informed the Subcommittee the CIO marks had varied from VCG allowable prices by $30 million in December
2011.).
814 For a number of credit derivatives, the VCG had established an explicit “threshold” which allowed the CIO mark
to deviate from the midpoint price by no more than a specified number of basis points. See, e.g., 4/20/2012 email
from Edward Kastl, JPMorgan Chase, to Jason Hughes, JPMorgan Chase, “Credit Index and Tranche Book,” JPM-
CIO-PSI-H 0006636-639, at 636 (noting that the accepted deviation for the iTraxx Main Series 9 7-year index was a
six-basis-point deviation from the midpoint of the relevant bid-ask spread).
815 See 5/10/2012 JPMorgan Chase Controller’s special assessment of CIO’s marks, January to April 2012, at 8,
JPM-CIO 0003637-654, at 644 (“If the front office mark is outside the VCG valuation range, the position mark is
adjusted to the outer boundary of the range.”).
816 The bank also determined that the VCG used formulas in its spreadsheets that had not been properly vetted,
“introduced two calculation errors,” and resulted in the VCG’s understating the difference between the VCG midprices
and the SCP marks. See 2013 JPMorgan Chase Task Force Report, at 56. The Controller later increased the
amount of unreported losses to $677 million in July, then reduced that total due to certain price adjustments and the
application of a liquidity reserve. See 2013 JPMorgan Chase Task Force Report, at 55, footnote 68.
817 See 5/8/2012 recorded telephone conversation between Alistair Webster, JPMorgan Chase, and Javier Martin-
Artajo, CIO, JPM-CIO-PSI-A 0000164; 5/8/2012 transcript of the same recorded telephone conversation , JPM-CIO
0003631-636, at 631-634.