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

147
“The Firm believes that its valuation practices in CIO are consistent with industry
practices for other no-dealer investors/managers. CIO, like other non-dealer
investor/managers, relies more heavily on transaction-level data available through
its own market activity, and its valuation process reflects its exit market and the
participants in that market.” 820
The last page of the memorandum stated that the bank had shared its memorandum with
JPMorgan Chase’s outside auditor, PricewaterhouseCoopers, which had “concur[red] with the
conclusions.” 821
On May 9, 2012, the day before the Controller’s memorandum summarizing its
assessment was released and the bank certified its first quarter results and conducted a business
update call, the bank met with OCC examiners to discuss the SCP. 822 Representing the bank
were Chief Financial Officer Douglas Braunstein, General Counsel Stephen Cutler, Chief
Investment Officer Ina Drew, Chief Risk Officer John Hogan, and the head of Corporate &
Regulatory Affairs Barry Zubrow. At that meeting, among other matters, the bank informed the
OCC of the CIO’s ongoing collateral disputes relating to SCP valuations. When the OCC asked
about whether the CIO had mismarked the SCP book, Mr. Hogan flatly denied it. 823 His deputy,
Ashley Bacon, told the Subcommittee that the collateral disputes led him to investigate the
marks, and after the bank took away the CIO’s discretion in marking its positions so that,
instead, its marks aligned with Markit valuation data, the disputes were resolved. 824
When later asked about the bank’s special assessment of the SCP marks, a senior OCC
examiner told the Subcommittee that “it was garbage.” 825 The OCC said that the VCG itself
“should have picked up the marking issue” during its review of the February valuations, and
taken action then to stop the aggressive marking practices. 826
The OCC told the Subcommittee
820
5/10/2012 JPMorgan Chase Controller’s special assessment of CIO’s marks, January to April 2012, at 10, JPM-
CIO 0003637-654, at 646.
821
Id. at 647. See also 2013 JPMorgan Chase Task Force Report, at 6, 74.
822
See 5/10/2012 email from Fred Crumlish, OCC, to Scott Waterhouse, OCC, “Braunstein / Cutler call on CIO,”
OCC-SPI-00000018-020, at 020.
823
Subcommittee interview of Michael Kirk, OCC (8/22/2012); Subcommittee interview of Scott Waterhouse, OCC
(9/17/2012) (when discussing the CIO’s collateral dispute with Morgan Stanley, “Hogan told us that there were no
problems with the CIO’s marks”). See also 6/29/2012 email from Michael Kirk, OCC, to Elwyn Wong, Scott
Waterhouse, Fred Crumlish, CIO, and others, “2 nd Wilmer Hale Call,” OCC-SPI-00071386-388, at 386 (“Section 1
on Traders is damaging to Hogan’s reputation in respect to his interaction with regulators, in my opinion. On the
very first daily call, Hogan discussed that earlier there had been a large collateral dispute with their counterparties. I
questioned him on how it was resolved and he said JPM eventually agreed to the counterparties marks. … I then
followed with a question relating to what I described as mismarked books to which Hogan forcefully stated JPM
books were not mismarked; leaving both Elwyn and me … puzzled over how a collateral dispute could be resolved
by agreeing to the counterparties marks, without admitting your own marks were incorrect.”). See also Hogan email
from two weeks earlier expressing concern about the CIO collateral disputes and CIO valuation process, 4/20/2012
email from John Hogan, JPMorgan Chase, to Douglas Braunstein, JPMorgan Chase, “Collateral Disputes,” JPM-
CIO 0003597-598, at 597 (“This isn’t a good sign on our valuation process on the Tranche book in CIO. I’m going
to dig further.”).
824
Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012) (Ashley Bacon).
825
Subcommittee interview of Michael Kirk, OCC (8/22/2012).
826
Subcommittee interview of Elwyn Wong, OCC (8/20/2012).