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

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“fully aware” of its activities, neither of which was true. The following day, April 11, one of the
traders told Ms. Drew, “The bank’s communications yesterday are starting to work,” suggesting
they were quieting the markets and resulting in reduced portfolio losses.
At the end of the week, on April 13, 2012, JPMorgan Chase filed an 8-K report with the
SEC with information about the bank’s first quarter financial results and hosted an earnings call.
On that call, JPMorgan Chase Chief Financial Officer Douglas Braunstein reassured investors,
analysts, and the public that the SCP’s trading activities were made on a long-term basis, were
transparent to regulators, had been approved by the bank’s risk managers, and served a hedging
function that lowered risk and would ultimately be permitted under the Volcker Rule whose
regulations were still being developed. CEO Jamie Dimon dismissed the media reports about the
SCP as “a tempest in a teapot.”
A month later, in connection with its May 10, 2012 10-Q filing finalizing its first quarter
financial results, the bank announced that the SCP had lost $2 billion, would likely lose more,
and was much riskier than earlier portrayed. The 10-Q filing stated: “Since March 31, 2012,
CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio
has proven to be riskier, more volatile and less effective as an economic hedge than the Firm
previously believed.” Though the markets had not reacted against JPMorgan Chase’s stock after
the reassuring April 13 8-K filing and earnings call, the bank’s stock did drop after the May 10
10-Q filing and call, as well as its announcement on May 15, that Ina Drew was departing the
bank, declining from $40.74/share on May 10 to $33.93/share one week later on May 17,
representing a drop of 17%. The stock continued to decline to $31/share on June 4, representing
an overall decline of 24%.
Given the information that bank executives possessed in advance of the bank’s public
communications on April 10, April 13, and May 10, the written and verbal representations made
by the bank were incomplete, contained numerous inaccuracies, and misinformed investors,
regulators, and the public about the CIO’s Synthetic Credit Portfolio.
More than a Tempest in a Teapot. In the April 13 earnings call, in response to a
question, Mr. Dimon dismissed media reports about the SCP as a “tempest in a teapot.” While
he later apologized for that comment, his judgment likely was of importance to investors in the
immediate aftermath of those media reports. The evidence also indicates that, when he made
that statement, Mr. Dimon was already in possession of information about the SCP’s complex
and sizeable portfolio, its sustained losses for three straight months, the exponential increase in
those losses during March, and the difficulty of exiting the SCP’s positions.
Mischaracterizing Involvement of Firmwide Risk Managers. Mr. Braunstein stated on
the April 13 earnings call that “all of those positions are put on pursuant to the risk management
at the firm-wide level.” The evidence indicates, however, that in 2012, JPMorgan Chase’s
firmwide risk managers knew little about the SCP and had no role in putting on its positions.
JPMorgan Chase’s Chief Risk Officer John Hogan told the Subcommittee, for example, that,
prior to the April press reports, he had been unaware of the size and nature of the SCP, much less
its mounting losses. Virtually no evidence indicates that he, his predecessor, or any other
firmwide risk manager played any role in designing or approving the SCP positions acquired in
2012, until well after the April 13 earnings call when the bank’s risk managers effectively took