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

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o The investments and positions undertaken by the CIO are to hedge
positions and losses in other parts of the firm and are done in the
context of our overall company risk management framework.
Hedging gains reflected in our financial statements represent one
side of a transaction that is hedging a loss in one of our main
businesses.
• We cooperate closely with our regulators, and they are fully aware of our
hedging activities.”
Later that same day, Mr. Evangelisti revised the talking points based on comments he
received from firm executives, and sent them to Jamie Dimon and Douglas Braunstein, among
others. 1437 The revised talking points included two key changes. First, instead of stating that
“Gains in the CIO offset and hedge losses,” he wrote that the “CIO is focused on managing the
long-term structural liabilities of the firm and is not focused on short-term profits. Our CIO
activities hedge structural risks and invest to bring the company’s assets and liabilities into better
alignment.” 1438 Secondly, he changed the statement, “We cooperate closely with our regulators,
who are fully aware of our hedging activities,” by removing the word “fully.” 1439 Mr. Dimon
responded to Mr. Evangelisti’s proposed talking points with “Ok.” 1440
The Evangelisti email and talking points indicate that, from the beginning of the bank’s
public discussion of the SCP in April 2012, JPMorgan Chase planned to describe the portfolio as
a risk-reducing hedge that was transparent to the bank’s regulators, even though neither
characterization was accurate. Furthermore, by tempering the points about hedging and
transparency to regulators, the revision shows that bank was aware that its initial
characterizations were not entirely true.
The next day, Friday, April 6, 2012, media reports disclosed that a CIO trader had
accumulated massive positions in CDX indices, especially the Investment Grade Series
9. Bloomberg’s article was entitled, “JPMorgan Trader Iksil’s Heft Is Said to Distort Credit
Market”; 1441 the Wall Street Journal’s article was entitled, “London Whale Rattles Debt
Market.” 1442 Both focused on how enormous trades by the CIO were roiling world credit
markets and affecting prices. The Wall Street Journal article also stated that a “person familiar
with the matter” indicated that any reduction in Mr. Iksil’s position could result in losses for the
bank. 1443 On April 9, 2012, another Bloomberg article entitled, “JPMorgan Trader Iksil Fuels
Prop-Trading Debate With Bets,” linked the controversy over the CIO trades to implementation
1437
4/5/2012 email from Douglas Braunstein, JPMorgan Chase, to Joseph Evangelisti, JPMorgan Chase, “Revised:
WSJ/Bloomberg CIO stories,” JPM-CIO-PSI 0000543.
1438
Id. at JPM-CIO-PSI 0000543-544.
1439
Id.
1440
Id.
1441
“JPMorgan Trader’s Positions Said to Distort Credit Indexes,” Bloomberg, Stephanie Ruhle, Bradley Keoun and
Mary Childs (4/6/2012), http://www.bloomberg.com/news/2012-04-05/jpmorgan-trader-iksil-s-heft-is-said-todistort-credit-indexes.html.
1442
“‘London Whale’ Rattles Debt Market,” Wall Street Journal, Gregory Zuckerman and Katy Burne (4/6/2012).
See also “JPMorgan Trader Accused Of ‘Breaking’ CDS Index Market With Massive Prop Position,” Zero Hedge
[blog], “Tyler Durden” (4/5/2012), http://www.zerohedge.com/print/446043.
1443
“‘London Whale’ Rattles Debt Market,” Wall Street Journal, Gregory Zuckerman and Katy Burne (4/6/2012).