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

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after the May 10 call, analysts specifically asked about the bank’s risk management efforts. 1512
For example, hours after the May 10 call, one analyst asked the bank’s head of investor relations,
“who was watching the CIO? Doesn’t internal audit monitor this?” 1513 Another analyst
commented: “Pretty big confidence blow for best risk manager; very puzzling.” 1514
Ultimately, the bankwide risk management function did take over the management of the
Synthetic Credit Portfolio, but that did not occur not until April 27, two weeks after Mr.
Braunstein’s statement. On April 27, Chief Risk Officer John Hogan sent his deputy, Ashley
Bacon, with Mr. O’Rahilly from the Investment Bank, to the CIO London trading office to
1515
analyze the portfolio’s transactions.
The bank and CEO Jamie Dimon have long touted its best-in-business approach to risk
1516
management which it claims contributes to its “fortress balance sheet.” By telling investors
that its credit derivatives trades had been run by the bank’s respected firm risk management
team, Mr. Braunstein likely sought to instill investor confidence in the trades as ones where firmlevel
risk experts had evaluated the positions on the basis of potential risk and signed off on
them. The problem with this representation, however, is that it was not true.
1512
See 5/10/2012 email from Sarah Youngwood, JPMorgan Chase, to Jamie Dimon, JPMorgan Chase, and others,
“10Q call – Buyside and sellside comments (1),” JPM-CIO-PSI 0014783; see also 5/11/2012 email from Sarah
Youngwood, JPMorgan Chase, to Jamie Dimon, JPMorgan Chase, and others, “10Q call – Buyside and sellside
comments (3),” JPM-CIO-PSI 0017712 (“all, here are a few comments/themes regarding today’s calls … questions
around broader risk management issues ….”); 5/10/2012 email from Sarah Youngwood, JPMorgan Chase, to Jamie
Dimon, JPMorgan Chase, and others, “10Q call – Buyside and sellside comments (2),” JPM-CIO-PSI 0017754 (“Is
this something that we should be concerned about in terms of the culture or risk management across the firm?”).
1513
Id.
1514
Id.
1515
Subcommittee briefing by JPMorgan Chase (8/15/2012) (Harry Weiss); Subcommittee interview of John Hogan
and Ashley Bacon, JPMorgan Chase (9/4/2012) (describing how Mr. Bacon’s role with respect to the whale trades
became “all consuming” on April 27.).
1516
See, e.g., “America’s Traditional Strengths Will Win Out,” Fortune, Jamie Dimon (4/9/2009, last updated
4/22/2009) http://money.cnn.com/2009/04/19/news/companies/dimon.fortune/index.htm (“Ultimately, however, it is
up to us to manage our own companies wisely. That is why we have what I call a fortress balance sheet. What that
means is a significant amount of capital; high quality of capital; strong liquidity; honest, transparent reporting; and
excellent risk measurement and management. … We have to balance risk taking with doing what's right for our
customers and shareholders. I always say my grandma could have made those crazy profits by taking more risk. But
are you building a better business?”); testimony of Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co., First
Public Hearing before the Financial Crisis Inquiry Commission, at 1-2 (January 13, 2010) http://fcicstatic.law.stanford.edu/cdn_media/fcic-testimony/2010-0113-Dimon.pdf
(“As a result of our steadfast focus on risk
management and prudent lending, and our disciplined approach to capital and liquidity management, we were able
to avoid the worst outcomes experienced by others in the industry. … We have always … been acutely focused on
maintaining a fortress balance sheet.”); JPMorgan Chase, “Our Business Principles,” at 5,
http://www.jpmorganchase.com/corporate/About-JPMC/document/business_principles.pdf (“Create and maintain a
fortress balance sheet.”).