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

273
had increased in size since January and had changed from a net short to a net long posture, 1536
signaling short-term changes in the portfolio’s size and strategy. In addition, Achilles Macris,
who oversaw the SCP trading, emailed Mr. Braunstein on April 8, 2012 that: “the most
rewarding, short-term catalyst for CIO would be an MBIA related default event[.]” 1537
His email
did not discuss any “very long-term” decision-making measures regarding the SCP.
Telling investors that “all of the decisions” in the SCP were made on a “very long-term
basis” appears to have been an attempt to signal that the portfolio was handled in a conservative
manner without the risks associated with short-term trading activities. It was also a description
at odds with the facts, given that the SCP had tripled in size in just three months and had
acquired billions of dollars in new credit derivative holdings in March alone which shifted the
portfolio from a net short to a net long posture. Investors were not told that from 2011 to 2012,
there were major strategic changes in the portfolio’s goals, tactical changes about how to
accomplish those goals, and daily position transactions, sometimes of substantial volume,
followed by escalating losses. They also weren’t told that, on March 23, 2012, Ms. Drew
ordered SCP trading halted altogether so that the bank could analyze and gain control of the
portfolio. By April 13, 2012, it was a portfolio in disarray, not one whose every decision had
been made on a “very long term basis.”
(4) Mischaracterizing SCP Whale Trades As Hedges
In early April 2012, as the bank was responding to media inquiries about the whale
trades, it made multiple statements that the purpose of the CIO’s Synthetic Credit Portfolio was
to hedge the bank’s risks. For example, one article reported the following:
“Joe Evangelisti, a spokesman for J.P. Morgan, declined to comment on specific
trades, or Mr. Iksil, except to say that recent trades were made to hedge the firm’s
overall risk. The group ‘aims to hedge the bank’s global structural risks and the
unit’s investments are directly related to managing those risks,’ he said. The bank
views its recent selling in the context of a range of related positions and feels its
risk is now effectively balanced, added Mr. Evangelisti.” 1538
Two days later, during the bank’s April 13 earnings call, Mr. Braunstein explained:
“[W]e also need to manage the stress loss associated with that portfolio and – so
we have put on positions to manage for a significant stress event in credit. We've
had that position on for many years, and the activities that have been reported in
the paper are basically part of managing that stress loss position, which we
moderate and change over time, depending upon our views as to what the risks
are for our stress loss from credit. All of those decisions are made on a very longterm
basis. They're done to keep the company effectively balanced from a risk
1536
See 4/12/2012 email from Ina Drew, CIO, to Jamie Dimon, Douglas Braunstein, JPMorgan Chase, and others,
“Synthetic Credit Materials,” at JPM-CIO-PSI 0001103 (see table comparing “main exposures” of the book in
January and Current).
1537
4/8/2012 email from Achilles Macris, CIO, to Ina Drew, CIO, and others, “Synthetic Credit Summary,” JPM-
CIO-PSI 0001588 (underline in original).
1538
“Making Waves Against ‘Whale,’” Wall Street Journal, Katy Burne (4/11/2012).