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

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When the SCP’s massive trades were made public on April 6, 2012, the bank initially
responded by volunteering an inaccurate description of the SCP. The extensive problems
surrounding the SCP as discussed throughout this Report – the tripling of the portfolio’s size, its
concentrated positions that required weeks or months to exit, its escalating losses that were being
underreported, its ongoing risk limit breaches, and the risk models that masked the SCP’s true
risk profile – were concealed behind expansive statements that the bank was comfortable with its
positions and that the concerns raised in the media were a tempest in a teapot. The evidence
suggests that the bank initially mischaracterized or omitted mention of the SCP problems, not
just because it believed the SCP would recover, but also because JPMorgan Chase likely
understood the market would move against it even more if those facts were known. And once
those facts were known, that is exactly how the market reacted, dropping the value of the bank’s
stock by 25% in the weeks following the SCP disclosures in the bank’s May 10-Q filing. The
bank’s initial claims that its risk managers and regulators were fully informed and engaged, and
that the SCP was invested in long-term, risk-reducing hedges allowed by the Volcker Rule, were
fictions irreconcilable with the bank’s obligation to provide material information to its investors
in an accurate manner.
rebound. See, e.g., undated chart entitled, “Credit Spreads on IG9 Index,” prepared by JPMorgan Chase, JPM-CIO-
PSI 0002062, reprinted in Chapter III.