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

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After the SCP whale trades became public, some investors and analysts asked JPMorgan
how the CIO traders were compensated and whether their compensation was linked to SCP
profits, 371 but the bank chose not to disclose publicly their compensation levels. The Task Force
did report, however, that it recovered “approximately two years’ worth of each individual’s total
compensation” from Mr. Macris, Mr. Martin-Artajo, and Mr. Iksil, as well as from their
supervisor, Ina Drew. 372
The JPMorgan Task Force also recommended that the bank make it clear to employees in
the future that losses are sometimes expected and, if the losses are a consequence of achieving
bank priorities, will not necessarily reduce compensation:
“CIO management, including Ms. Drew, should have emphasized to the employees in
questions that, consistent with the Firm’s compensation framework, they would be
properly compensated for achieving the RWA and neutralization priorities – even if, as
expected, the Firm were to lose money doing so. There is no evidence that such a
discussion took place. In the future, when the Firm is engaged in an exercise that will
predictably have a negative impact … on a front office employee’s or business unit’s
contribution to the Firm’s profits and losses, the Firm should ensure those personnel are
reminded that the Firm’s compensation framework recognizes that losses (as well as
profits) are not necessarily the measure of success.” 373
(6) 2012 Opens with Order to Reduce RWA
The year began with a decision by bank management to reduce the SCP, but instead, over
the next three months, the SCP exploded in size, complexity, and risk.
According to JPMorgan Chase’s Chief Financial Officer Douglas Braunstein, by the end
of 2011, senior JPMorgan Chase management, including Jamie Dimon and Ina Drew, had
determined that the macroeconomic environment was improving 374 and credit markets were
expected to improve as well, with fewer defaults. 375 The SCP traders also expressed the view
that they were getting “bullish signals” at the end of December, in part because the European
Union had agreed to provide long-term financing to prop up “bank lending and liquidity” in
Europe. 376
As Mr. Braunstein explained to the Subcommittee, there was also less of a need for
371
7/13/2012 “JPMorgan Chase’s CEO Discusses Q2 2012 Results – Earnings Call Transcript,” transcribed by
Seeking Alpha (A question from an unidentified analyst asks “I’m just wondering if in the CIO review there was any
conclusions based on – if incentives were aligned with long-term shareholder interest.”)
372
2013 JPMorgan Chase Task Force Report, at 106. See also id., at 109 (reporting that the bank had strengthened
its ability “to claw back certain equity awards in the event of poor performance by CIO”).
373
Id., at 93.
374
Subcommittee interview of Douglas Braunstein, JPMorgan Chase (9/12/2012).
375
Id.
376
JPMorgan Chase Task Force interview of Javier Martin-Artajo, CIO (partial readout to Subcommittee on
9/6/2012). See also 12/8/2012 European Central Bank Press Release,
http://www.ecb.int/press/pr/date/2011/html/pr111208_1.en.html.