By David Henry and Emily Flitter
Sept 19 (Reuters) - The "London Whale" trading scandal, oncedismissed as a "tempest in a teapot" by JPMorgan Chase & Co CEO Jamie Dimon, is costing the largest U.S. bank $920million in penalties and a rare public admission of wrongdoing.
Settlements with four U.S. and British regulators, madepublic on Thursday, resolve the biggest civil probes of thebank's $6.2 billion of Whale derivatives trading losses lastyear. Criminal investigations are still under way.
The bank called the settlements, "a major step in the firm'songoing efforts to put these issues behind it." It was cited forpoor risk controls and failure to inform regulators aboutdeficiencies in risk management that it knew about.
But the deals, hard fought in the case of the U.S.Securities and Exchange Commission, which narrowly approved itssettlement with a split vote, do not clear up the legal problemssome individuals at the bank might face as the SEC continues itsinvestigation. They also leave unresolved other issues that havehelped drive the bank's legal costs to $5 billion a year andundermined Dimon's hold on his job, as well as his influence onthe banking industry and its regulation.
Reaction to the settlements in Washington appeared mixed,with lawmakers responsible for financial oversight expressing arange views about whether enough had been done to hold JPMorganaccountable for the Whale scandal.
JPMorgan's board recently changed its rules to give morepower to directors other than Dimon after some shareholderscited the risk-control problems to argue that Dimon should notbe both board chairman and chief executive.
The company continues to face a criminal probe by U.S.prosecutors into the derivatives debacle, despite Dimon's publicinsistence that no bank executives intentionally misledinvestors.
But a person familiar with the matter said the SEC is stillinvestigating individuals and they are not consideredlower-level people.
"The whole issue of misinforming investors and the public isconspicuously absent from the SEC findings and settlement," saidSenator Carl Levin, a Michigan Democrat who chairs the SenatePermanent Subcommittee on Investigations (PSI).
"Our PSI investigation showed that senior bank executivesmade a series of inaccurate statements that misinformedinvestors and the public as the London Whale disaster unfolded.Other civil and criminal proceedings apart from this settlementare continuing, so there is still time to determine anyaccountability on that matter."
But Representative Maxine Waters, the ranking Democrat onthe House Financial Services Committee, praised the settlements,saying they sent a "powerful message to Wall Street."
Even as JPMorgan was hailing the settlements, it said it hadreceived a legal notice that the staff of another regulator, theU.S. Commodity Futures Trading Commission, intends to recommendan enforcement action against the bank for its derivativestrading.
The state of Massachusetts is also investigating, the banksaid.
"This certainly isn't a closure on the Whale," said analystCharles Peabody of Portales Partners.
(For a BREAKINGVIEWS column, "JPMorgan's management failingsbeggar belief," click on )
THE WHALE BRUNO
Bruno Iksil, the trader whose big bets earned him thenickname London Whale, has signed a cooperation agreement withprosecutors and has not been charged with any wrongdoing. Twoother traders who worked with Iksil in London, JavierMartin-Artajo and Julien Grout, have been criminally charged byU.S. prosecutors over their role in the scandal, accused oftrying to hide the mounting losses.
The penalties announced Thursday include $300 million to bepaid to the U.S. Office of the Comptroller of the Currency, $200million to the Federal Reserve, $200 million to the U.S.Securities and Exchange Commission and 137.6 million pounds($219.74 million) to the UK's Financial Conduct Authority.
The total penalty is one of the highest ever paid by a bank,but is well short of the $1.92 billion that London-based HSBCHoldings Plc agreed to pay last year to settle moneylaundering charges.
Penalties are determined by laws governing the amount eachagency can charge in penalties for each violation of a rule,then are fine-tuned through negotiations between the regulatorsand the bank.
Dimon said in a statement issued by the company: "We haveaccepted responsibility and acknowledged our mistakes from thestart, and we have learned from them and worked to fix them."
George Canellos, co-director of the SEC's enforcementdivision, said in statement: "At its core, today's case is abouttransparency and accountability, and JPMorgan's admissions are akey component in that message."
Canellos said the bank admitted that it "broke the law -because JPMorgan's egregious breakdowns in controls andgovernance put its millions of shareholders at risk and resultedin inaccurate public filings."
Michael Piwowar, the newest Republican member of the U.S.Securities and Exchange Commission, voted against approving theJP Morgan settlement in a split 2-1 vote, according to peoplefamiliar the matter.
In the closed-door meeting last week, Piwowar said he wasconcerned that the SEC was fining the company, which could hurtshareholders, rather than taking action against top executivesat the bank, one of those people said.
Mary Jo White, who currently chairs the SEC, and RepublicanCommissioner Daniel Gallagher, whose prior employers did legalwork for the bank, were recused from voting on JPMorgan.
While the SEC has said it is continuing its Whaleinvestigation, a JPMorgan spokesman said SEC staff told the bankit did not anticipate bringing any action against Dimon.
JPMorgan also faces other investigations that includepossible bribery in hiring practices in China and potentiallyfraudulent sales of mortgage securities.
"You are seeing the regulators ratchet up the heat on thebanks," said Portales Partners' Peabody. "If you are too big tomanage, they are going to make you pay."
JPMorgan shares closed down 1.2 percent at $52.75 on the NewYork Stock Exchange.
INTENSE SCRUTINY
The bank has been under intense scrutiny from the U.S.government since May 2012, when Dimon disclosed the firm waslosing billions of dollars on derivatives deals that had beenquestioned a month earlier in news reports.
Dimon initially criticized those reports as a "tempest in ateapot." He has repeatedly apologized for that remark and saidthe bank was "stupid" in handling the trades from a London deskof the bank's Chief Investment Office.
While Dimon is not cited by name in the SEC's administrativeorder, the regulatory filing notes he is included in itsreferences to "senior management." It does not, however, pointblame at any single top executive.
The criminal investigations are focusing on whether peopleinside the bank had more detailed knowledge about the potentiallosses than the bank acknowledged in its early publicstatements, sources familiar with the probe have told Reuters.
Thursday's civil penalties follow orders in January from theOffice of the Comptroller of the Currency and the FederalReserve directing JPMorgan to improve its risk control systems.
In April, Dimon said in a letter to shareholders that fixing risk controls was the bank's top priority, and that someprojects aimed at building the company's business would have tobe put aside.
The settlement announcements reveal some new details aboutthe scandal, which has been the subject of congressionalhearings.
For example, the Chief Investment Office's own assessment ofthe value of its credit derivatives made other bank officials souncomfortable that one unnamed senior investment bankingexecutive consulted an outside lawyer before signing documentsthat would go in the company's public financial reports,according to the SEC's order.
But many of the settlement details came out previously in acongressional report on the trading scandal or in the criminalindictments against Martin-Artajo and Grout.
Also on Thursday, bank regulators ordered JPMorgan toimprove its consumer debt-collection practices. The order, fromthe Comptroller of the Currency, does not include financialpenalties. Some of the issues go back to allegations made publicmore than two years ago.
Despite the OCC order, JPMorgan still faces an investigationfrom a group of 13 states over its debt-collectionpractices.
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