JPMorgan Chase has agreed to pay about $800 million to a host of government agencies in Washington and London — and make a groundbreaking admission of wrongdoing — to settle allegations stemming from a multibillion-dollar trading loss, people briefed on the matter said.
The settlements, expected this week, will help the nation’s biggest bank move beyond last year’s $6 billion blunder and mend frayed relationships with regulators. Senior JPMorgan executives also avoided charges in the case, another victory for the bank, despite initial questions about whether they misled investors about the risk of the trades.
Even so, it seems unlikely that the bank will be able to close the chapter on the case known as the London Whale just yet.
For one, an admission of wrongdoing with the Securities and Exchange Commission and other regulators — a reversal of a longtime policy that has allowed banks to “neither admit nor deny” misconduct — will be a rare stain on the reputation of a bank that prides itself on managing risk. It may also expose JPMorgan to private litigation.
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GraphicJPMorgan, the people briefed on the matter said, will acknowledge that it should have caught the problem faster. The settlement, which reflects a somewhat tougher line now being taken by the S.E.C. in seeking admissions from defendants, also will require the bank to admit that its lax controls allowed traders in a unit in London to build the risky position and cover up their losses.
And while the bank sought to settle with every regulator at once, at least one is not on board.
The Commodity Futures Trading Commission, the regulator overseeing the market in which the losses occurred, has balked at joining the broader settlement and plans to fine the bank later this year, the people briefed on the matter said. The agency split from fellow regulators as its investigation went in a different direction. Unlike the S.E.C., the trading commission has examined whether JPMorgan amassed a position so large that it “manipulated” the market for financial contracts known as derivatives.
By potentially striking out on its own, the trading commission has frustrated JPMorgan’s efforts to resolve the regulatory cases at once, the people briefed on the matter said.
Federal prosecutors and the F.B.I. in Manhattan are also still investigating the losses.
JPMorgan declined to comment on Monday. The bank has previously noted that it overhauled its internal controls, spotted the traders’ suspicious actions and reported them to the authorities.
In addition to the S.E.C., the looming settlements will include fines from the Federal Reserve and the Office of the Comptroller of the Currency. The settlements will take the bank to task over a breakdown in controls that allowed the trading losses to occur.
The Financial Conduct Authority, the British financial regulator, will also impose a fine on the bank.
The collective fines, while hardly record-breaking, outpace what some other big banks have paid when settling with multiple regulators. The penalties fall in between what other banks have paid to settle interest-rate rigging cases, for example, an investigation that led Barclays to dole out $450 million and UBS to pay $1.5 billion.
Even with the settlements in the trading loss case, the bank’s regulatory problems are far from resolved.
JPMorgan faces inquiries from at least seven federal agencies and two European nations. The authorities have cast a wide net, examining everything from the bank’s hiring practices in China to mortgage loans it sold to investors in the financial crisis.
Prosecutors and the F.B.I. in Manhattan are also examining whether JPMorgan did not alert authorities to suspicions about Bernard L. Madoff‘s Ponzi scheme, according to the people briefed on the matter. That investigation, while years old, has heated up in recent months as JPMorgan has become a magnet for federal attention.
In an earlier statement, a JPMorgan spokesman said the bank believed “that the personnel who dealt with the Madoff issue acted in good faith in seeking to comply with all anti-money-laundering and regulatory obligations.”
Grappling with the onslaught of scrutiny, and the perception that it was something of a bully in Washington, JPMorgan has aimed to settle most cases and take a conciliatory approach with government authorities, people close to the bank said. Senior executives negotiated the details of that approach at a meeting this summer, the people said.
That strategy, though, has yielded mixed results. Even after striking a $410 million settlement in July with the government over accusations it manipulated energy markets in California and Michigan, the bank faces an investigation by federal prosecutors who are examining the same activity.
And other settlement deals are proving more elusive.
The bank, the people briefed on the matter said, is struggling to settle with the Federal Housing Finance Agency, which has accused JPMorgan of selling shoddy mortgage securities to Fannie Mae and Freddie Mac, the government-controlled housing finance giants. Federal prosecutors in California investigating the bank’s sale of mortgage securities are also resisting the bank’s overtures.
Separately, JPMorgan is on the cusp of paying an $80 million fine to the comptroller’s office and the Consumer Financial Protection Bureau to resolve an investigation into its credit card practices. The consumer agency, however, is expected to continue investigating the way the bank collected credit card debt from customers, the people said.
In the case of the trading losses, the problems surfaced in early 2012 at the bank’s chief investment office in London. It was there that a group of traders bet on so-called credit derivatives, which allow them to wager on the perceived health of companies like American Airlines.
When the positions soured, the traders started to value them in a more optimistic way. Federal authorities say it was too optimistic.
The S.E.C. and federal prosecutors in Manhattan announced criminal charges against two of the traders last month, accusing them of deliberately overstating the value of their positions to hide hundreds of millions of dollars in losses. The two — Javier Martin-Artajo, a manager who oversaw the trading strategy, and Julien Grout, a low-level trader — were charged with wire fraud, falsifying bank records and contributing to false regulatory filings.
A formal indictment of the pair was filed with the United States District Court in Manhattan on Monday.
Yet both remain overseas. After leaving JPMorgan in London, Mr. Grout returned to his native France, which typically does not extradite its citizens. Mr. Martin-Artajo, a Spaniard who was on vacation in his home country when the charges were announced in August, recently surrendered to Spanish police but was released and is likely to fight extradition.
Prosecutors chose not to charge a third trader, Bruno Iksil, nicknamed the London Whale because of the huge size of his wagers. He reached a so-called nonprosecution deal with authorities in Manhattan that will spare him from charges as long as he cooperates against his two former colleagues.
If the cases against Mr. Martin-Artajo and Mr. Grout do proceed to trial, lawyers for both men are likely to argue that traders have significant leeway to value their positions. The derivatives market is known for its opacity, making it difficult to pinpoint an exact price in real time.
In the criminal complaints against the traders, authorities took swipes at the bank itself for its breakdown in controls and lack of oversight from executives.
According to the complaints, when another bank employee queried Mr. Grout about some of his valuations, he replied, “Ask management.”