Kathy Burger and Bryan Yurcan also contributed to this report.
The legal fallout from last summer's London Whale scandal hit JPMorgan Chase this week. Two traders involved in the bank's London office, where the trades that led to the scandal originated, are being charged with fraud for allegedly concealing losses from their managers, after a U.S. Senate investigation earlier this year determined that JPMorgan misled regulators and investors about the losses. Bruno Iksil, the London Whale himself, is reportedly cooperating with investigators. We take a look at reactions from around the financial, legal and media industries to the charges and their implications.
A Perfect Storm Of Misconduct & Inadequate Controls
"This was not a tempest in a teapot but, rather, a perfect storm of individual misconduct and inadequate internal controls."
— Preet Bharara, U.S. Attorney for the Southern District of New York, at a press conference to announce charges against two former JP Morgan employees implicated in the trades.
Massive Cover Up
"These traders brazenly accumulated a massive position in derivatives with lax oversight, and then lied to cover up their massive losses when the market turned against them."
- George Canellos, co-director of the SEC's enforcement division.
The Real Problem
"The allegations made by the government — fraud, concealment of facts, falsification of losses both internally and to the outside world — are certainly worthy of prosecution. But they don't address the underlying problem: how did a firm renowned for its risk management fail to stop a multi-billion dollar loss in the first place?"
— Michael Bobelian, Forbes
Other Peoples' Money
"I know prop trading has grown enormously in recent years, but is JP Morgan so rich that $6 billion does not hurt? That it does not cause the chief executive to go nuclear, rather than dismiss it so casually? The latter may be true, in which case it confirms the suspicion that banks increasingly function on a different plane, one divorced from ordinary people, where $6 billion is a mere trifle. It does not seem right. What if, though, the Whale's stake money was not the bank's at all, not a client's or clients', but someone else's -- namely, the U.S. taxpayer."
— Chris Blackhurst, The Independent
Evading Risk Limits
"At a huge bank like J.P. Morgan, there are many layers of authority, and nobody knows everything that is going on. But the evidence that the Congressional committee turns up does illuminate the limits of the lone-trader story. And it also points to another theory of the case, which is that the bank's chief investment office, far from merely hedging risks taken elsewhere in the bank, actually functioned as something like an internal hedge fund, placing huge bets on the markets and evading risk limits with which traders elsewhere in the firm had to conform."
— John Cassidy, The New Yorker
Will Bigger Fish Fry?
"Two arrests are a good start, but it must be the beginning of a major change at the Department of Justice and the SEC where they finally apply the law without fear or favor to the wealthy, powerful and well-connected of Wall Street. All eyes are on the next moves by DOJ and the SEC. Are they going to just arrest minnows or are they also going after the law-breaking whales that made the key decisions, disclosures and public statements?"
— Dennis Kelleher, CEO of Better Markets, a nonprofit group advocating financial reform, wrote in a statement.
[The Tao of Dimon: JPMorgan Chase CEO Jamie Dimon's Most Memorable Quotes]
Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio