The U.S. attorneys’ office and the F.B.I. are exploring ways to penalize JPMorgan Chase & Co. (NYSE:JPM) over the ‘London Whale’ case.


The penalty charge comes amidst reports the federal authorities are preparing to initiate criminal proceedings against two of the bank’s former employees.

Last week, it was reported that the Securities and Exchange Commission might demand that JPMorgan Chase & Co. (NYSE:JPM) admit to doing wrong in the London Whale case, which lost the bank billions of dollars last year. An admission of guilt could be part of a requirement in a settlement deal if new SEC Chairman Mary Jo White decides to make an example of the bank.

Criminal charges against former employees

Ben Protess and Jessica Silver-Greenberg of Dealbook note the United States attorney’s office and the F.B.I. in Manhattan could charge JPMorgan Chase & Co. (NYSE:JPM)’s former employees on suspicion that the employees masked the size of the trading losses as they spun out of control.

The employees, who were working as traders in the bank’s London offices, reportedly took a huge bet on the health of large corporations such as American Airlines. The employees made their wager using complex financial derivatives contracts whose value is typically tied to an asset such as corporate bonds.  The losses are now estimated at over $6 billion.

Prosecutors are also expected to cite the fact that in July 2012, JPMorgan Chase & Co. (NYSE:JPM) restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the valuations.

The prosecutors’ attempt to charge employees of a Wall Street giant like JPMorgan, even when they fall below the executive ranks, could send a warning to employees across the financial industry.

JPMorgan faces flurry of regulatory actions

The largest bank in the United States in terms of assets is facing a flurry of regulatory problems.

Last week, JPMorgan Chase & Co. (NYSE:JPM) indicated that federal authorities started their civil and criminal investigation related to the bank’s mortgage-backed securities offerings from 2005 to 2007.

The bank’s main regulator, the Office of the Comptroller of the Currency, has ordered JPMorgan Chase & Co. (NYSE:JPM) to improve its internal controls. The Federal Deposit Insurance Corporation, the Commodities Futures Trading Commission and state regulators in Massachusetts continue to investigate the losses incurred by the bank. Apart from the trading losses, the bank is also under scrutiny as prosecutors in Manhattan are also examining whether JPMorgan did not alert authorities to suspicions about Bernard L. Madoff, as the bank might have violated a federal law requiring banks to report questionable activity to authorities.