JP Morgan Chase received the largest fine in FSA history today when it was determined that the bank failed to segregate client funds from the bank's proprietary assets. Ironically, the announcement of the £33.3 million fine ($48.6 million USD) was the first time most (if not all) the effected clients heard that their funds had been co-mingled with those of the bank. To JP Morgan's credit, the bank discovered the error themselves during an in-house audit and reported the error to the FSA.
The failings at JP Morgan took place over a seven year period between 2002 and 2009 and were only discovered last July. JP Morgan reported the problems to the FSA and today's fine is equivalent to 1pc of the average amount of money that was held improperly in the unsegregated account.
Proving yet again that no good deed goes unpunished.
Sometimes I truly believe the senate financial bill is justified. American BB's seem to make so many mistakes that end up harming clients, and sometimes the whole fucking world economy! Maybe a Wall Street firm should stick to M&A, market making, and brokerage services. It's honorable that they reported the error though, even though they probably figured if they didn't and it was discovered they'd be in big trouble.
Is this error related to prime brokerage or asset management clients?
Institutions and hedge funds.
I'm a bit confused. Was JPM actually using client money to finance prop positions? I.e increasing their book size in order to be able to take on more risk. Or was it simply a matter of storing the money in one account, even though the bank did not regard it as their own money, and so did not use it as collateral/finance for prop positions?
I'm almost certain it was the latter. I don't think any major bank is dumb enough to purposely co-mingle with the intent to increase leverage.
I doubt that any bank would increase leverage in this way, but then again it has been an interesting 2 years since 2008. I wouldn't be surprised if they did (though it would be absolutely stupid). I'm just happy to see those business ethic classes that the managers of these firms attended in college were not for nothing. JPM probably avoided a much larger fine by reporting it themselves. I say GOOD FOR JPM. Hopefully this is a trend setting action that banks report on themselves when mistakes are made.
If that is the case, is the client's money actually at more risk than it would be otherwise? If JPM doesn't have the money on its own balance sheet (and so not using it to increase leverage) and the prop position goes sour, then they can't use client money to cover losses right? It seems like the FSA is jumping on the bank bashing band wagon. Hardly seems worthy of 'the largest fine in FSA history'.
Co-mingling creates a massive moral hazard, and that's why it's illegal. My old boss just got 9 years in the federal pen for it (among other things including mail and wire fraud).
Braverman this is not the first time you've mentioned one of your co-workers finding themselves on the wrong side of the law/barbed wire fence. I strongly suspect you're currently in a non-extradite nation living in vast palace of marble, surrounded by indigenous servants and/or concubines. Is this true? Wanna hang out sometime?
LOL. I wish. I'd take an island hut with hot and cold running natives.
Yes, it's true I've worked with some characters over the years. My boss that just got sent up the river was just plain stupid, though.
You know who else worked with some characters? Michael Lewis. And nobody from Saloman Brothers went to jail. Where's your book(s)? Seriously though, people would buy that. "A BraverMan on Wall St."
Otherwise how will we know how not to get busted? Think of the monkeys!
Can you elaborate on why he got busted exactly? Curious.
Old fashioned Ponzi scheme, really. The classics never go out of style. He set up an FX trading company where he convinced people he could provide 30%+ returns while limiting downside with stops. When he couldn't deliver, he started spending client money as his own. He faked client statements to show they had more money than they actually did. When they asked for withdrawals, he sent them new client money. Eventually the music stopped.
There's one sure way I've learned how not to get busted, and it's served me well over the years.
Don't be the last one out turning out the lights.
Mike Lewis has about 5 years on me, but we came from the same era and have the same amount of incredulity that we were paid as much for what we did.
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