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<span class="" title="2013-03-04T21:03:02+00:00">March 4, 2013, <span>9:03 pm</span></span>
<h3 class="">Senate Report Said to Fault JPMorgan</h3>
<address class="">By <a href="http://dealbook.nytimes.com/author/ben-protess/" class="" title="See all posts by BEN PROTESS">BEN PROTESS</a> <span>and</span> <a href="http://dealbook.nytimes.com/author/jessica-silver-greenberg/" class="" title="See all posts by JESSICA SILVER-GREENBERG">JESSICA SILVER-GREENBERG</a></address>
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<p> While a trader known as the “London whale” has come to represent a multibillion-dollar blowup at <a href="http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org">JPMorgan Chase</a>, Congressional investigators have discovered that the problems involved more senior levels of the nation’s largest bank.</p>
<p>A
report by the Senate Permanent Subcommittee on Investigations
highlights flaws in the bank’s public disclosures and takes aim at
several executives, including Douglas Braunstein, who was chief
financial officer at the time of the losses, according to people briefed
on the inquiry. The report’s findings — scheduled to be released on
March 15 — are expected to fault the executives for allowing JPMorgan to
build the bets without fully warning regulators and investors, these
people said.</p><p>The subcommittee, led by Senator Carl Levin, could
ask Mr. Braunstein and other senior executives to testify at a hearing
this month, according to the people. The subcommittee does not currently
intend to call the bank’s chief executive, <a href="http://topics.nytimes.com/top/reference/timestopics/people/d/james_dimon/index.html?inline=nyt-per">Jamie Dimon</a>, but Congressional investigators interviewed Mr. Dimon last year.</p>
<p>JPMorgan,
which has been cooperating with the investigation and discussed the
findings with the subcommittee, declined to comment. Mr. Braunstein and
other bank executives have not been accused of any wrongdoing, and he is
not the focus of a separate law enforcement investigation into the
trading loss.</p><p>Congressional officials have yet to set the final
details of the hearing and plans may change, the people cautioned.
Politico earlier reported the scheduled date for the release of the
report.</p><p>The Congressional investigation could revive questions
about the role of senior executives in the $6 billion trading loss at a
time when the bank has started to put the blunder behind it.</p><p>Mr.
Dimon declared last year that the “Whale has been harpooned.” The bank
reported record earnings in January and has forced out the architects of
the bet.</p><p>The Senate report, however, shifts the focus from
lower-level traders in London who placed the bet to senior executives
and regulators who failed to stop it. Expanding on a sweeping report the
bank released in January, the Congressional inquiry is expected to open
a window into how executives ignored warning signs and failed to alert
investors about changes to its method for detecting risk.</p><p>Because a
large majority of the executives involved in the trade have since
departed the bank, the hearing could increase scrutiny of Mr. Braunstein
and Mr. Dimon, the remaining senior executives. Within JPMorgan, people
close to the bank say, executives have expressed dismay about the
lingering questions.</p><p>The report, a reminder that Wall Street
blowups continue even four years after the financial crisis, could
galvanize support for regulations like the <a href="http://topics.nytimes.com/top/reference/timestopics/subjects/v/volcker_rule/index.html?inline=nyt-classifier">Volcker Rule</a>
that aim to rein in risky trading. Mr. Levin, a Democrat of Michigan
who champions the Volcker Rule, is expected to use the report to endorse
policy changes, including stricter public disclosures.</p><p>But Mr. Levin’s staff is still negotiating with the committee’s Republicans over the recommendations. <a href="http://topics.nytimes.com/top/reference/timestopics/people/m/john_mccain/index.html?inline=nyt-per">John McCain</a>, the ranking Republican, has largely approved the report’s findings but continues to examine the policy ideas, the people said.</p>
<p>A spokesman for Mr. McCain declined to comment.</p><p>The
subcommittee’s report coincides with a federal investigation into four
employees in London, including Bruno Iksil, the so-called Whale, who
carried out the trades at the bank’s chief investment office. The <a href="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_bureau_of_investigation/index.html?inline=nyt-org">Federal Bureau of Investigation</a> is conducting inquiries into some of the traders, according to officials, suspecting they hid problems from the bank.</p>
<p>But
the subcommittee’s investigators seized on e-mails suggesting that Mr.
Iksil had raised alarms about the bet. In an e-mail to a more senior
trader in January 2012, he advised against increasing the bet, according
to people who reviewed the message. The size of the trades, Mr. Iksil
said, were becoming “scary” and advised that the investment office take
the “full pain” now, according to a person briefed on the e-mails.
JPMorgan released the e-mails without naming the traders.</p><p>By
February, Mr. Iksil grew worried as he struggled to understand why
losses were escalating. Later that month, he instructed a junior trader
to temporarily halt trading. Their boss later reversed that decision.</p><p>The
subcommittee’s report is expected to detail how senior executives
failed to heed warnings from London. Some of those findings echo
JPMorgan’s report, released this January, which examined the role of Mr.
Braunstein; Ina Drew, who led the chief investment office; and Barry L.
Zubrow, a former chief risk officer. Ms. Drew and Mr. Zubrow have since
left the bank.</p><p>Scrutiny around Mr. Braunstein, who is now a vice
chairman at the bank, partly focused on his reliance on other people’s
assurances about the safety of the trades. In its own analysis of the
trade, JPMorgan said Mr. Braunstein incorrectly assumed that the
positions in the chief investment office were “manageable.”</p><p>The
focus on Mr. Braunstein also stems from the bank’s inconsistent
statements. He dismissed concerns about the positions in April 2012,
assuring analysts in a conference call that the bank was “very
comfortable with our positions.” The subcommittee has examined whether
those disclosures were misleading.</p><p>The subcommittee further
examined whether the bank failed to alert investors about a change in
its internal alarm system. The bank in January 2012 introduced a new
value-at-risk model that underestimated the losses in the investment
office. The bank did not inform investors about the model change until
May.</p><p>In the lead-up to the subcommittee’s reports, the bank faced
questions about similar disclosures to regulators. In some instances,
the people briefed on the report said, bank employees initially resisted
requests from regulators at the <a href="http://topics.nytimes.com/top/reference/timestopics/organizations/c/comptroller_of_the_currency/index.html?inline=nyt-org">Office of the Comptroller of the Currency</a> who sought deeper details.</p>
<p>But regulators will not escape criticism in the report.</p><p>The
bank warned some regulators about the changing risk model, a person
briefed on the matter said. In an e-mail to an official in the
comptroller’s office, the bank disclosed that the new model could cut
its risk in half, something that might have been viewed as a startling
revelation.</p></div>
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