JPMorgan Chase to pay $20M fine

Michael P. Tremoglie Apr. 5, 2012, 9:55am

WASHINGTON (Legal Newsline) - JPMorgan Chase Bank has arranged to pay a $20 million fine the U.S. Commodity Futures Trading Commission

The fine, announced Wednesday, was imposed for its allegedly unlawful handling of Lehman Brothers, Inc.'s customer segregated funds. The CFTC is also requiring JPMorgan to implement policies ensure the proper handling of customer segregated funds in the future.

The CFTC determined that JPMorgan, from at least November 2006 to September 2008, deposited Lehman customers' segregated funds with JPMorgan in large amounts that varied in size, but almost always more than $250 million at any one time. During the same time period, JPMorgan extended intra-day credit to LBI on a daily basis to facilitate LBI's proprietary transactions, including repurchase agreements, or "repos," the CFTC said.

According to the CFTC release, "JPMorgan would extend intra-day credit to LBI to the extent that LBI's 'net free equity' at JPMorgan was positive. As of Nov. 17, 2006, JPMorgan included LBI's customer segregated funds in its calculation of LBI's net free equity, even though these funds belonged to LBI's customers, not to LBI."

Federal regulations prohibit depository institutions, like JPMorgan, from using or holding segregated funds that belong to a futures commission merchant's customer as if they belonged to someone else and also prohibit the issuance of credit for those funds to anyone other than the customer.

The CFTC alleges that JPMorgan violated these prohibitions. The CFTC does not allege there were any customer losses.

"The laws applying to customer segregated accounts impose critical restrictions on how financial institutions can treat customer funds, and prohibit these institutions from standing in the way of immediate withdrawal," said David Meister, the Director of the CFTC's Division of Enforcement.

"As should be crystal clear, these laws must be strictly observed at all times, whether the markets are calm or in crisis."

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