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US bank pay fines to settle charges of illegal activity

AJE News ... JP Morgan pays $20m in Lehman case ... US bank agrees to pay fine to settle federal regulator charges of illegally handling customer funds deposited by Lehman.

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Peter Burgess

Americas JPMorgan pays $20m fine to settle Lehman case US bank agrees to pay fine to settle federal regulator charges of illegally handling customer funds deposited by Lehman.

IMAGE The settlement involved JPMorgan's handling of funds when the Lehman Brothers collapsed [EPA]

JPMorgan Chase has agreed to pay a $20m fine to settle federal regulators' civil charges of illegally handling customer funds that failed Lehman Brothers had deposited with the bank.

The Commodity Futures Trading Commission (CTFC) announced the settlement on Wednesday.

The case involved JPMorgan's handling of customer funds from November 2006 to September 2008 when Lehman collapsed. Lehman's futures brokerage firm, LBI, deposited its customers' funds with JPMorgan.

The CFTC said JPMorgan extended too much credit to LBI on a daily basis for its own trades because the bank included customer funds in calculating LBI's equity.

'The case is now closed becase JPMorgan agreed to pay $20m, neither denying nor admitting any responsibility,' said Al Jazeera's John Terrett, reporting from Washington.

'$20m to a bank like JPMorgan is absolutely nothing at all,' Terrett said, adding that the sum was 'a paltry figure'.

The handling of customer funds at futures brokerages has drawn more attention since the failure last year of MF Global.

About $1.6bn in MF Global customer funds are missing.

'Enormous economic turmoil'

The collapse of Lehman Brothers into the biggest bankruptcy in US history in September 2008 precipitated the financial meltdown that plunged the economy into the most severe recession since the 1930s.

The CFTC also alleged that after Lehman Brothers filed for bankruptcy protection, JPMorgan refused Lehman's repeated requests to release the customer funds, which totalled about $330m, holding on to them for about two weeks.

It was only after CFTC officials told JPMorgan to release the funds that the bank did so, the agency said.

JPMorgan 'acted as if these funds were LBI's funds, not customer' funds, the CFTC said in its order.

'Thus it denied LBI's lawful transfer request and prevented customers from having immediate access to their funds in a time of enormous economic turmoil.'

In a statement, JPMorgan said it 'mistakenly factored the balance' in LBI's account in its daily calculation of the firm's equity to determine how much credit to extend it.

The size of the account was small 'relative to the overall relationship between JPMorgan and Lehman,' the bank said.

'No customer funds were ever used to satisfy any LBI debt to JPMorgan, nor were any customer funds in these accounts lost,' JPMorgan said.

'The CFTC does not claim that JPMorgan Chase intentionally violated' federal commodities laws or CFTC regulations.

The bank said it co-operated with the CFTC's investigation 'and is pleased to have resolved this matter'.

Strict observation

JPMorgan agreed as part of the settlement to take steps to ensure proper handling of customer funds in the future and to release them when asked to do so by the agency.

CFTC Enforcement Director David Meister said federal laws 'impose critical restrictions on how financial institutions can treat customer funds, and prohibit these institutions from standing in the way of immediate withdrawal.'

'As should be crystal clear, these laws must be strictly observed at all times, whether the markets are calm or in crisis,' Meister said in a statement.

Source: Al Jazeera and Agencies

Last Modified: 14 May 2012 09:40 inShare 5EmailPrintShareFeedback

http://www.aljazeera.com/video/americas/2012/04/2012450599143192.html Financial giant JP Morgan Chase will pay $20m to settle claims from former customers that the bank mishandled their funds. US regulators said JP Morgan extended too much credit to Lehman Brothers in the years before the former US banking firm went bankrupt. The Lehman Brothers collapse was viewed as a major contributor to the 2008 financial crisis. Al Jazeera's Cath Turner reports from New York.