The U.S. Department of Justice and the Federal Bureau of Investigation in New York in May began a probe of the bank’s trading losses, a person familiar with the matter said. The Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, are also examining New York-based JPMorgan’s trading activities, according to people familiar with those probes.
JPMorgan restated first-quarter results to reduce net income by $459m after a review of the prices used in the unit. Yet multibillion-dollar losses and an internal report by the bank are just the beginning of any federal case, said Sam Buell, a former U.S. prosecutor in New York who worked on the Enron Corp. Task Force and is now a professor at Duke University School of Law.
'You can’t just say, ‘hey, this is bad, there are billions of dollars in losses, let’s prosecute someone'', Buell said. Eight weeks after Enron collapsed, the company’s board of directors produced a report about what transpired at the energy trader. Prosecutors, however, weren’t able to bring charges for two more years, he said.
JPMorgan’s statement 'suggests they are trying to isolate this as a problem that occurred below the management level', Buell said. Any attempt to reach beyond traders to management would be difficult for prosecutors, he said.
'In U.S. criminal law, we very rarely do hold people criminally responsible for failure to supervise', he said.'You need to show not only outright knowledge but also willful blindness -- having a strong suspicion that there is wrongdoing and then taking steps to avoid it'.
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