CHRONICLES OF THE COMING WORLD

An initiative of Eva Joly, Member of the Greens/EFA group in the European Parliament

47 BANKING SCANDALS PART THREE

by Jon Thorisson. 18.12.2015

This is the third part of my journey through the list of 47 banking scandals put
together by Robert Jenkins, a former member of the Bank of Englands financial
stability policy committee

JPMorgan Ventures Energy Corporation or JPMVEC hired a young lawyer who on

his CV, applying for a job with JPMorgan boasted, that while working at Southern
California Edison in Power Procurement he had identified a flaw in the market
mechanism Bid Cost Recovery that is causing the CAISO (the California grid
operator) to misallocate millions of dollars.
The JP Morgan scheme was on of the cases brought to light in a two-year
investigation conducted by the U.S. Senates Permanent Subcommittee on
Investigations into Wall Streets ownership of physical commodities and rigging
of commodity markets. Senator Carl Levin, the Chair of the Subcommittee,
commented on the resume:
Theres two things that I find incredible about this. First, that anyone would
advertise in a resume that they know about a flaw in the system signalling that
theyre ready and willing to exploit that flaw. And, second, that somebody would
hire the person sending that signal.
Following the Senate investigation JP Morgan Venture Energy Corporation was,
in 2013, fined 410 million dollars for raising electricity rates between September
2010 and November 2012 through "manipulative bidding strategies". The fine
stands in contrast with JP Morgans estimate that the strategy could produce
profits of between $1.5 and $2 billion trough 2018!
Barcleys and Deutsche Bank, among others, have been fined by regulators for
similar offences.
http://wallstreetonparade.com/2014/12/jpmorgan-rushed-to-hire-trader-whosuggested-on-his-resume-that-he-knew-how-to-game-electric-markets/
http://qz.com/105890/heres-why-jp-morgan-is-being-accused-of-enron-styleshenanigans/
http://www.troutmansanders.com/en-US/jpmorgan-settles-ferc-manipulationallegations-for-410-million-07-30-2013/
http://articles.latimes.com/2012/jul/18/business/la-fi-hiltzik-20120718

benchmark index (ISDAfix)

ISDA (International Swaps and Derivatives Association Inc.) established ISDAFIX
in 1998.
ISDAFIX provides rates for the euro, Hong Kong dollar, Japanese yen, British
pound, Swiss franc, and U.S. dollar. The ISDAFIX levels are used by all kinds of
market participants, to determine borrowing costs and to value much of the
$379 trillion of outstanding interest-rate swaps traded around the world. The
U.S. Federal Reserve includes ISDAFIX in its daily reports on money-market rates.
ISDAFIX is also used to value derivatives trades on options on rate swaps.
In April 2013, several news outlets reported that the U.S. Commodity Futures
Trading Commission (CFTC) was investigating manipulation of the ISDAFIX rates
and had issued subpoenas to as many as 15 Wall Street banks on uncovered
evidence that banks made millions in trading profits at the expense of companies
and pension funds by manipulating a the ISDAfix benchmark. The ISDAfix
investigation is a spin-off of the Libor manipulation scandal.
In a press release issued on May the 20th, 2015 the Commodity Futures Trading
Commission announced that it had imposed over $ 4.6 billion in fines in 15
Actions against Banks and Brokers to Address FX, LIBOR, and ISDAFIX
Benchmark Abuses1
http://sfcassociates.com/wp-content/uploads/2013/07/Understanding-theISDAfix-Controversy-and-Its-Potential-Impact.pdf
http://www.elbornes.com/downloads/lecturepdfs/The_ISDA_Fix_Scandal_Articl
e.pdf
http://www.bloomberg.com/bw/articles/2013-04-18/meet-isdafix-the-liborscandals-sequel
http://www.maxkeiser.com/2014/09/as-isdafix-becomes-next-libor-can-gofomanage-to-avoid-the-spotlight/
http://www.ft.com/intl/cms/s/0/61fc23ae-d04c-11e3-af2b00144feabdc0.html#axzz3uUKpF54p

US anti- trust laws

In September 2015, twelve major banks made a preliminary agreement to pay
$1.87 billion to settle allegations that they colluded to fix prices and keep out
competitors in the market for insurance-like products.

http://www.cftc.gov/PressRoom/PressReleases/pr7180-15

According to a complaint filed in US District Court in New York, Bank of America,

JPMorgan Chase, Goldman Sacs, Barcleys Royal Bank of Scotland BNP Paribas,
Morgan Stanley, Citigroup, Credit Suisse, Deutsche Bank and HSBC conspired to
control the information about the multi-trillion dollar credit-default swap
market in violation of US antitrust laws.
http://www.straitstimes.com/business/banking/10-of-the-biggest-banks-in-usaccused-of-interest-rate-swap-fixing-in-class-action
http://www.institutionalinvestorsecuritiesblog.com/2015/09/bank_of_america
_deutsche_bank.html
http://www.cnbc.com/id/48236325
http://www.independent.co.uk/news/business/news/rbs-and-barclays-faceyet-another-banking-scandal-8682536.html

A trader at JP Morgan Chase in London, Bruno Iksil, known as the London Whale
lost at least $6.2 billion for the bank in 2012 in trades that violated securities
laws. Neither Mr. Iksil himself nor senior managers faced criminal charges in the
UK and the case has been settled, with the bank paying fines of more than $ 1
billion.
U.S prosecutors on the other hand indicted two of JP Morgans staff involved in
the scheme, for securities fraud by hiding the extent of losses from the banks
management.
The U.S. Senates permanent subcommittee on investigations issued a 300-page
report on the London Whale losses on March 15, 2013.
In the report (JPMorgan Chase Whale Trades: A Case History of Derivatives Risks
and Abuses2) the committee states that the trades provided a startling and
instructive case history of how synthetic credit derivatives have become a multibillion dollar source of risk within the U.S. banking system.
In late 2014 the Federal Reserve (Office of the Inspector General) issued a
report3 on its handling of the oversight of JP Morgan stating that it observed
risks in JP Morgans chief investment office but that planned examinations in the
years 2008 -2012 had been mishandled, claiming that the New York Fed did not
conduct the planned or recommended examinations because the Reserve Bank
http://www.hsgac.senate.gov/subcommittees/investigations/hearings/chasewhale-trades-a-case-history-of-derivatives-risks-and-abuses
2

http://oig.federalreserve.gov/reports/board-supervisory-processes-jpmorganchase-oct2014.htm
3

reassessed the prioritization of the initially planned activities related to the CIO
due to many supervisory demand.
In contrast with the Senate committees three hundred page report the Feds
report that has been made public is only a four-page summary of its findings,
with the Fed claiming that the full report contains confidential and privileged
supervisory findings.
Bloomberg quotes Mark Williams, former Fed bank examiner who is now a
lecturer at Boston Universitys School of Management, saying that The report is
disturbing in that it reveals that the Fed, the nations most powerful regulator,
failed to follow up on identified risks that later cost JPMorgan and its shareholders
over $6 billion. Risk identification without follow up is the equivalent of a fireman
seeing a fire but not acting on it.
An interesting detail is that the CEO of JP Morgan, Jamie Diamond, served on the
board of directors at the New York Fed, from 2007 2012 before joining JP
Morgan.
PRO PUBLICA has published articles about turmoil within the New York Fed
where experts supposed to oversee the big banks were hindered in their work:
New York Fed examiners embedded at JPMorgan complained about being
blocked from doing their jobs. In frustration, some requested transfers. Top New
York Fed managers knew about the problems, according to interviews and secret
recordings of internal meetings obtained by Pro Publica. Similar frustrations had
surfaced among examiners at other banks as well.4
http://blogs.reuters.com/alison-frankel/2013/08/19/how-long-didjpmorgan-allegedly-deceive-investors/
http://www.theguardian.com/business/2013/sep/19/jp-morgan-920mfine-london-whale
http://www.bloombergview.com/quicktake/the-london-whale
http://www.reuters.com/article/us-jpmorgan-chase-londonwhalelawsuit-idUSBREA2U1M820140331
http://sevenpillarsinstitute.org/case-studies/dimon-and-the-whale
http://www.narrowroadcapital.com/wp-content/uploads/2013/03/FiveBanking-and-Investment-Lessons-from-the-London-Whale-Incident.pdf

others).
http://www.propublica.org/article/secret-tapes-hint-at-turmoil-in-new-yorkfed-team-monitoring-jpmorgan
4

See item 24

to Madoff
Bernard L. Madoff Investment Securities LLC was a Wall Street investment firm
founded by Bernie Madoff. Madoff's fraud was revealed months after the 2008
U.S. financial collapse revealing the largest Ponzi scheme in history where
Madoff relieved his investors of $64.8 billion.
The scheme came to light when Madoffs sons, after he told them about it,
reported him to the Securities and Exchange Commission, SEC. Madoff was
sentenced to 150 years in prison and to pay $ 170 billion in restitution.
Since, whistleblowers have come forward with information that the SEC
systematically ignored the warnings and tips it received about Madoffs business,
going back as far as 1999.
http://money.cnn.com/2009/02/04/news/newsmakers/madoff_whistleblower
/
http://www.rollingstone.com/politics/news/why-didnt-the-sec-catch-madoffit-might-have-been-policy-not-to-20130531
http://www.washingtonpost.com/wpdyn/content/article/2009/09/02/AR2009090203851.html

In 2013, the worlds oldest bank and the Italys third largest, the Monte dei Paschi
di Siena, founded in 1427, faced up to 720 million derivatives trades, details of
which were kept hidden from regulators. At the time the trades were made, in
the years 2006-2009, Mario Draghi, the current head of the European Central
Bank was the head of the Bank of Italy.
Failing to meet European capital standards the bank received 3.9 billion in
state aid and raised questions about the oversight of Italys banking system. The
banks troubles are still on-going as it has failed the ECBs stress tests. Having
raised 3.7 billion in new capital this year, the bank is looking for a buyer.
In 2014 three of the banks CEOs were tried on accusations of hiding the
derivatives deals that lead to the banks troubles and sentenced to three and a
half year jail sentences and to pay civil damages. All three appealed the
http://www.theguardian.com/business/2013/feb/01/mps-bank-sienascandal

http://www.telegraph.co.uk/news/worldnews/europe/italy/9530852/De
cline-of-Monte-dei-Paschi-di-Siena-worlds-oldest-bank-leaves-city-payingthe-price.html
http://seekingalpha.com/article/2819876-recently-uncovered-italianregulatory-filings-raise-more-red-flags-at-amtrust

Bribing civil service employees in Japan

In 2014 reports appeared revealing that Deutsche Securities Inc. spent 22.1
million yen ($217,000) wining and dining fund officials from 2010 to 2012,
according to a document prepared by the investigative arm of Japans financial
regulator. Deutsche Bank AGs Japanese securities unit entertained officials from
45 funds that manage public pensions, according to a report obtained by
Bloomberg News, signalling that the potentially illegal practice was more
widespread than regulators had disclosed.
http://www.bloomberg.com/news/articles/2014-04-21/ex-deutschebank-salesman-to-enter-plea-in-wining-dining-probe
http://www.bloomberg.com/news/articles/2014-06-17/deutsche-bankentertained-45-japan-pension-funds-document-shows
http://www.ft.com/cms/s/0/ede36334-5cf5-11e3-81bd00144feabdc0.html#axzz3uUKpF54p

http://www.facing-finance.org/en/2014/07/deutsch-deutsche-bankbestechungsskandal-in-japan/

-reporting related to Barclays emergency capital raising

Medio June 2008 it was reported that Barcleys needed to raise 4 billion pounds
to boost its capital position. Takers were Qatari investors buying shares in the
bank for 5.8 billion and thus the bank was able to avoid a bailout.
In 2013 UKs Serious Fraud Office launched an investigation into the deal on
allegations that the bank had lent the Qatari investors money that they then used
to buy shares in the bank thus making a mockery of the whole idea of new
capital. In Iceland three CEOs of Kaupthing Bank and one investor were earlier
this year sentenced to 3.5 5 year prison sentences for a similar mock deal
(market manipulation) involving sheik Al-Thani from Qatar who borrowed
money from the bank to buy 5% of its shares weeks before the bank collapsed in
October 2008.

This year news emerged that the Serious Fraud office is offering Barcleys a
deferred prosecution agreement (DPA) the UK equivalent of a plea bargain in
the U.S. - meaning that the case would not go to court, but settled with a fine.
http://www.msn.com/en-gb/money/other/sfo-invites-barclays-to-talkabout-settling-qatar-deal-probe/ar-AAdisQV
http://www.ft.com/intl/cms/s/0/47d412ce-6bd1-11e2-a70000144feab49a.html?siteedition=uk#axzz3uUKpF54p
http://www.ft.com/intl/cms/s/0/950db234-4406-11e4-8abd00144feabdc0.html#axzz3uUKpF54p
http://www.msn.com/en-gb/money/other/sfo-invites-barclays-to-talkabout-settling-qatar-deal-probe/ar-AAdisQV

A Goldman Sachs employee was in November 2015 found guilty of stealing

confidential information from the Federal Reserve Bank of New York.
Rohit Bansal, a former employee of the Federal Reserve of New York obtained
confidential information from the New York Fed after having left the Fed and
started working for Goldman Sachs on the case of a client he had been involved
in investigating at the Fed.
Goldman Sachs had already been fined $50 million in the case.
https://www.fbi.gov/newyork/press-releases/2015/former-employee-offederal-reserve-bank-of-new-york-pleads-guilty-in-manhattan-federal-court-totheft-of-confidential-information-from-the-federal-reserve
http://www.housingwire.com/articles/35489-goldman-sachs-fined-50-millionfor-federal-reserve-leak
https://www.fbi.gov/newyork/press-releases/2015/former-investment-bankassociate-pleads-guilty-in-manhattan-federal-court-to-theft-of-confidentialinformation-fom-the-federal-reserve-bank-of-new-york