JPMorgan’s London Whale Problem

As a banking behemoth, JPMorgan is frequently the target of lawsuits and allegations of suspicious activities. None of them have proved as problematic as the London Whale scandal, which entered a new chapter this week.

Since the banking crisis in 2008, JPMorgan has encountered criticism for its poor risk management practices. The biggest outcry began in 2012, as the flawed risk strategies deployed by trader Bruno Iksil and the bank’s London employees with derivatives trading caused the bank to lose $6.2 billion. Dubbed the London Whale, this scandal showed that JPMorgan supported Iksil despite understanding the risks involved with his approach to derivative bets. The bank went so far as to try to cover up the massive losses, initially only acknowledging a loss of $2 billion when restating its 2012 first quarter earnings.

JPMorgan eventually paid more than $1 billion in fines and admitted its mistakes to settle government investigations in the U.S. and U.K. Former traders have been criminally charged in the U.S., with trials pending.

But it’s not over yet. Resulting shareholder lawsuits have been dismissed over the years, but this week, the U.S. District Court in Manhatttan ruled that a class action suit could proceed. Led by shareholders in pension funds in Arkansas, Ohio and Oregon, the suit contends that JPMorgan knowingly hid increased risks.

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Richard Paxton

CEO of the Alacer Group. Sharing the latest news in financial crimes and best practices that enable financial institutions to prevent money laundering.

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