As federal authorities prepare to charge criminally two former JPMorgan Chase employees suspected of misrepresenting a multibillion-dollar trading loss last year, prosecutors in Manhattan are separately exploring ways to penalize the bank over the trading blowup that has come to be known as the “London Whale.”
The investigation, according to people briefed on the matter, could yield a fine and a reprimand of the bank for allowing the suspected wrongdoing to occur. Prosecutors at the United States attorney’s office in Manhattan could also force the bank to bolster internal controls that failed to thwart the trading loss.
The action would come in addition to civil charges from the Securities and Exchange Commission, which could announce a settlement with the bank as soon as this fall.
The people briefed on the matter, who spoke on the condition of anonymity, cautioned that the investigation by the United States attorney’s office and the F.B.I. in Manhattan was continuing and the bank was not in talks to settle that case.
Yet the case could gain momentum after prosecutors level criminal charges against the former employees. The charges, which could be announced as soon as this week, hinge on the suspicion that the employees masked the size of the trading losses as they spun out of control.
The losses, which have now reached more than $6 billion, stem from a huge bet on the health of large corporations like American Airlines. The employees, traders in the bank’s London offices, made their wager using derivatives — complex financial contracts whose value is typically tied to an asset like corporate bonds.
When the bet soured last year, authorities suspect, the two employees understated the value of their trades to hide the problem from executives in New York. Internal e-mails and phone recordings highlight the behavior, the people briefed on the matter said, suggesting that the traders falsified internal records to lowball the losses. Prosecutors are expected to cite the fact that in July 2012, JPMorgan restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the valuations…….