Christopher J. Frisina

On October 16, 2013, JP Morgan Chase Bank NA (“JPMorgan”) settled with the U.S. Commodities and Futures Trading Commission (“CFTC”) for $100 million.[1]  JPMorgan admitted to reckless conduct in regard to its market manipulation to cover $6.2 billion losses through its “London Whale” scandal.  Bruno Iksil from the London division of JPMorgan’s Chief Investment Office was nicknamed the “London Whale” for his massive derivative trades which ultimately lead to huge losses for JPMorgan.[2]  JPMorgan’s conduct constitutes a violation of the Commodity Exchange Act[3] and Commission Regulation 180.1.[4]  The settlement with the CFTC brings the total of JPMorgan’s settlements to over $1 billion, following the company’s September settlement with the U.S. Securities and Exchange Commission (“SEC”), the Federal Reserve, the U.S. Office of the Comptroller of the Currency, and the U.K.’s Financial Conduct Authority for $ 920 million.[5]

JPMorgan’s settlement comes nearly two years after the CFTC enacted a new rule “lowering the legal requirement for proving that financial firms manipulate the markets” under the Dodd-Frank Act.[6]  Lobbying groups for various Wall Street groups had warned the CFTC that enforcement of the rule might be too aggressive.  For the CFTC’s Enforcement Commissioner, however, the Dodd-Frank Act allows the agency to protect the markets from traders’ manipulative practices for the first time.[7]  In this instance, JPMorgan used a “manipulative device” to gain swaps, “financial contracts that allowed the bank to bet on the health of companies like American Airlines.”[8]  After inventing the practice in the late 1990’s, JPMorgan has the largest share in the swaps market, allowing it to manipulate the market.[9]  For the CFTC, JPMorgan’s sale of large quantities of swaps, up to $4.6 billion in three hours, “‘recklessly disregarded’ the principle that legitimate market forces should set prices.”[10]

This case marks a powerful enforcement measure under the Dodd-Frank Act.  Before the Act’s passage, regulators had to show that the company actually intended to manipulate the market to obtain a conviction.  Now under the Act, regulators must only prove that the traders acted recklessly in their activity.  This new lax standard has some traders fearing that there will be many “unintended adverse consequences.”  The adverse consequences, however, may simply mean that more companies will be liable for their activity, as the CFTC has only successfully litigated one manipulation case since its inception thirty-eight years ago.[11]

While the application of the Dodd-Frank Act is extremely important, the settlement also marks a continuing shift in securities settlements.  Normally, companies facing potential litigation from the U.S. Government had settled while “neither admitting nor denying” the activity that brought the initial federal oversight.  The shift began in October 2011 when Judge Jed Rakoff of New York’s Southern District Court blocked a settlement between Citigroup and the SEC in which he criticized the “neither admit or deny” policy.  Moving away from this policy may deter companies from settling with regulatory agencies as the admission to wrongdoing may open paths to civil litigation.[12]  SEC Chair Mary Jo White followed Judge Rakoff’s criticisms this summer stating that the SEC would start to move away from this policy.  For White, admittance of manipulative practice on the public record will deter companies and strengthen enforcement.[13]

Initially, the inability to neither admit nor deny almost deterred JPMorgan from the settlement nearly confirming critics of Judge Rakoff’s decision fears.  In September, however, JPMorgan admitted that its activity through the London Whale violated U.S. securities law.[14]  The September admission settlement forced JPMorgan to pay out $920 million to the SEC, the Federal Reserve, the Office of the Comptroller of Currency (U.S.), and the Financial Conduct Authority (U.K.).  The CFTC, however, used its authority to expose the bank’s trading activity that led to the regulator’s actions.  Notably, JPMorgan only admitted to one day of reckless activity rather than the potential three days surrounding the London Whale activity.  Ultimately, the CTFC agreed to the settlement, avoiding drawn out negotiations and litigation.[15]

A lone dissenter, Republican CTFC Commissioner Scott O’Malia, did not agree with the settlement.  Commissioner O’Malia’s primary concern was the haste with which the CFTC settled with JPMorgan.  In his opinion, he argued that the CFTC “should have taken more time to investigate whether [JPMorgan] is liable for a more serious violation, namely price manipulation.”[16]  Reflecting Wall Street concerns mentioned above, Commissioner O’Malia wanted to narrow the case under the Dodd-Frank Act.  In 2011, Wall Street lobbyists argued for “extreme recklessness,” but the CTFC rejected this contention seeing, little difference between it and the former intent standard that ultimately proved to be toothless.

Despite JPMorgan’s settlement with the CFTC, the bank’s legal woes are not over.  On Saturday October 19, 2013, JPMorgan reached a tentative settlement with the U.S. Department of Justice (“DOJ”) for $13 billion in damages.  Even with nearly $14 billion in settlements, the sum total of the company’s settlements with U.S. and U.K. regulators and the DOJ, JPMorgan may still face criminal charges for its manipulative practices.[17]

[1] Ben Protess, A Regulator Cuts New Teeth on JPMorgan in ‘London Whale’ Case, N.Y. Times, Oct. 16 2013, available at

[2] Former JPMorgan Executive Challenges UK’s London Whale Report, Reuters, Oct. 21, 2013, available at

[3] 7 U.S.C. §6(c)(1) (2012).

[4]17 C.F.R. § 180.1 (2012); see Press Release, U.S. Commodity Futures Trading Commission, CFTC Files and Settles Charges Against JPMorgan Chase Bank, N.A., for Violating on Manipulative Conduct In Connection with “London Whale” Swaps Trades (Oct. 16, 2013), available at

[5] See Protess, supra note 1.

[6] See Protess, supra note 1.

[7] See Press Release, supra note 4.

[8] See Protess, supra note 1.

[9] See David Henry & Carrick Mollenkamp, Analysis: The Core Problems with JPMorgan’s Failed Trades, Reuters, May 14, 2012, available at

[10] Aruna Viswanatha, JPMorgan to Pay $100 Million in Latest ‘London Whale’ Fine, Reuters, Oct. 16, 2013, available at

[11] See Protess, supra note 1 (noting that the Dodd-Frank Act provides the CFTC with a powerful tool to prevent manipulative conduct).

[12] See Edward Wyatt, Settlements without Admissions Get Scrutiny, N.Y. Times, Feb. 24, 2012, available at (“Judge Rakoff argued that the judiciary should not be considered a rubber stamp to approve executive-branch enforcement cases.”_

[13] See James B. Stewart, S.E.C. Has a Message for Firms Not Used to Admitting Guilt, N.Y. Times, June 21, 2013, available at

[14] See Julia La Roche, The Days of ‘Neither Admit nor Deny are Gone”: The SEC Gets JPMorgan To Admit To Violating Securities Laws, Business Insider, Sept. 19, 2013, available at (noting that the SEC rejected a settlement from Phil Falcone in which he would neither admit nor deny allegations).

[15] See Mark DeCambre, JPMorgan agrees to $100M Settlement with CTFC, N.Y. Post, Oct. 17, 2013, available at (“Chilton suggested that the agency didn’t ‘want to spend another four, five months or another year’ negotiating tougher terms with the bank.”).

[16] DeCambra, supra note 15.

[17] See Kate Kelly & John Harwood, JPMorgan close to $13 Billion Mortgage Settlement, NBCNews, Oct. 19, 2013,

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