Financial services giant J.P. Morgan Chase & Co. (JPM) has agreed to pay a $20 million fine to settle the U.S. Futures regulator's allegations that the bank mishandled Lehman Brothers Holdings Inc.'s (LEHMQ.PK) customer funds.
The U.S. Commodity Futures Trading Commission, or CFTC, a government agency responsible for overseeing the trading of futures as well as derivatives, announced the settlement on Wednesday.
The settlement concludes CFTC's investigation into JPMorgan's extension of credit to Lehman based in part on the misclassification of a customer-segregated account from November 2006 to September 2008.
JPMorgan, which came in as a 'helper in distress' for the failed Lehman as it caused the global financial meltdown, was alleged to have overextended credit by treating customer funds as if they belonged to Lehman.
Lehman's futures brokerage firm, LBI, deposited its customers' funds with JPMorgan, which was serving as Lehman's main clearing bank. The regulator also alleged that JPMorgan used inflated calculation to determine Lehman's credit limit.
The agency also pointed out that JPMorgan refused Lehman's repeated requests to release the customer funds totaling around $330 million when it filed for bankruptcy in September 2008. The bank later released it after about two weeks when CFTC officials insisted.
In its order, CFTC said, "JPMorgan acted as if these funds were LBI's funds, not customer funds. Thus it denied LBI's lawful transfer request and prevented customers from having immediate access to their funds in a time of enormous economic turmoil."
In a statement, JPMorgan said it has "mistakenly factored the balance in the account into a daily calculation of LBI assets to determine the amount of credit the firm was willing to extend to LBI. The size of this customer account was small relative to the overall relationship between JPMorgan and Lehman."
The bank also noted that "No customer funds were ever used to satisfy any LBI debt to JPMorgan, nor were any customer funds in these accounts lost. The CFTC does not claim that JPMorgan Chase intentionally violated the Commodity Exchange Act or CFTC regulations."
The bank said it cooperated with the CFTC's investigation and is pleased to have resolved this matter.
JPMorgan, as part of the settlement, has reportedly agreed to take steps to ensure proper handling of customer funds in the future and to release them when asked to do so by the agency.
During fiscal 2011, the CFTC brought 99 enforcement actions, 74 percent higher than the prior year, and has levied more than $290 million in fines and ordered firms to forfeit some $160 million in ill-gotten gains.
JPMorgan shares lost around $0.26 or 0.59 percent in pre-market activity Thursday, and are currently trading at $44.15.
by RTT Staff Writer
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