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May 11, 2012

Dimon Misinformed Markets; The Department of Justice Must Appoint an Independent Counsel to Investigate Politically Connected JPMorgan CEO for Contradictory Statements, Surprise $2 Billion Loss

Just one month ago, JPMorgan’s CEO Jamie Dimon dismissed questions about his bank making massive, high-risk, multi-billion dollar illiquid derivatives bets as nothing but “a tempest in a teapot.”  Now, less than 30 days later, Mr. Dimon makes the surprise announcement that the “teapot” has blown up and caused at least $2 billion and maybe as much as $3 billion in losses. 

JPMorgan’s CEO appears to be incompetent, derelict or culpable: either he didn’t know about the high-risk in the bets his bank was making when it was his responsibility to know or he did know when he told the public and investors that there was nothing to worry about. The markets and the American people are entitled to the truth: what did Mr. Dimon know and when did he know it? 

To avoid any conflict of interest or the appearance of a conflict of interest, an independent counsel must be appointed by the Department of Justice to investigate JPMorgan and Mr. Dimon.  Anything less will reinforce the wide-spread view that the biggest Wall Street banks in general and JPMorgan and Mr. Dimon in particular have special access and get special treatment from the government. 

For example, Mr. Dimon has been reported to be very close to the president and secretary of the Treasury.  In fact, there has been intense media speculation over time regarding whether or not President Obama was going to nominate Mr. Dimon to be his Treasury secretary.  Also, Mr. Dimon recently said that the regulators “see everything we do whenever they want.” Any regulators investigating Mr. Dimon would in effect be investigating themselves. The need for an independent counsel is clear. 

Issues the independent counsel should investigate include: it is now reported that Mr. Dimon “didn’t learn the full extent of the losses until after that earnings call on April 13 when he made the comforting public statements dismissing media reports.  What “extent” did he know before the call?  What did he do in response to the detailed media reports in early April 2012 in the week before he made his public statements that his bank was taking multi-billion dollar very high-risk bets with the bank’s money? 

What did he learn after the April call and when did he learn it about the risks of these trades and the losses? When did he learn the “full extent” of the risks in the trading and why didn’t he learn it earlier? It is also reported that Mr. Dimon was “regularly briefed on some” of these positions.  Which ones?  Why weren’t the risks of this trading discovered earlier?

It has been reported that the $2 billion loss occurred in the last six weeks.  On what days did the losses occur and what was Mr. Dimon’s response?   It was also reported that the bank has had $1 billion in “offsetting gains” from other trading.  When and how did such trades happen and who knew about them? 

Lastly, Mr. Dimon regularly brags about having the best management and risk controls in the industry.  How could those statements be accurate in light of the company being surprised by a $2 billion loss when frontpage media reports already suggested just that? 

It is worth noting that, from April 13 to May 10, approximately 850 million shares of JP Morgan stock was traded by thousands of unsuspecting investors (chart attached) who relied on the statements of JP Morgan and Mr. Dimon that there was nothing to the early April reports about high-risk derivatives trading. 

Watch here Better Markets’ President and CEO Dennis Kelleher on Fox Business “Cavuto” Show discussing the JP Morgan trading loss.

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