WASHINGTON, D.C. – JPMorgan Chase Bank, N.A. (JPMorgan) has been penalized $20 million by the U.S. Commodity Futures Trading Commission (CFTC) for improperly handling customer segregated funds belonging to Lehman Brothers, Inc. (LBI), according to an order filed and settled on April 4, 2012.
The CFTC found that between November 2006 and September 2008, JPMorgan, acting as a depository institution for LBI, a registered futures commission merchant, improperly included LBI’s customer segregated funds in its calculation of LBI’s net free equity. These funds, exceeding $250 million at any given time, were used to extend intra-day credit to LBI for proprietary transactions, including repurchase agreements.
The Commodity Exchange Act (CEA) and CFTC regulations explicitly prohibit depository institutions from using customer segregated funds as their own or extending credit based on those funds. JPMorgan violated these rules by extending approximately 22 months of credit to LBI using customer funds and then, after Lehman Brothers Holding, Inc. filed for bankruptcy on September 15, 2008, refusing to release those funds to LBI for roughly two weeks despite a request from LBI. JPMorgan only released the funds after direct instruction from CFTC officials.
The CFTC order specifically states that no customer losses resulted from JPMorgan’s actions. However, the agency emphasized the importance of strict adherence to regulations governing segregated accounts. “The laws applying to customer segregated accounts impose critical restrictions on how financial institutions can treat customer funds, and prohibit these institutions from standing in the way of immediate withdrawal,” stated David Meister, Director of the CFTC’s Division of Enforcement. “As should be crystal clear, these laws must be strictly observed at all times, whether the markets are calm or in crisis.”
In addition to the $20 million penalty, JPMorgan is required to implement measures to ensure the proper handling of customer segregated funds in the future and to release those funds promptly upon receiving notice and instruction from the CFTC. The investigation was led by Joan M. Manley, A. Daniel Ullman II, and Alison B. Wilson of the CFTC’s Division of Enforcement, with contributions from Ananda K. Radhakrishnan and Robert B. Wasserman of the Division of Clearing and Risk.
Source: CFTC.gov
Related Federal Cases
- Letitia James, Reinstates $1B Education Fund, New York NY, 2023 · New York
- Vanetra Brown, Bank ID Theft, VA 2023 · Washington
- Ri Jong Chol, Bank Fraud, Washington D.C. · District of Columbia
- Joshua Lee Hernandez, Capitol Assault, District of Columbia 2021 · Washington
- Bryan Rice, Fentanyl & Gun Crimes, District of Columbia 2024 · District of Columbia
