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JPMorgan Sued For Crony Justice – Presenting “A Decade of Illegal Conduct by JP Morgan Chase” | Zero Hedge
Earlier today, the non-profit organization Better Markets did what so many others have only dreamed of doing – they sued JPMorgan.
Specifically, as they disclose in the fact sheet posted on their website, they are “challenging the historic and unprecedented $13 billion settlement agreement between the U.S. Department of Justice and JP Morgan Chase (“Agreement”). Better Markets alleges in its complaint that the DOJ violated the Constitution and laws of the United States by using a mere contractual agreement to resolve claims of historic importance without subjecting the Agreement to independent judicial review. In effect, the DOJ acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any check on its authority or actions, even though the amount is the largest in the 237 year history of the United States. Because the DOJ has declared its intention to use the Agreement as a “template” in future similar cases, it is imperative that the DOJ’s unlawful and secretive approach in the settlement process be subjected to judicial review.”
We wish them the best of luck, as in a “crony jsutice” system as corrupt as this one – perhaps best described, paradoxically enough by the fictional movie The International – where the same DOJ previously implicitly admitted it will not prosecute “systemically important” firms like JPM to the full extent of the law and instead merely lob one after another wrist slap at them to placate the peasantry, any hope for obtaining true justice is impossible.
That said, the key aspects of the Better Markets lawsuit deserve attention. They are broken down as follows:
For years leading up to the financial crisis of 2008, JP Morgan Chase allegedly engaged in pervasive fraud in the packaging and sale of thousands of mortgage-backed securities to investors. Those securities were stuffed with subprime loans that failed to meet applicable underwriting criteria. Employees, managers, and potentially high-level executives of JP Morgan Chase knew that the securities were riddled with toxic loans, but they allegedly concealed the truth from investors when they marketed and sold the securities. Investors lost huge but still unknown sums of money as a result of the fraud, and the bank’s illegal conduct contributed directly to the biggest financial crash since 1929 and the worst economy since the Great Depression of the 1930s.
After negotiating the Agreement in complete secrecy, the DOJ announced the $13 billion deal on November 19, 2013, claiming that it was holding JP Morgan Chase accountable for its illegal activities. Under the Agreement, DOJ grants JP Morgan Chase broad civil immunity in exchange for a $2 billion civil penalty, along with $4 billion in “consumer relief” for the benefit of homeowners with problem mortgages. The Agreement also allocates $7 billion to eight other agencies or states to resolve their claims against JP Morgan Chase.
Key Allegations in the Complaint
The Agreement was struck under the most extraordinary circumstances. For example—
- THE HISTORIC CLAIMS: The Agreement resolved claims of pervasive fraud that contributed to the worst financial crash since 1929 and the worst economy since the Great Depression of the 1930s.
- THE LARGEST AMOUNT EVER: The settlement amount was the largest in U.S. history from any single entity by more than 300%.
- THE BIGGEST BANK: JP Morgan Chase is the largest, richest, and most well-connected Wall Street bank in the United States.
- THE HIGHEST-LEVEL NEGOTIATORS: The Attorney General and other senior DOJ political appointees negotiated directly and entirely in secret with the CEO of JP Morgan Chase, someone who was considered a possible Treasury Secretary just a few years ago.
- THE $10 BILLION PHONE CALL: The cellphone of DOJ’s third highest ranking official rang with the “familiar” phone number of JP Morgan Chase’s CEO, who called to offer billions of dollars to stop DOJ from holding a press conference and filing a lawsuit in just a few hours. The call worked, and the press conference and lawsuit were both called off.
- THE UNPRECEDENTED AGREEMENT: DOJ gave complete civil immunity to JP Morgan Chase for defrauding thousands in exchange for $13 billion, via a contract that was negotiated and finalized in secret without any review or approval by a federal court.
?Notwithstanding the historic nature of the settlement, the Agreement was never subjected to judicial review, so there has been no independent evaluation of its terms. Furthermore, the vague settlement documents fail to disclose critically important information about every aspect of the deal. For example, the Agreement fails to identify or explain—
- THE LOSSES: How much did JP Morgan Chase’s clients, customers, counterparties, investors, and others lose as a result of its fraudulent conduct? $100 billion? $200 billion? More?
- THE PROFITS: How much revenue, profits, and other benefits did JP Morgan Chase receive as a result of its fraudulent conduct, and was it all disgorged? $10 billion? $20 billion? More?
- THE BONUSES: Who received what amount of bonuses for the illegal conduct?
- THE INVESTIGATION: What was the scope and thoroughness of the investigation that provided the basis for the Agreement?
- THE FRAUD: What are the material facts of the illegal conduct by JP Morgan Chase and the specific violations of law that were committed?
- THE CULPRITS: What exactly did the individual executives, officers, managers, and employees involved in the illegal conduct actually do to carry out the fraud, and do any of them still work for the bank?
- THE CORRECTIVE ACTION: Why did the contract fail to impose on JP Morgan Chase any obligation to change any of its business or compliance practices, which are standard conduct remedies that regulators routinely require? And how can the sanctions effectively punish and deter JP Morgan Chase, given its wealth and its extensive history of lawless conduct?
- THE LACK OF ADMISSIONS: Why are there no admissions of fact or law by JP Morgan Chase, and what, if any, are the concrete legal implications of their so-called “acknowledgment”?
By entering the Agreement without seeking any judicial review and approval, the DOJ violated the Constitution and laws of the United States.
- The Executive Branch, acting through the DOJ, violated the separation of powers doctrine by unilaterally striking a bargain with JP Morgan Chase to resolve unprecedented matters of historic importance, without seeking any judicial review and approval of the Agreement.
- The DOJ violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) by failing to commence a civil action in federal court so that the court could, among other things, assess the civil penalty.
- The DOJ acted arbitrarily and capriciously by, among other things, entering the Agreement without seeking judicial review and approval.
* * *
But perhaps the most informative aspect of the lawsuit fact sheet is simply stepping back and observing the relentless illegal transgressions by Jamie Dimon’s firm. Better Markets summarizes them best as follows:
Highlights From A Decade of Illegal Conduct by JP Morgan Chase
- United States v. JPMorgan Case Bank, NA, No-1:14-cr-7 (S.D.N.Y. Jan 8, 2014) ($1.7 billion criminal penalty); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-13-109 (Jan. 7, 2014) ($350 million civil penalty); In re JPMorgan Chase Bank, N.A., Dept. of the Treasury Financial Crimes Enforcement Network Admin. Proceeding No. 2014-1 (Jan. 7, 2014) ($461 million civil penalty) (all for violations of law arising from the bank’s role in connection with Bernie Madoff’s Ponzi scheme, the largest in the history of the U.S.);
- In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 14-01 (Oct. 16, 2013) ($100 million civil penalty); In re JPMorgan Chase & Co., SEC Admin. Proceeding No. 3-15507 (Sept. 19, 2013) ($200 million civil penalty); In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 13-031-CMP-HC (Sept. 18, 2013) ($200 million civil penalty); UK Financial Conduct Authority, Final Notice to JP Morgan Chase Bank, N.A. (Sept. 18, 2013) (£137.6 million ($221 million) penalty); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-2013-75, #2013-140 (Sept. 17, 2013) ($300 million civil penalty) (all for violations of federal law in connection with the proprietary trading losses sustained by JP Morgan Chase in connection with the high risk derivatives bet referred to as the “London Whale”);
- In re JPMorgan Chase Bank, N.A., CFPB Admin. Proceeding No. 2013-CFPB-0007 (Sept. 19, 2013) ($20 million civil penalty and $309 million refund to customers); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-2013-46 (Sept. 18, 2013) ($60 million civil penalty) (both for violations in connection with JP Morgan Chase’s billing practices and fraudulent sale of so-called Identity Protection Products to customers);
- In Re Make-Whole Payments and Related Bidding Strategies, FERC Admin. Proceeding Nos. IN11-8-000, IN13-5-000 (July 30, 2013) (civil penalty of $285 million and disgorgement of $125 million for energy market manipulation);
- SEC v. J.P. Morgan Sec. LLC, No. 12-cv-1862 (D.D.C. Jan. 7, 2013) ($301 million in civil penalties and disgorgement for improper conduct related to offerings of mortgage-backed securities);
- In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 12-37 (Sept. 27, 2012) ($600,000 civil penalty for violations of the Commodities Exchange Act relating to trading in excess of position limits);
- In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 12-17 (Apr. 4, 2012) ($20 million civil penalty for the unlawful handling of customer segregated funds relating to the bankruptcy of Lehman Brothers Holdings, Inc.);
- United States v. Bank of America, No. 12-cv-00361 (D.D.C. 2012) (for foreclosure and mortgage-loan servicing abuses during the Financial Crisis, with JP Morgan Chase paying $5.3 billion in monetary and consumer relief);
- In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 12-009-CMP-HC (Feb. 9, 2012) ($275 million in monetary relief for unsafe and unsound practices in residential mortgage loan servicing and foreclosure processing);
- SEC v. J.P. Morgan Sec. LLC, No. 11-cv-03877 (D.N.J. July 7, 2011) ($51.2 million in civil penalties and disgorgement); In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 11-081-WA/RB-HC (July 6, 2011) (compliance plan and corrective action requirements); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-11-63 (July 6, 2011) ($22 million civil penalty) (all for anticompetitive practices in connection with municipal securities transactions);
- SEC v. J.P. Morgan Sec., LLC, No. 11-cv-4206 (S.D.N.Y. June 21, 2011) ($153.6 million in civil penalties and disgorgement for violations of the securities laws relating to misleading investors in connection with synthetic collateralized debt obligations);
- In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-11-15, #2011-050 (Apr. 13, 2011) (consent order mandating compliance plan and other corrective action resulting from unsafe and unsound mortgage servicing practices);
- In re J.P. Morgan Sec. Inc., SEC Admin. Proceeding No. 3-13673 (Nov. 4, 2009) ($25 million civil penalty for violations of the securities laws relating to the Jefferson County derivatives trading and bribery scandal);
- In re JP Morgan Chase & Co, Attorney General of the State of NY Investor Protection Bureau, Assurance of Discontinuance Pursuant to Exec. Law §63(15) (June 2, 2009) ($25 million civil penalty for misrepresenting risks associated with auction rate securities);
- In re JPMorgan Chase & Co., SEC Admin. Proceeding No. 3-13000 (Mar. 27, 2008) ($1.3 million civil disgorgement for violations of the securities laws relating to JPM’s role as asset-backed indenture trustee to certain special purpose vehicles);
- In re J.P. Morgan Sec. Inc., SEC Admin. Proceeding No. 3-11828 (Feb. 14, 2005) ($2.1 million in civil fines and penalties for violations of Securities Act record-keeping requirements); and
- SEC v. J.P. Morgan Securities Inc., 03-cv-2939 (WHP) (S.D.N.Y. Apr. 28, 2003) ($50 million in civil penalties and disgorgements as part of a global settlement for research analyst conflict of interests).
Did we mention that nobody from JPM has gone to prison, and instead as of late last week, one of the biggest JPM culprits was set to become a member of the CFTC’s advisory panel before the people and not the regulators, were forced to step in? Why? #AskJPM
Roadside pollution worsened in Hong Kong’s Central district last year as vehicular emissions helped send nitrogen dioxide concentrations to near-record levels, an environmental advocacy group said.
Citywide levels of the pollutant, linked to damaged lung function, were the second-highest on record, according to Clean Air Network Ltd.. Particulate matter levels at all monitoring stations exceeded World Health Organization guidelines by two to three times, the group said in a report yesterday.
Hong Kong’s legislators yesterday approved HK$11.4 billion ($1.5 billion) in funding to replace old diesel vehicles. Aging buses and trucks have led to a worsening in air quality since 2007. Nitrogen dioxide levels are getting worse because of local emissions, rather than from China’s Pearl River Delta region, the environmental group said.
“As you can see from the air quality in 2013, end-of-pipe solutions are not enough considering the time it takes,” Sum Yin-Kwong, chief executive officer of Clean Air Network, said in a statement. “To speed up the improvement in air quality, we hope to see the government look into the problem from a comprehensive transport management perspective in this year’s policy address.”
The city will use the approved subsidies to phase out 82,000 pre-Euro IV diesel commercial vehicles in a program that will begin on March 1, according to an e-mailed government statement citing the Environmental Protection Department. The plan should lead to a cut in levels of respirable suspended particulates and nitrogen oxides by 80 percent and 30 percent respectively, the department said.
Hong Kong has three roadside pollution monitoring stations in the busy districts of Central,Mong Kok and Causeway Bay. The Central monitor, sandwiched between the Asian headquarters of JPMorgan Chase & Co. and a Tiffany & Co. outlet, recorded nitrogen dioxide concentration levels of 126 micrograms per cubic meter last year, according to the environmental group report.
The Central roadside gauge stood at 6, the highest level in the “moderate” health risk range, at 3 p.m. today. The reading at the Causeway Bay roadside station, located in a busy shopping area, hit 7, considered to pose a high health risk, according to data posted on the department’s website.
Hong Kong introduced an air quality index on Dec. 30 pegged to pollution-induced hospital admission risks. Readings on the index are calculated based on health risks from inhaling concentrations of ozone, nitrogen dioxide, sulfur dioxide and particulate matter. Air pollution in the city contributed to 3,183 premature deaths last year, according to the group.
To contact the reporter on this story: Natasha Khan in Hong Kong at firstname.lastname@example.org
To contact the editor responsible for this story: Hwee Ann Tan at email@example.com
Further Proof the Justice Department is Protecting JP Morgan from Criminal Prosecution | A Lightning War for Liberty
In what may be the least surprising article of 2013, we find out from Newsweek that the Department of Justice is going out of its way to protect the poor little babies at JP Morgan from criminal prosecution in the Bernie Madoff case. While we know all too well about the institutionalized practice of “Too Big to Jail” that dominates the current fraud system of so called “justice” in America, it is still of the utmost importance that we spread these stories far and wide. Amazingly, in this instance the DOJ is actively blocking the Treasury Inspector General from doing his job in order to protect the mega-bank.
Bernard Madoff’s principal bank, JPMorgan Chase, has for years obstructed federal bank examiners trying to ascertain what it knew about his gigantic Ponzi scheme, an official document obtained by Newsweek shows.
The Justice Department refused in September to back up Treasury inspector general staff who wanted a court order to enforce a subpoena, in effect shielding JPMorgan from law enforcement, the October 8 document shows.
The Justice Department told the Treasury Inspector General “that they were denying the request for enforcement of the subpoena,” which means officials “could not undertake further actions regarding this matter,” wrote Jason J. Metrick, the inspector general special-agent-in-charge.
The memo revealing that Justice protected JPMorgan from an obstruction complaint raises anew questions about how much the Obama administration has done to protect the big banks, whose lies about mortgage securities and other investments they sold sank the economy in 2008.
Only minor players have been prosecuted, in contrast with the more than 3,000 felony convictions the FBI says it obtained in the much smaller savings and loan scandals two decades ago.
The JPMorgan memos Justice declined to pursue are almost certain to show that years earlier the bank had grounds to suspect Madoff was running a fraud. A separate inquiry by the U.S. Attorney in Manhattan is looking into JPMorgan, which may include what the 90 bank employees knew and when they knew it.
Banana Republic Justice.
Full article here.
Honeybees are dying and it looks like the Environmental Protection Agency (EPA) is responsible because of a system called “conditional registration” that expedites the process of getting pesticides to market.
Experts maintain that this lackadaisical formula has allowed dangerous chemicals to be sold to the public and used in commercial operations that have caused massive deaths of honeybee colonies and placed agriculture as a whole under constant threat.
The US Department of Agriculture (USDA) states : “Insecticides conditionally registered in the early 2000s have been blamed for impairing honeybees’ immune systems; in the past five years, the honeybee population has declined 20 to 30 percent each year.”
The Government Accountability Office (GOA) found that the EPA has confused a “record-keeping system for tracking pesticides” that has contributed to the dangers to our ecosystem and the health of millions of Americans.
Problems with missing data while programs pushed through deadly chemicals to be purchased by the public under the guse of being safe has become normal at the EPA.
Although the EPA claims to have begun taking steps to correct these loopholes, they still assert that as long as the manufacturer of the pesticide follows the rules, there is not “unreasonable risk to the environment” and “the use of pesticide[s] is in the public interest” – not to mention the financial interest of producers of pesticides.
An estimated 16,000 pesticides are currently registered with the EPA.
No centralization of power and a lack of monitoring have resulted in handwritten notes and decisions based on memory being entered into files as legitimate documentation.
Earlier this year, researchers at Emory University and the University of California have studied bumblebees in Colorado and discovered that the most devastated impact is felt in the plants that are dying because of lack of pollination.
At a laboratory in Crested Butte, Colorado, Berry Brosi and Heather Briggs were assisted by numerous assistants who analyzed how species of bumblebees and utilized algorithms to assert that if other surviving species of bumblebees were to “pick up the slack”. Plant life would be able to recover.
It appears that bumblebees discriminated against a specific species of flower; the purple wildflower called Delphinium barbeyi (a type of larkspur).
Species of plant life have been in decline because of the sudden lack of bees worldwide.
In 2011, the UN Environmental Program (UNEP) released a report thatidentified an estimated “dozen factors, ranging from declines in flowering plants and the use of memory-damaging insecticides to the world-wide spread of pests and air pollution, may be behind the emerging decline of bee colonies across many parts of the globe.”
In the report, several key issues were mentioned:
• Viral fungal pathogens were destroying the bee colonies
• Migration of bees globally was observed
• Globalization of trade impacted bees
• Speices of plants are dying
• “Systemic insecticides” were causing toxicity in bees
• Climate change is disturbing flowering times
• Climate change is causing less quality pollen to be produced by flowers
A team of researchers at the Washington State University (WSU) have imported bee sperm from the European honeybee for storage and future fertilization.
Scientists want to fertilize American queen bees with European bee sperm to genetically engineer bees that are more resilient to a mysterious condition that coerces worker bees to abandon their hives to die.
The theory is that with this genetic manipulation, stronger bees can be created that will lead to healthier American insects.
The sperm that is not used in these experiments will be frozen for future use.
JPMorgan & Chase Co are limiting how much money their customers can spend on a daily basis because of the data breach at Target over the 2013 Back Friday shopping event.
Cash and debit card spending limits are being implemented on 2 million debit card holders because those customers are suspected of having shopped at Target during the time period in question.
JPM is considering issuing new debit cards to those customers who were directly affected by the data breach.
Chase customers will be limited to $100 daily withdrawal from ATMs.
Debit card users will see $200 – $500 daily limits as well as $500 daily purchase limit.
Customers are encouraged to come into their local branch to withdraw more cash if necessary; however that too is limited to $300 per day.
The new rules will take a few weeks for full implementation. With issuing new cards, JPM recommends that “about half of its 5,600 branches in 23 states can issue new cards on the spot for customers who want the limits lifted faster.”
Due to this new change, JPM “decided to open about a third of its branches on Sunday, when they were normally closed, to help affected customers.”
Because an estimated $40 million was allegedly stolen due to the data breach, JPM does not want to take chances with customers – thereby installing controls on customer funds.
Target Corporation has offered in-store shoppers a 10% discount over this past weekend for having their person information stolen.
Ken Perkins, founder of Retail Metrics commented : “Given how deep discounts have been across the retail landscape this holiday season, I don’t know if that moves the needle that much. Twenty percent might have drawn serious interest, but 10 percent? I don’t know.”
Other banks such as Bank of America (BoA) and Citigroup are taking precautions to monitor and control cash flow from customer accounts using the Target incident as justification.
Earlier this week, Target Corporation had a security breach during this year’s Black Friday in which “millions of customer credit and debit card records” were stolen.
Brian Krebs, computer security expert, stated: “I’ve heard from five different people at five different banks, and the banks are being tipped by the card companies. At least two major card issuers [banks] said hundreds of thousands of cards had been compromised, and there are dozens of card issuers, so that adds up to millions of cards.”
This problem “extends to nearly all Target locations nationwide, and involves the theft of data stored on the magnetic stripe of cards used at the stores.”
Krebs explains: “The type of data stolen — also known as track data — allows crooks to create counterfeit cards by encoding the information onto any card with a magnetic stripe. If the thieves also were able to intercept PIN data for debit transactions, they would theoretically be able to reproduce stolen debit cards and use them to withdraw cash from ATMs.”
Analysts have concluded that the breach occurred on Black Friday and continued into the middle of December affecting “an unknown number of Target customers who shopped at the company’s main street stores during that timeframe.”
Target collects data on customers, including:
• Date of birth
• Social security number
• Driver’s license number
• Credit card information
• Email address
By installing malware into the system, “or persuaded an unsuspecting employee to click on a malicious link that downloaded malware that gives cybercriminals a foothold into a company’s point-of-sale systems.”
Technology has afforded retailers the ability to track customers through mobile phones, work computers and even while in line at the register.
Holiday shopping is proving to be a massive data mining endeavor with signups for loyalty cards that collect data on customer behavior.
The private information available to retailers from customer loyalty cards can include:
• Zip codes
• Home/employment addresses
• Personal income
• Insurance expiration
Retailers claim that this information derived from monitoring the public can “determine exactly what kind of buyer [the customer] might be and how much [the customer is] willing to pay” for products.
Mailing lists can ensure that retailers can install cookies into customer’s computers to watch their movements online with provisions for ‘relevant pop-up ads” marketed to specified potential customers.
By Nia Williams
CALGARY, Alberta (Reuters) – As Wall Street’s giants pull back from the energy business, Canadian banks are stepping forward, aided by booming domestic oil production and a reputation for prudence.
Bank of Montreal (BMO.TO: Quote), Canadian Imperial Bank of Commerce (CM.TO: Quote) and Bank of Nova Scotia (BNS.TO: Quote), long-time niche players in energy trading, hedging and dealmaking, are expanding their operations both north and south of the U.S. border, executives told Reuters.
In total, commodity trading revenues at the three banks rose by 30 percent last year, according to a Reuters review of their annual reports. Executives say it has been a struggle to match that performance this year, but that they are still gaining ground.
“We have been able to pick up market share not only in our home market but able to rapidly grow our business in the U.S. and overseas in places like the North Sea,” said Adam Waterous, a veteran oil banker who heads Scotiabank’s global investment banking team, which is based in Calgary, Canada’s oil capital.
With their reputation for caution, Canadian banks say they are unlikely to copy their U.S. counterparts and start amassing physical assets such as metal warehouses or oil storage terminals. Big Wall Street banks including JPMorgan Chase & Co. (JPM.N: Quote) and Morgan Stanley (MS.N: Quote) are looking to sell their physical trading desks as regulatory scrutiny increases and returns diminish.
“This is the fourth time in my career I have seen Americans come and go,” Waterous said.
Scotiabank is by far the biggest commodity trader in Canada, due in large part to its long-held ScotiaMocatta precious metals venture. Scotia reported a 26 percent rise in commodity trading revenues to C$425 million ($397 million) last year.
Of the other “Big Five” Canadian banks, Toronto-Dominion Bank (TD.TO:Quote) does not break out commodity trading revenue figures, but Royal Bank of Canada’s (RY.TO: Quote) trading revenues for foreign exchange and commodities climbed by 11 percent last year.
Canadian banks have a long history in the energy sector as a result of their involvement in the expansion of Alberta’s oil sands and the country’s status as the world’s sixth-largest producer of crude.
That opportunity is now expanding as more producers look to hedge output in Canada, which is expected to more than double to 6.7 million barrels per day by 2030. New products, such as CME Group’s Edmonton Sweet oil futures, which was launched this week, open new avenues for trading.
Thanks to a culture of conservative and cautious lending, Canadian banks emerged from the global financial crisis with reputations intact and some of the strongest credit ratings in the world.
“There’s a coming of age. In Canada there is the oil sands and in North America there’s the shale revolution that provides a great opportunity for our skill set and our history,” said Shane Fildes, head of global energy at Bank of Montreal, whose commodity trading-related revenues surged 65 percent to C$66 million in 2012.
Fildes said BMO’s energy trading desk expanded recently to five people from three, and its energy business as a whole employed 65 people in Calgary and 45 in Houston. The bank recently hired Paul Dunsmore from Barclays (BARC.L: Quote) to beef up its commodities derivatives team.
“The counterparty credit of being a Canadian bank is a very smart calling card in this environment,” he said.
At CIBC, commodity trading income rose 20 percent to C$52 last year and headcount has also increased across sales, trading, research and analytics, said Arden Majewski, who joined the bank two years ago to run its global commodities business after working for Swiss-based merchant Mercuria and for Merrill Lynch.
Scotiabank, whose commodity business is the largest and most established, has a history of stepping in when foreign banks pull back. Three years ago it bought much of UBS’s (UBSN.VX: Quote) Canadian commodities trading platform technology, when the Swiss bank exited Canadian energy trading. It bought U.S. energy investment boutique Howard Weale last year.
In September, RBC hired Kathy Kriskey from CIBC as head of commodity investor sales in New York to develop the bank’s commodity index products.
But in the scramble to pick up Wall Street business Canadian banks face competition from foreign banks such as Australia’s Macquarie MQG.AX and Brazil’s Grupo BTG Pactual SA (BBTG11.SA: Quote) as well as from private equity-backed merchants such as TrailStone and national giants such as Russia’s Rosneft (ROSN.MM: Quote).
While many Wall Street banks embraced physical energy trading, Canadian banks have so far shied away.
CIBC, Scotiabank, TD, and RBC do trade physical natural gas, a homogenous product that is easy to value. As well, BMO is in the middle of an approval process to trade physical natural gas, and the bank expects the process to be completed early in 2014.
None of the banks are involved in physical crude trading, however, which would entail greater investment in logistics and storage, Calgary market players said.
That makes them unlikely bidders for businesses such as JPMorgan’s physical commodities desk, which is in the second stage of a sale, or the asset-rich oil and power operations at Morgan Stanley, which has tried in vain for more than a year to find a buyer for that desk.
Instead, the Canadians concentrate on trading financials – crude derivatives contracts, usually based on the U.S. West Texas Intermediate benchmark – that enable clients to hedge their exposure to price swings in oil markets.
Client hedging activity tends to increase sharply in relation to oil market volatility. Bank traders in Calgary said they expect hedging demand to stay strong because of booming North American production and supply bottlenecks that exacerbate the discount on Canadian crude.
“With the U.S. investment banks that have pulled out of Canada, there would be more opportunity for these guys to fill that void,” said Brian Klock, equity analyst at KBW Inc.
(Editing by Jonathan Leff; and Peter Galloway)
Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge
Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Banks have been accused of manipulating energy markets in California and other states.
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.
As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.
Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously. It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”
Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…
What are some of the other recent revelations?
Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:
At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.
The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.
One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.
Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.
And after that came unprecedented hubris and a sense of invincibility:
The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.
The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.
Since nobody investigated, next naturally, come the profits and the crimes:
Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.
While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.
A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.
“If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”
… along with a lot of banging the close:
Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.
… and much golf and “envelopes stuffed with cash”
On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.
Such transactions were common and also took place in tavern parking lots in Essex, the person said.
Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.
In short – so simple the underwear gnomes could do it:
- Create a cartel
- Corner and manipulate the market
And that’s why they (and especially Jamie Dimon) are richer than you.
What is $55 trillion between friends? Very little according to the CFTC. In perhaps the biggest under the radar news of the day – to be expected with every watercooler occupied by taper experts – theWSJ reports that the Commodity Futures Trading Commission said Wednesday that technical errors at two so-called swaps data repositories, which collect and supply regulators with transaction data, have led the CFTC to misreport the overall size of the swaps market by undercounting its size. Isn’t it curious how all these “glitches” always work out in the favor of preserving market calm and confidence and away from spooking investors and speculators? Either way, a better question is how big was the so called undercounting? The answer: as large as $55 trillion!
Regulators aren’t sure how much the repositories are undercounting. One CFTC official familiar with the matter said the discrepancy could be as high as $55 trillion, though another official said the figure is closer to $10 trillion once regulators cancel out certain transactions to prevent double counting.
One just has to laugh: the total US swaps market is what – roughly $400 trillion? So… just add enough notional to that number equal to the GDP of the entire world – or 4 times the size of US GDP – and call it a day. And in this environment somehow the Fed and other central planners are expected to have any clue what they are doing on a day to day basis?
Naturally this discovery makes a mockery of such transaprency enchancing initatives as Dodd-Frank.
The lack of clarity over the size of the market may undermine a key plank of the 2010 Dodd-Frank law aimed at bringing transparency to the opaque derivatives market. Swaps, which were at the heart of the 2008 financial crisis, are complex financial contracts that allow financial firms and their clients to hedge against risks or bet on an asset’s value.
The CFTC has issued a number of rules to bring transparency to swaps trading so regulators can detect risks that could pose a threat to a firm or the financial system.
It would appear that those rules, uh, failed. It gets better:
The CFTC said in a footnote to its weekly swaps report that the largest data repository, the Depository Trust & Clearing Corp., “has informed us that due to a…technical coding issue, the notional values in the interest rate asset class have been understated.” The agency also reported “a processing error” by a separate repository operated by CME Group Inc. A CME spokeswoman didn’t respond to a request for comment. A CFTC official characterized the data problems as “growing pains.” The agency formally began to report swaps data on a weekly basis just last month.
A technical coding issue with 12 zeroes?
Sure enough, the CFTC was quick to scapegoat someone for this epic clusterfuck – naturally, this someone was evil Congress for not spending even more money on the CFTC’s toothlessness, something popularized recently by the recently departedBart Chilton, who more or less told gold traders that manipulation in the gold market will continue because the government just doesn’t have the funds to stop it.
The official said the error also reflects the agency’s chronic lack of resources. Just two employees at the agency are charged with putting together the weekly swaps report and it takes them 12 days to prepare the data for publication compared with three for another report the agency publishes. The agency is reviewing the matter and hopes to have firmer figures by next week’s report, due Thursday.
In a statement, DTCC said: “We notified the CFTC immediately after we uncovered this matter and are working overtime to resolve these issues as soon as possible to ensure that the agency has timely access to the most accurate, highest quality market data.”
Oh that’s ok then, after all what’s a little eletronic $55,000,000,000,000 shuttling back and forth between insolvent counterpa…. oh hey look, over there everyone, the Fed just tapered!