Cartels R Us: Tab for Rigging Foreign Exchange $3.3 Billion and Rising

By Pam Martens: November 12, 2014

Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress on the London Whale Trading Losses

Jamie Dimon, Chairman and CEO of JPMorgan Chase, Testifying Before Congress on the London Whale Trading Losses

Two U.S. and three foreign banks have been charged with rigging the foreign exchange market where $5.3 trillion changes hands daily and have settled civil claims for $3.3 billion. (The charges are very similar to those in the rigging of the international interest rate benchmark known as Libor.) Additional charges and settlements by other regulators are expected to follow before the end of the year.

The U.S.-based Commodity Futures Trading Commission (CFTC) levied a total of over $1.4 billion in fines against JPMorgan, Citigroup, UBS, HSBC and RBS. The same five banks were fined $1.7 billion by the U.K.’s Financial Conduct Authority (FCA). Swiss regulator FINMA charged only UBS with a fine of $139 million and included rigging of precious metals trading along with rigging foreign exchange.

While the details that were released are skimpy and the Financial Conduct Authority is already being criticized in London for essentially allowing the banks’ lawyers to conduct their own investigations and hand over their findings to the regulator, no bank comes out looking worse than JPMorgan – which has serially promised to beef up its internal controls and compliance while serially being charged with ongoing, serious crimes.

The FCA said the foreign exchange market rigging occurred between January 1, 2008 through October 15, 2013 while the CFTC fines and investigation covered a shorter period from 2010 through 2012, according to documents released by the regulators this morning. The important takeaway from these dates is that the corrupt banking culture that crashed global economies in 2008, and then received taxpayer bailouts to resurrect these same institutions, still poses a serious financial threat to investors and taxpayers.

Both the U.S. and U.K. regulators faulted JPMorgan for inadequate internal controls and supervisory failures. The CFTC wrote that JPMorgan “lacked adequate internal controls in order to prevent its FX traders from engaging in improper communications with certain FX traders at other banks. JPMC lacked sufficient policies, procedures and training specifically governing participation in trading around the FX benchmarks rates and had inadequate policies pertaining to, or insufficient oversight of, its FX traders’ use of chat rooms or other electronic messaging.”

In two chat room conversations cited by the CFTC, a JPMorgan trader is brazenly engaging in the rigging of Forex with traders from two separate banks: The traders had the following exchange:

Bank W Trader: 3:46:53 i’d prefer we join forces

JPMC Trader:  3:46:56 perfick

3:46:59 lets do this…

JPMC Trader:  3:47:11 lets double team them

Bank W Trader: 3:47:12 YESssssssssssss

According to the CFTC documents, immediately after the fixing window, the traders congratulated themselves as follows:

 Bank W Trader: 4:03:25 sml rumour we haven’t lost it

 JPMC Trader:  4:03:45 we 4:03:46 do 4:03:48 dollarrr

The CFTC also cites another chat room exchange where a JPMorgan trader coordinated with a trader from an outside bank to manipulate the Euro/U.S. Dollar fix just ahead of the 4 p.m. fix, as follows:

JPMC Trader:  3:51:21 ok, i got a lot of euros

Bank X Trader: 3:51:25 ?  3:51:28 you selling?

JPMC Trader:  3:51:30 yes

Bank X Trader: 3:51:33 now 3:51:35 or pickun?

JPMC Trader:  3:51:39 pick un [pickun is slang for fix orders]

3:51:46 u want it? …

Bank X Trader: 3:52:24 ill take it [JPMC trader]

3:52:26 if u dont want it

JPMC Trader:  3:52:39 tell you what 3:52:42 lets double team it 3:52:45 how much u got

Bank X Trader: 3:52:46 ok 3:52:47 300 3:52:52 u?

JPMC Trader:  3:53:01 ok ill give u 500 more

Bank X Trader: 3:53:05 wow 3:53:06 ok 3:53:08 ha 3:53:09 cool…

JPMC Trader:  3:53:20 so we have 800 each 3:53:21 ok 3:53:31 but we gotta both do some at fix 3:53:36 don’t sell em all and take foot off haha

Bank X Trader: 3:53:40 i promise i will

JPMC Trader:  3:53:47 me too

In the second instance, according to the CFTC, the Bank X trader reported that he was “hosed” and the JPMorgan trader responded with “ditto.” Both traders then proceeded to discuss what went wrong with the strategy.

One of the primary benchmark rates that the Forex traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates, known simply as WM/R Rates. These are the most widely utilized international benchmarks for currency exchange. Most of the WM/R Rates involved in the investigation are set or fixed based on trading activity of market participants, including global banks, at various times throughout the day.  The most widely used WM/R Rate is set or fixed at 4 p.m. London time. The Forex benchmark rates are used to price trillions of dollars in foreign exchange swaps, cross currency swaps, spot currency transactions, options and futures contracts.

The arrogance of the market rigging is reflected in the names the traders assigned to their chat rooms: “the players,” “the three musketeers,” “one team, one dream,” “a cooperative” and “the A-team.”

As recently as January of this year, JPMorgan was charged with two felony counts for aiding and abetting the Bernard Madoff Ponzi scheme. It paid a total of $2.6 billion in fines and restitution and was given a deferred prosecution agreement, effectively a two-year probation. Insightfully, after reading the documents released by the Justice Department in connection with the settlement, the Los Angeles Times asked in a photo caption of a smirking Madoff outside of Federal Court: “Bernie Madoff: Was he part of the JPMorgan ring, or was JPMorgan part of his ring?”

Wall Street On Parade did an in depth investigation of the JPMorgan/Madoff matter and found a type of Russian Nesting Doll frauds within frauds involving JPMorgan.

In 2012, JPMorgan was caught using depositors’ money to gamble in high risk derivatives trades in London in what became known as the infamous London Whale scandal. Its regulators cited it for lacking proper risk controls. (Wall Street On Parade has reported in depth on that matter here.)

Just last week, Alayne Fleischmann, an attorney and former Transaction Manager at JPMorgan, came forward to reveal in a feature story by Matt Taibbi at Rolling Stone that the securitization of mortgage loans known to be defective was being rubber stamped by her former department at JPMorgan, then sold off to unwary investors as good paper. The Justice Department has had her testimony for two years but has failed to bring a criminal case.

It is understood that both the U.S. and the U.K. have open criminal investigations into the Forex rigging matter.

Update: The Office of the Comptroller of the Currency (OCC) has just announced an additional $950 million in related fines against JPMorgan Chase, Bank of America and Citigroup.  Its full statement can be read here.

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