JPMorgan paying $20M to settle U.S. charges on funds

By Marcy Gordon AP Business Writer WASHINGTON (AP) -- JPMorgan Chase has agreed to pay a $20 million fine to settle federal regulators' civil charges of illegally handling customer funds that failed Lehman Brothers had deposited with the bank. The Commodity Futures Trading Commission announced the settlement Wednesday. It involved JPMorgan's handling of customer funds from November 2006 to September 2008 when Lehman collapsed. Lehman's futures brokerage firm, LBI, deposited its customers' funds with JPMorgan. The CFTC said JPMorgan extended too much credit to LBI on a daily basis for its own trades because the bank included customer funds in calculating LBI's equity. The handling of customer funds at futures brokerages has drawn more attention since the failure last fall of MF Global. About $1.6 billion in MF Global customer funds are missing. The collapse of Lehman Brothers into the biggest bankruptcy in U.S. history in September 2008 precipitated the financial meltdown that plunged the economy into the most severe recession since the 1930s. The CFTC also alleged that after Lehman Brothers filed for bankruptcy protection, JPMorgan refused Lehman's repeated requests to release the customer funds, which totaled around $330 million, holding on to them for about two weeks. It was only after CFTC officials told JPMorgan to release the funds that the bank did so, the agency said. JPMorgan "acted as if these funds were LBI's funds, not customer" funds, the CFTC said in its order. "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 "mistakenly factored the balance" in LBI's account in its daily calculation of the firm's equity to determine how much credit to extend it. "The size of the account was small "relative to the overall relationship between JPMorgan and Lehman," the bank said. "No customer funds were ever used to satisfy any LBI debt to JPMorgan, nor were any customer funds in these accounts lost," JPMorgan said. "The CFTC does not claim that JPMorgan Chase intentionally violated" federal commodities laws or CFTC regulations. The bank said it cooperated with the CFTC's investigation "and is pleased to have resolved this matter." JPMorgan agreed as part of the settlement 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. CFTC Enforcement Director David Meister said federal laws "impose critical restrictions on how financial institutions can treat customer funds, and prohibit these institutions from standing in the way of immediate withdrawal." "As should be crystal clear, these laws must be strictly observed at all times, whether the markets are calm or in crisis," Meister said in a statement. Published: Fri, Apr 6, 2012