WASHINGTON, D.C. - (Mealey's) JPMorgan Chase
Bank NA on Wednesday agreed to pay $20 million to settle a U.S. Commodity
Futures Trading Commission (CFTC) suit alleging that it mishandled Lehman
Brothers Inc. customers' funds during Lehman's collapse (In re:
JPMorgan Chase Bank NA, No. 12-17, CFTC).
The CFTC filed and resolved the enforcement action
regarding the bank's refusal to release more than $333 million in Lehman
customers' money it held at the time of Lehman's 2008 bankruptcy, which is the
largest in U.S.
history. According to the CFTC, JPMorgan acted as if the funds belonged
to Lehman as opposed to its customers, in violation of the Commodity Exchange
Act (CEA).
"In anticipation of the institution of an administrative
proceeding, the Respondent has submitted an Offer of Settlement ('Offer'),
which the Commission has determined to accept," according to the CFTC
order. "Without admitting or denying any of the findings and conclusions
herein, the Respondent acknowledges service of this Order Instituting
Proceedings Pursuant to Section 6(c) and 6(d) of the Commodity Exchange Act and
Making Findings and Imposing Remedial Sanctions."
Commodity Exchange Act
According to the CFTC, Lehman deposited with JPMorgan
funds belonging to Lehman's customers ranging in aggregate amounts from
approximately $250 million to more than $1 billion. Pursuant to the CEA,
neither JPMorgan nor Lehman was permitted to use or hold the customer funds as
though they belonged to anyone other than Lehman's customers and the funds were
not permitted to be used to extend credit to Lehman, the CFTC said.
During this period, JPMorgan violated Section 4d(b) of
the CEA and CFTC Regulations 1.20(a) and (c) by extending credit to Lehman
based on Lehman's customers' segregated funds and then by declining to release
the funds for a period of approximately 14 days after Sept. 17, 2008, two days
after Lehman's holding company, Lehman Brothers Holdings Inc., filed for
bankruptcy, the CFTC said. Eventually, on Sept. 30, 2008, after receiving
instructions from Lehman's trustee and CFTC officials, JPMorgan released the
funds, the CFTC said.
According to the order, JPMorgan must pay the $20 million
civil penalty within 10 business days of the entry of the
order.
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