JPMorgan Chase to Pay $20M in Lehman Funds Case

JPMorgan Chase will pay $20 million to settle charges that it unlawfully handled customer-segregated funds at Lehman Brothers Holdings, according the Commodity Futures Trading Commission.
The CFTC said that from November 2006 until Lehman’s bankruptcy in September 2008, JPMorgan had improperly extended intra-day credit to Lehman Brothers, a futures commission merchant.
According to the order, JPMorgan extended intra-day credit to Lehman on a daily basis to facilitate Lehman’s proprietary transactions, including repurchase agreements, or “repos.”
As of November 17, 2006, JPMorgan included Lehman’s customer-segregated funds in its calculation of Lehman’s net free equity, even though these funds belonged to customers, not to Lehman Brothers.
The CFTC order imposes a $20 million civil monetary penalty against JPMorgan. The order also requires JPMorgan to implement proper handling of customer-segregated funds in the future and to release customer funds upon notice and instruction from the CFTC.
In a statement today, JPMorgan Chase conceded as to one of the accounts that it had “mistakenly factored the balance in the account into a daily calculation of LBI (Lehman) assets to determine the amount of credit the firm was willing to extend to LBI.”
JPMorgan also said, “no customer funds were ever used to satisfy any LBI (Lehman) debt to JPMorgan, nor were any customer funds in these accounts lost.”
“The CFTC does not claim that JPMorgan Chase intentionally violated the Commodity Exchange Act or CFTC regulations,” JPMorgan Chase said.

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