JPMorgan hit with $20 million Lehman penalty

by Tom Carlson | Wednesday, Apr 4, 2012 | 416 views

JPMorgan Chase and co.  has been penalized over mishandling the funds of the customers of Lehman Brothers after the miraculous debacle of the firm in 2008. The federal suit has set an amount of $20 million as the fine , while JPMorgan has agreed to pay the money to settle the suit.

The charge against the financial giant as regards the order by Commodity Futures Trading Commission is that it had over extended the credit from 2008-2010/2011 period after Lehman Brothers had filed for bankruptcy ., one of the largest Chapter 11 filing till date .

The customers of Lehman Brothers’ in future trades had their funds on deposit in JPMorgan by the Lehman Brothers’ .  Meanwhile they also had their own account with them , and used the customer funds for short-term loans for its own business purposes from JPMorgan.

According to the Commodity Futures Trading Commission (CFTC), while determining the amount of money JPMorgan was legally allowed to lend in such cases for loans; JPMorgan had not only included the money deposit of Lehman but also its customers for calculating the total money that could be lent out .But according to the legal guidelines, customer money cannot be used for extending loans to anyone but him.

The shares of JPMorgan & Chase Co. fell down by 2.24 % during the trading day after the news hit the markets.  Meanwhile JPMorgan stated that it had included the customer money by mistake and that they were willing to settle the case without admittance or the denial of the wrongdoing. “We cooperated with CFTC during the investigations and are pleased to have resolved the issue “, they said.

Earlier JPMorgan had also been cited to be withholding the funds of the customers in the midst of the crisis for longer than stipulated time and had only released the funds after the CFTC prompted them to do so. While JPMorgan had blamed the delay on the unprecedented chaos in the market which delayed the procedures, CFTC iterated that federal restrictions implore financial institutions from standing in the way of withdrawal of funds by the customers and these laws must be adhered to whatever the state of the market is.

In a similar case MF Global had used the money of its customers to cover the overdraft with JPMorgan of a $175 million; another case of mishandling the money of futures customers; before its downfall last year. In this case however the customers didn’t lose any money and the firm itself was not guilty of using the customer money in a wrong way.

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