JPMorgan Chase Reaches Settlement with Regulators Regarding Discontinued Municipal Derivatives Activities

7 Jul 2011 17:00

JPMorgan Chase & Co. (NYSE: JPM) announced today that it reached a settlement with the Securities and Exchange Commission (SEC), the U.S. Internal Revenue Service (IRS), the Antitrust Division of the U.S. Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank of New York, and a group of State Attorneys General to resolve their investigations of the conduct of certain former employees on the municipal derivatives desk, which was discontinued in September 2008. The settlement covers conduct claimed to have taken place on that desk in or prior to 2006.

JPMorgan Chase does not tolerate anticompetitive activity or other violations of law. The firm assisted the government agencies in their investigations and is pleased to have resolved this matter with its regulators. The majority of the funds being paid under the settlement agreements will be distributed to municipalities and other tax-exempt issuers.

The investigations focused on a small desk that was discontinued and on certain employees who are no longer with the firm. These employees concealed their conduct from management.

The firm's policies -- both now and during the period in question -- expressly prohibit the conduct that gave rise to these proceedings. During the course of the investigations, the firm initiated enhanced supervisory protocols and worked with its regulators to further strengthen its compliance programs in the public finance business. These improvements included implementing a heightened supervision program, increasing surveillance, and increasing antitrust, ethics and other compliance training. The firm will continue to strengthen these programs.

Under the terms of the settlements, JPMorgan Chase will pay a net amount of $211.2 million as follows: $50.0 million to the IRS; $51.2 million to the SEC; $35.0 million to the OCC; and $75.0 million to the State Attorneys General. Of those funds, $129.7 million will be eligible for distribution to municipalities and other tax-exempt issuers. The settlements are not expected to have any material impact on the firm's earnings.

THE IRS AGREEMENT

Under the IRS Agreement, JPMorgan Chase agreed to issue the following statement: JPMorgan Chase announced today that it has agreed to a settlement with the Internal Revenue Service under which JPMorgan Chase will pay $50 million for certain regulatory violations of the Internal Revenue Code committed in connection with JPMorgan Chase's role in providing or bidding on guaranteed investment contracts, swaps and other contracts with the issuers of municipal bonds or with entities which borrowed the proceeds of such bonds from the issuer thereof or otherwise were the beneficiaries of such bonds. Such issuers and beneficiaries are primarily state and local governments but also include school districts, universities, hospitals and charitable organizations.

This settlement agreement with the Internal Revenue Service is entered with JPMorgan Chase to resolve violations of the Internal Revenue Code resulting from participation in anti-competitive practices, such as bid-rigging, in the municipal market in connection with certain investment contracts and derivative transactions.

With respect to compliance by the affected issuers with the arbitrage requirements of Section 148 of the Internal Revenue Code, under the settlement agreement the municipal investment and swap contracts associated with a State or local bond entered into with JPMorgan Chase during the period 1997 through 2006 are deemed to have been entered into on terms which represent the fair market value of such contracts. Further, for purposes of Sections 103 and 141 through 150 of the Internal Revenue Code, any settlement payments received from JPMorgan Chase by affected issuers are not required to be included in proceeds or gross proceeds of the related bond issue.

About JPMorgan Chase

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and government clients under its JPMorgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.JPMorganChase.com.

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