In the Matter of JPMorgan Chase Bank, N.A.

JPMorgan Chase Bank, N.A. (defendant) entered into an offer of settlement with the Commodity Futures Trading Commission (CFTC) (plaintiff). The CFTC had found that a subdivision of JPMorgan was engaged in the trading of a credit-default swap known as CDX. At the end of each day of trading, JPMorgan traders would assign a value to their positions on a mark-to-market basis, thereby designating the value based on the then-existing market prices. These values were used to calculate the traders’ profits and losses. The CDX trading was profitable for a number of years, but in February 2012, daily losses on the CDX trading became substantial. The traders became increasingly concerned about the losses because there was an internal portfolio valuation at the end of February that would be widely distributed within JPMorgan. Accordingly, the traders wanted to reduce their mark-to-market losses. The value of the traders’ portfolio stood to increase if the market price of a particular CDX, known as the CDX.NA.IG.9 10-year index (IG9 10Y), decreased. In the last three days of February, the traders sold more than $10 billion of IG9 10Y, amounting to more than one-third of the entire month’s volume of all market participants. The market price of IG9 10Y dropped significantly, benefiting JPMorgan on a mark-to-market basis. JPMorgan had no internal controls that prevented the large accumulation of certain CDX provisions and did not prevent the traders from attempting to conceal their losses. The CFTC found that JPMorgan violated § 6(c)(1) of the Commodity Exchange Act (CEA), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which made it unlawful “to employ, or attempt to use or employ, in connection with any swap, any manipulative or deceptive device or contrivance.”