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BFCSA: Michael West - explosive claims on JP Morgan conduct: Whistleblower ignored by ASIC 2008

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Explosive claims on JP Morgan conduct

BusinessBanking and Finance Michael West

Date May 26, 2014

A technical support person who worked for JP Morgan in Australia claims the bank regularly misled its New York parent and the US Federal Reserve by failing to report losing trades.  The explosive allegations are contained in a submission by the person to the Senate inquiry into the performance of the Australian Securities and Investments Commission. BusinessDay has met the person and agreed to allow him to remain anonymous. He appears to be credible.  The person complained to ASIC and later went to work for the regulator, but he said the regulator failed to investigate his claims.  A spokesman for JP Morgan denied the allegations. "The claims are false and misleading," he said.  In his submission, published by the inquiry, the person said he was employed at the Sydney office of JP Morgan between 2004 and 2007. He worked for a team involved in the post-trade management of the bank's OTC (over the counter) equity derivative business for the Asia-Pacific region.  In 2007, before the global financial crisis, he became increasingly concerned by "certain practices that appeared to circumvent regulatory commitments and risk management expectations," he said.  These included:

■ Misleading reports being provided to head office and the Federal Reserve Bank of New York on the number of outstanding trades.

■ Trades not being booked into the system until they were ''in-the-money''.

■ Trades not booked into systems and only being tracked by paper-based legal agreements, which would be ''torn up'' if required, thereby leaving no trace.

■ Bypassing or attempting to bypass the opinions of in-house lawyers to complete work faster, even if this resulted in incorrect legal agreements being signed by the traders and sent to other major banks as final confirmation of the terms of the trade.

The person said he sought to discuss his concerns with lower and middle management but was warned that ''front office would get rid of me if I persisted''.  ''JP Morgan's 'Worldwide Rules of Conduct' state: 'The most important rule is also the most general: never sacrifice integrity, or give the impression you have, even if you think that it would help JP Morgan Chase's business'.  ''In support of this policy, I lodged a complaint with senior management fully expecting to be able to discuss all my concerns and receive guidance from the relevant departments, including legal and compliance. This did not occur and instead I immediately stopped being paid.''  He said his inquiries resulted in him being threatened that his employment would be terminated because of the complaint. The person was employed by an agency.  ''I was informed that I would not be paid my outstanding salary and any future salary until I signed a new employment contract reducing my notice period from one month to one week,'' he said.

''My contract was terminated shortly after for 'economic reasons'.  ''I had no contact with senior management or legal and compliance and no opportunity was provided.''  The person lodged a complaint with the Fair Work Ombudsman and said he authorised and urged the agency to contact ASIC but that it declined to pursue the matter.  The person formally reported his claims of misconduct to ASIC on November 27, 2008. He subsequently met two ASIC employees on January 5, 2009, at the regulator's Martin Place offices.  He claimed the officers displayed little understanding of the matters raised and asked why he had made a misconduct report.  On May 16, 2012, the person addressed an online inquiry to ASIC (attached to his Senate submission) regarding the whistleblower protections in the Corporations Act.  He said the regulator declined to afford him whistleblower protection. A report from the Senate inquiry is due on Friday but is likely to be delayed.

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Devil in the detail in the jungle out there

Business Date May 24, 2014

Michael West


The phone rang this week. It was Mary from the Australian Shareholder Centre. She was very bubbly and made us the attractive offer, entirely unsolicited, of an exclusive session with a sharemarket specialist.  Who was this humble and lowly essayist to stare such a gift horse in the mouth? It is not every day that one is rung out of the blue with such an amiable invitation to get filthy rich.  We soon realised how we had been so fortuitously selected for this unique opportunity. Only a few hours earlier we had googled ''Australian shareholders'' to find out what the Australian Shareholders' Association had to say about Westfield's latest highfalutin paper shuffle.  Incidentally, transaction costs on the big merger-demerger tote up to $1.47 billion. There is a spend of $150 million on lawyers, merchant bankers and soi-disant ''independent experts''; an outlay that has effectively bought the opinions of UBS, JPMorgan, Rothschild, Merrill, Credit Suisse, Deutsche, Citi and Morgan Stanley. Their views on the deal can be squarely written off - as can those of E&Y, KPMG and Grant Samuel too. Macquarie is the only major broking house to have been left off this rollicking gravy train and, fancy that, the Macquarie analyst says the deal is unfair to Westfield Retail Trust.

Another $1.32 billion is to be sunk in refinancing costs. In fairness to Westfield, most of this should come back via lower cost borrowings over the long run. Still, the deal ought to be knocked on the head but, thanks to tenacious proxy solicitation by Team Westfield, it is thought likely to proceed, albeit in a close-run affair. The vote is on Thursday and the big wrap platforms will have cast their votes by the time you read this.  BUT we digress. Upon googling ''Australian Shareholders'', your scribe had inadvertently clicked on Australian Shareholder Centre rather than Australian Shareholders' Association.  It did seem a little strange, come to think of it, having to sign up with a username and mobile phone number to enter the site. There was good reason for this though. We soon realised that we were in the wrong website.  Successful investment, in the washup, comes down to the adviser rather than the firm. The Australian Shareholder Centre might not really be a shareholder centre but it did seem to carry all the necessary disclaimers.

''The Australian Shareholder Centre does not provide you with personal financial advice,'' was one of these.  And as for fees, ''You will not need to pay any fees if (among other things) .. we receive notification of your death.'' Now that is good to know

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