How JPMorgan Chase allegedly tried to hide a $6.2 billion loss from the feds

A new Senate report revives the too-big-to-fail debate by accusingbank executives of misleading investors and regulators

JPMorgan Chase is the biggest of all the nation's big banks. So if any bank is too big too fail, it's JPMorgan.

But that hardly means JPMorgan Chase has a hall pass. Indeed, a tough new 300-page Senate report accuses the bank and CEO Jamie Dimon of hiding losses of around $6.2 billion from federal regulators.

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The report alleges that JPMorgan executives intentionally misled investors and regulators over the "London Whale" trade, news of which first surfaced in May 2012. Back then, Dimon attributed the losses, initially estimated at around $2 billion, to "errors" and "bad judgment," according toCNNMoney. Specifically though, the loss stemmed from a complex deal involving credit default swaps — insurance-like contracts that essentially allow firms to bet on whether the value of a given asset will rise or fall.

The Senate report, as the Washington Post notes, "is the first to suggest that JPMorgan's chief executive Jamie Dimon was less than forthright with regulators as he learned of the mounting losses," alleging that he put a stop to the daily profit and loss statements that the bank's investment division had been sending to regulators.

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For its part, JPMorgan has released a statement

We know we have made many mistakes related to the CIO matter, and we have already identified many of the issues cited in the report. We have taken significant steps to remediate these issues and to learn from them.

If the information in the report is correct, Chase followed the behavioral model of every corrupt/failing hedge fund this side of Bernie Madoff and Sam Israel, only it did it on a much more enormous scale and did it with federally-insured deposits. The fund used (in part) federally-insured money to create, in essence, a kind of super high-risk hedge fund that gambled on credit derivatives, and just like Sam Israel did with his Bayou fund, when it got in trouble, it resorted to fudging its numbers in order to disguise the fact that it was losing money hand over fist.

Chase for years hid the very existence of this operation from banking regulators and lied about the purpose of the fund (saying it was purely a hedging operation when it stopped being a hedge and instead became a wild directional gamble), and it also changed the way it calculated the fund's value once it started to lose hundreds of millions of dollars. [Rolling Stone]

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"This bank appears to have entertained, even embraced, the idea that it was too big to fail," said Sen. John McCain this morning during a Senate subcommittee hearing, according to the New York Times. Jeff Macke at Yahoo believes the "report is both a slap at Mr. Dimon — a staunch critic of government involvement in banking regulations" — and yet another "salvo in the ongoing fight over the Volcker rule." Implementation of the Volcker rule, which was meant to stop exactly this sort of scenario (i.e. banks claiming risky trades as hedges), has been delayed by lobbying efforts.

As for the fate of JPMorgan Chase and Jamie Dimon, Mark T. Williams, a former Federal Reserve bank examiner, has a suggestion:

Too big to fail has been put back on the table -- not providing risk data, misleading shareholders -- this suggests that breaking up the banks is a viable idea. This big trading loss reinforces the need for independence. It’s kind of hard to argue at this point that JPM would’ve been worse off if they had a separate chairman. [Bloomberg]

Teens, with immunity, testify in Ohio rape trial

STEUBENVILLE, Ohio (AP) — A 16-year-old girl who says she was sexually assaulted by two football players last summer was drunk and didn't seem to know what was happening, according to the testimony of three teenagers who were granted immunity from prosecution in order to give their accounts of that night.

Mark Cole, Evan Westlake and Anthony Craig spoke Friday of the West Virginia girl's behavior the night of a party and described her being digitally penetrated in a car and later on a basement floor.

Football players Trent Mays, 17, and Ma'Lik Richmond, 16, are charged with digitally penetrating the girl early Aug. 12, first in a car and then in the basement of a house. Mays also is charged with illegal use of a minor in nudity-oriented material. The two maintain their innocence.

Cole testified that he took a video of Mays and the girl in the car, then deleted it later that morning. Westlake testified he saw Richmond's encounter with the girl in the basement, as did Craig.

Testimony in the rape trial wrapped up late Friday as a judge, who's hearing the case without a jury, pushed to finish the case, which is continuing through the weekend. The accuser was expected to testify Saturday.

The case has featured disturbing testimony from teens, both in person and in graphic text messages, and has cast an unwelcome light on what students in the community once considered private conversations. The teenagers who testified Friday winced at times as they were forced to read the adult language in the texts.

The case has riveted the small city of Steubenville amid allegations that more students should have been charged and led to questions about the influence of the local football team, a source of a pride in a community that suffered massive job losses with the collapse of the steel industry.

If convicted, Mays and Richmond could be held in a juvenile jail until they turn 21.

During Cole's testimony, a prosecutor asked him why he deleted the video.

"It was one of those moments when you realize you did something stupid and wrong that night, so I deleted it," Cole replied.

Cole testified he saw Mays unsuccessfully try to have the girl perform oral sex on him later in the basement of Cole's house. Cole also testified that the girl was intoxicated and slurring her words.

On cross-examination, defense attorney Walter Madison suggested that the girl was behaving no differently than anyone else the night of the party.

Cole testified he saw Mays and the girl asleep under a blanket on the couch later in the morning.

"Did anybody behave in a way to make you think that something was wrong?" Madison, Richmond's attorney, asked.

"No," Cole said.

Westlake, the second witness granted immunity, testified that he saw Richmond digitally penetrate the girl in the basement of Cole's house.

"Was she moving?" special prosecutor Marianne Hemmeter asked.

"Not at this time," Westlake said.

"Was she talking?" Hemmeter asked.

"I didn't hear anything," Westlake said.

Westlake said the girl appeared to be "pretty drunk" after a large party earlier that night. But he also testified that before the alleged attack he saw Mays and the girl cuddling, hugging and kissing in Cole's car.

Westlake also confirmed that he filmed a 12-minute video, later passed around widely online, in which another student, Michael Nodianos, joked about the attack. Women's rights groups have demanded that Ohio Attorney General Mike DeWine charge Nodianos with failure to report a crime. DeWine has so far refused to say what he'll do.

Westlake said he deeply regrets his actions that night.

Craig testified that he saw Richmond's hand in the "crotch region" of the girl, a less descriptive version than he gave last fall in another hearing.

Craig also confirmed he received a text message from the girl the next day in which she said she remembered hearing Mays' voice telling her to do something, but she said no.

A 16-year-old student testified that she tried to persuade the girl to leave the party with her.

Farah Marcino said the girl brushed off her attempts. "She actually hit one of my friends and said she did not want to go," Marcino said.

Friday's testimony concluded with former Steubenville police detective Jean-Phillipe Rigaud describing how the department first learned of the allegation from the girl's family Aug. 14.

Rigaud said the accuser told him she remembered nothing about the evening except leaving an alcohol-fueled party, throwing up in the middle of a street a few minutes later, then waking up naked the next morning in the basement where she said one of the attacks happened.

The Associated Press normally doesn't identify minors charged in juvenile court, but Mays and Richmond have been widely identified in news coverage, and their names have been used in open court.

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Colo Legislature OKs expansion of firearms checks

DENVER (AP) — A landmark expansion of background checks on firearm purchases was approved Friday by lawmakers in Colorado, a politically moderate state that was the site of last year's mass shooting at a suburban Denver movie theater.

The bill previously passed the state Senate and now heads to Democratic Gov. John Hickenlooper, who is expected to sign it into law within two weeks.

Earlier this week, Colorado lawmakers approved a 15-round limit on ammunition magazines. It is also awaiting the expected approval of the governor.

The bill passed Friday expands cases when a $10 criminal background check would be required to legally transfer a gun. Republicans have opposed the bill, calling it an undue burden on law-abiding gun owners.

"We know for a fact that whatever law we pass criminals won't care," said Republican Rep. Jerry Sonnenberg.

The vice president praised passage of the bill.

"Congrats to Colorado House and Senate for passing universal background checks," read a tweet sent by the office of Vice President Joe Biden from his official (at)VP account.

It was followed by another tweet referring to the theater shooting that read, "The families of Aurora deserved a vote and got one. Now U.S. Congress must act too."

Congress is also considering a number of new firearm restrictions.

Colorado is the first state outside the East Coast to significantly ratchet back gun rights after the theater and school shootings. Colorado's gun debate was being watched closely because it's considered a swing state with both a gun-loving frontier past and an unfortunate history of mass shootings, including the 1999 Columbine High School attack.

"Are going to stop all criminals from getting guns? No," said Democratic Rep. Beth McCann, a sponsor of the background checks bill. "But are we are going to put a barrier there, make it more difficult for them? Yes."

The move to expand background checks would be one of the most sweeping responses by Colorado to the shootings last year in Aurora and at the elementary school in Newtown, Conn.

In Colorado, expanded checks have been a top priority for Hickenlooper, who called for the proposal during his State of the State address in January.

Both chambers previously approved the expanded checks in slightly different forms. However, both had to agree on an identical bill before passing it to the governor, so a second round of voting was required.

Democrats seemed relieved that Colorado's protracted gun-control debate was nearing an end.

The GOP unsuccessfully tried some last-minute legislative maneuvers on Friday to sink the background-check measure before it was passed 19-14 by the Senate.

"It won't help anything, but it makes common everyday actions among friends and neighbors something that's now illegal in the state of Colorado," argued Republican Sen. Greg Brophy, one of the GOP's lead Senate gun negotiators.

Brophy tried to keep background-check talks alive by rejecting a preliminary agreement by the House and Senate to clarify the bill so gun owners can lend firearms to immediate family members without a background check.

Democrats grew frustrated at GOP attempts to imagine scenarios that would trigger background-checks. From 4-H members learning gun safety but needing to borrow a shotgun, to neighbors on weeklong elk-hunting trips, Republicans argued the bill would ensnare harmless gun users.

Democrats insisted that existing exemptions in the bill would cover most scenarios the GOP imagined. The bill's sponsor, Senate Democratic Leader Morgan Carroll, told Republicans that Democrats had enough votes to pass the measure but extended debate to make small changes requested by Republicans.

"There were many, many changes made to this bill, made in good faith," said Carroll.

However, Republicans wanted so many exceptions that "we might as well repeal all background checks," she said.

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Kristen Wyatt can be reached at http://www.twitter.com/APkristenwyatt. Ivan Moreno can be reached at http://www.twitter.com/IvanJourno.

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UN: Syria refugee numbers jump 10 percent in week

BEIRUT (AP) — The U.N. said Thursday that the number of registered Syrian refugees jumped 10 percent in the past week alone, part of what the U.N. commissioner for refugees called a "staggering escalation."

France, meanwhile, pushed for quickly lifting a European Union ban on arming Syrian rebels.

French Foreign Minister Laurent Fabius said his country is ready to supply weapons even if other EU countries disagree. The United States and other countries have been reluctant to send weapons partly because of fears they may fall into the hands of extremists.

Fighting in Syria has intensified, prompting growing numbers of Syrians to flee their country.

The human rights group Amnesty International said Thursday that the regime is increasingly using lethal battlefield weapons, including widely banned cluster bombs, in attacks on residential areas.

"The frequency and scale of such attacks — which constitute war crimes — has increased in recent months, with disastrous consequences for the civilian population," the group said in a report.

On Thursday, Syrian warplanes struck several areas across the country, activists said.

In Israel, the military intelligence chief, Maj. Gen. Aviv Kochavi, warned that the regime is making "advanced preparations" for using chemical weapons, but has not given the order yet to activate them.

Kochavi did not elaborate. He also said Iran and its Lebanese proxy Hezbollah are fighting alongside Assad.

The Syria conflict began two years ago as a largely peaceful uprising against Assad. A government crackdown triggered an insurgency that turned into a civil war last summer.

U.N. officials said some 4 million of Syria's 22 million people have been forced from their homes by the fighting, including 2 million who remain in Syria. The U.N. estimates more than 70,000 people have been killed.

The number of Syrians who fled to neighboring countries is growing well beyond initial estimates, the U.N. refugee agency said. At the same time, donor governments have sent only about one-fifth of the $1.5 billion needed to help displaced Syrians for the first six months of this year.

Last week, the U.N. announced that the number of registered refugees in Jordan, Lebanon, Turkey, Egypt, Iraq and North Africa had reached 1 million.

On Thursday, Reem Alsalem of the U.N. refugee agency said more than 121,000 refugees registered since then, a jump of more than 10 percent.

U.N. High Commissioner for Refugees Antonio Guterres noted that the average number of Syrians fleeing their country every day rose from 3,000 in December to 8,000 in February.

"This represents a staggering escalation," he said in a visit to Lebanon on Thursday, urging decision-makers to do more to end the conflict.

Alsalem said that in addition to the growing exodus, registration has accelerated, including in Turkey where more refugees living outside the country's 17 camps have been registered.

France and Britain have been pushing for a review of the EU's ban on sending weapons to Syria's opposition fighters. The current embargo expires in May.

The French foreign minister said Thursday that France and Britain will ask for an EU meeting to lift the embargo, possibly by the end of the month.

"Lifting the embargo is one of the only means left to make things move politically" in Syria, Fabius said, adding that he believes France should arm the rebels.

Asked by France-Info radio if France and Britain could join efforts to arm the opposition, Fabius said, "to lift the embargo, exactly."

Asked what France would do if European partners insist on a continued embargo, he said France and Britain could refuse to renew it. "France is a sovereign nation," he said, but did not elaborate.

A French diplomat said France is not talking about breaking the EU embargo but is leaning toward refusing to extend it in May. The diplomat, who wasn't authorized to be publicly named according to government policy, said it was too early to discuss what kind of arms France might supply.

British Prime Minister David Cameron also hinted this week that his country might refuse to extend the embargo.

Russia, which is supplying weapons to the Syrian military, strongly opposes arms supplies to the rebels, and some international diplomats warn that more fire power is the last thing that Syria needs.

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Pakistani activist for poor shot dead in Karachi

KARACHI, Pakistan (AP) — Gunmen shot and killed a pioneering Pakistani activist in Karachi who helped bring services like sewer and water to the city's poorest neighborhoods, a police official said.

The killing was a sign of the escalating chaos that has gripped Pakistan's largest city.

Perween Rahman, the director of the Orangi Pilot Project, was on her way home Wednesday night when she was shot and killed by gunmen on a motorcycle, said senior police officer Javed Odho.

She was struck four times in the chest and neck and died on the way to the hospital, he said. Rahman, 54, was an architect who left private practice early in her career to help the poor.

Through her work, she became one of the authority figures on the ever-expanding Karachi and the struggles of millions of poor people who try to eke out a living in some of the most neglected neighborhoods. Friends and colleagues were devastated by her death.

"Anyone trying to understand Karachi would go to her," said Zora Yusuf, who heads the Pakistan Human Rights Commission. "It is very, very depressing, very disturbing."

The Orangi Pilot Project operated in the squatter slums that make up a huge part of Karachi. The innovative project, started in the 1980s, helped residents of those poor communities build their own sewer and water systems.

The port city is a sprawling metropolis of roughly 18 million people.

It is made up of a mish-mash of essentially illegal land settlements where poor people purchased land from developers and built their homes. Few of these settlements have basic services like sewage lines or running water, let alone access to hospitals or schools.

Often the same people that sell the land then sell services like water delivery, and residents have no option but to buy them.

"The government itself has failed in these areas," said Yusuf.

The Orangi project worked with residents to build services. The organization would couple its technical expertise with labor from residents in the affected community to build things like sewer lines and would lobby the government to build a main sewer line that all the other neighborhoodscould connect with.

NPR correspondent Steve Inskeep wrote extensively about Rahman and the Orangi project in his book on Karachi, "Instant City: Life and Death in Karachi."

In the book, he described Rahman as a thin, raven-haired woman "with a musical way of talking." He said she was educated as an architect but quickly left the firm she was working at because she wanted to do something that would help local residents.

There was no claim of responsibility for the shooting but Rahman's work had sometimes put her in the middle of dangerous situations in a city where the security situation is deteriorating swiftly. Inskeep described in his book how armed men at one point burst into the project's office.

Rahman had not received any specific threats recently, said Abdul Waheed Khan, a senior program manager at the OPP. But he said the nature of their work often involved challenging various criminal groups — referred to as mafias in Karachi — that control the land or water delivery in these poor areas.

Land and access to it is big business in the city, which has mushroomed from 1947, when its population was 435,000, to at least 18 million now.

With the chaotic growth came an often deadly fight for control of the city's land, because anyone who controls it can make a fortune subdividing and reselling it.

Meanwhile, a bomb planted outside a cable TV office in Karachi killed three people and wounded four others after midnight, police officer Sadaqat Ali said Friday.

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