THE Commodity Futures Trading Commission (CFTC) said yesterday that JP Morgan Chase will pay $20m (£12.6m) to settle charges that it unlawfully handled customer segregated funds at Lehman Brothers Holdings.
The action comes as the CFTC and other regulators continue to probe what happened to segregated customer funds in the October 2011 collapse of MF Global Holdings, a commodity trading firm that also did business with JP Morgan.
In the Lehman case, the CFTC said that for about 22 months, ending with Lehman’s bankruptcy in September 2008, JP Morgan had improperly extended intra-day credit to Lehman Brothers based in part on customers’ segregated funds Lehman had deposited at the bank.
JP Morgan also violated rules by refusing to release customers’ segregated funds for nearly two weeks after the bankruptcy, the CFTC said.
In a statement, JP Morgan said it “mistakenly factored the balance in the account into a daily calculation of (Lehman) assets to determine the amount of credit the firm was willing to extend to (Lehman).”
JP Morgan went on to say that “no customer funds were ever used to satisfy any (Lehman) debt to JP Morgan, nor were any funds in these accounts lost.”
Lehman spokeswoman Kimberly Macleod declined to comment.
The CFTC’s order requires JP Morgan to implement reforms to ensure the proper handling of customer segregated funds in the future and to release customer funds upon instruction from the CFTC.
City A.M. Reporter