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United States Senate
 PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman John McCain, Ranking Minority Member 
JPMORGAN CHASE WHALE TRADES:A CASE HISTORY OF DERIVATIVESRISKS AND ABUSES
MAJORITY AND MINORITYSTAFF REPORT
PERMANENT SUBCOMMITTEEON INVESTIGATIONSUNITED STATES SENATE
RELEASED IN CONJUNCTION WITH THEPERMANENT SUBCOMMITTEE ON INVESTIGATIONSMARCH 15, 2013 HEARING
 
SENATOR CARL LEVINChairmanSENATOR JOHN McCAINRanking Minority MemberPERMANENT SUBCOMMITTEE ON INVESTIGATIONS
ELISE J. BEAN
Staff Director and Chief Counsel
ALLISON F. MURPHY
Counsel
ZACHARY I. SCHRAM
Senior Counsel
ELIZABETH V. BALTZAN
Former Congressional Fellow
ERIC S. WALKER 
Former Detailee
HENRY J. KERNER 
Staff Director and Chief Counsel to the Minority
BRAD M. PATOUT
Senior Policy Advisor to the Minority
STEPHANIE HALL
Counsel to the Minority 
SCOTT D. WITTMANN
Research Assistant to the Minority
FERAS SLEIMAN
Law Clerk 
TODD PHILLIPS
Law Clerk 
ADAM HENDERSON
Professional Staff Member 
MARY D. ROBERTSON
Chief Clerk 
3/14/13 (9:30am)
Permanent Subcommittee on Investigations
199 Russell Senate Office Building – Washington, D.C. 20510Majority: 202/224-9505 – Minority: 202/224-3721Web Address:http://www.hsgac.senate.gov/subcommittees/investigations
 
i
JPMORGAN CHASE WHALE TRADES:A CASE HISTORY OF DERIVATIVES RISKS AND ABUSESTABLE OF CONTENTS
I.EXECUTIVE SUMMARY
................................................. 2
A.Subcommittee Investigation
. . . ........................................... 2
B.Overview
. . ........................................................... 3(1)Increasing Risk. . . .................................................. 3(2)Hiding Losses. . .................................................... 5(3)Disregarding Risk.................................................. 7(4)Avoiding and Conducting OCC Oversight............................... 8(5)Misinforming Investors, Regulators, and the Public........................ 10
C. Whale Trade Case History
............................................... 14
D.Findings of Facts
. ..................................................... 15(1)Increased Risk Without Notice to Regulators............................. 15(2)Mischaracterized High Risk Trading as Hedging.......................... 15(3)Hid Massive Losses................................................. 15(4)Disregarded Risk................................................... 15(5)Dodged OCC Oversight.............................................. 15(6)Failed Regulatory Oversight.......................................... 16(7)Mischaracterized the Portfolio......................................... 16
E. Recommendations
...................................................... 16(1)Require Derivatives Performance Data.................................. 16(2)Require Contemporaneous Hedge Documentation......................... 16(3)Strengthen Credit Derivative Valuations................................. 16(4)Investigate Risk Limit Breaches....................................... 17(5)Investigate Models That Substantially Lower Risk......................... 17(6)Implement Merkley-Levin Provisions................................... 17(7)Enhance Derivative Capital Charges.................................... 17
II.BACKGROUND
.......................................................... 18
A.JPMorgan Chase & Company
............................................ 18
B.Chief Investment Office
................................................. 21
C.Office of the Comptroller of the Currency
.................................. 25
D.Capital Requirements
................................................... 27
D.Credit Derivatives
...................................................... 29
III.INCREASING RISK 
...................................................... 35
A.Origins of the Synthetic Credit Portfolio
................................... 36
B.Purpose of the Synthetic Credit Portfolio: Undocumented, Unclear, andSubject to Change
...................................................... 42
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