A Former Exec at Citibank Raises Alarm Bells in Federal Court Over Failed Risk Controls Inside the Bank

 

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A Former Exec at Citibank Raises Alarm Bells in Federal Court Over Failed Risk Controls Inside the Bank

By Pam Martens and Russ Martens: June 5, 2024 ~

Jane Fraser, Citigroup CEO

Kathleen Martin, a former Managing Director at Citigroup’s federally-insured bank, Citibank N.A., has sued the bank and her former boss, Anand Selva, in federal court in Manhattan. According to Martin’s lawsuit, she was hired for the express purpose of making sure that Citibank complied with a Consent Order from a federal banking regulator. Instead, Martin alleges, she was fired in retaliation for refusing to file false information with that regulator.

The first thing you need to know about Citigroup/Citibank is that it is a recidivist megabank – serially charged for wrongdoing by its regulators while also being perpetually bailed out by the Fed.

This particular saga of sticking its finger in the eye of its regulator began on October 7, 2020 when the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), slapped a $400 million fine on the bank. The accompanying Consent Order stated that the OCC had “identified unsafe or unsound practices with respect to the Bank’s internal controls, including, among other things, an absence of clearly defined roles and responsibilities and noncompliance with multiple laws and regulations.”

In a sign of just how alarmed the OCC was with the conditions it found at Citibank, the Consent Order indicated that if the OCC did not determine that the bank was making “sufficient and sustainable progress towards achieving compliance with this Order,” the OCC was reserving the right to fire any or all members of the Citi Board of Directors as well as “senior executive officers.”

And just exactly what were these alarming conditions the OCC found at Citibank? As is typical of bank regulators, the OCC did not spell out with any granularity what it had found at the bank, but the word “capital” does appear multiple times in the Consent Order. For example, the OCC writes:

“The Bank shall improve the Bank’s capital planning processes that shall, at a minimum, ensure: (a) the development of and adherence to effective governance over capital planning and calculations; (b) that capital and risk-weighted assets are appropriately identified and reported; and (c) that periodic assessments of the Bank’s capital calculations and management and regulatory reporting ensure the capital calculations adequately take into account the Bank’s size, complexity, and overall risk profile.”

For an idea of what might have been raising alarm bells at the OCC in regard to capital at Citigroup’s Citibank, see our report: Citigroup Has Been Paying Out More than It Earned for Years; Now It Has $102.5 Billion in Debt Maturing within Three Years. (Retaining earnings adds to capital at banks; using those earnings to buy back stock in order to prop up the share price can erode the capital base of a bank.)

The OCC’s Consent Order also used the word “liquidity” multiple times. Things do not seem to be moving in the right direction there either. See: Citigroup’s Citibank Took the Largest Amount of Loans from the FHLB of NY in 2022, Reminiscent of FHLB Loans Taken by Silvergate, SVB, Signature, and First Republic Bank; and After Getting the Largest Bailout in U.S. History in 2008, 85.5 Percent of the $1.34 Trillion in Deposits at Citigroup’s Citibank Lack FDIC Insurance Today.

If the Kathleen Martin lawsuit has a familiar ring to it, that’s because something quite similar happened in the same courthouse in 2021. A former compliance attorney at JPMorgan Chase, Shaquala Williams, alleged in a lawsuit that she was fired in retaliation for reporting wrongdoing at the bank. That case was also related to alleged attempts to make regulators think the bank was complying with regulatory orders when it was all a sham.

Williams charged in her lawsuit that JPMorgan Chase was keeping two sets of books and effectively making a monkey out of the U.S. Department of Justice by brazenly flouting the non-prosecution agreement it had signed with the Justice Department in a previous case.

In 2016 the Justice Department had charged that JPMorgan’s Asia subsidiary engaged in quid pro quo agreements with Chinese officials to obtain investment-banking business and had falsified internal documents to cover up the activities. The quid pro quo agreements involved the bank putting the children of high-ranking Chinese government officials on its payroll in order to enhance its business interests in China. In exchange for avoiding prosecution by receiving a non-prosecution agreement, the Justice Department required the bank to put in place compliance controls around third-party payments. Williams alleges, among other serious charges, that the so-called third-party payment controls were a sham and that when she blew the whistle to her superiors at the bank, JPMorgan Chase retaliated against her by firing her in October 2019.

It came out in Williams’ deposition testimony, which is part of the court record, that one of the people being paid under her allegation of the bank keeping two sets of books was Tony Blair, the former Prime Minister of the U.K. (See our report: JPMorgan Whistleblower Names Former U.K. Prime Minister Tony Blair in Court Documents as Receiving “Emergency” Payments from Bank.)

The Williams case was quietly settled 10 days before the trial was set to begin. The Judge presiding over the case was Jed Rakoff – the same Judge who presided over multiple cases last year involving JPMorgan Chase’s financial involvement with sex trafficker Jeffrey Epstein. (See our report: Judge Jed Rakoff Has Regularly Dined in the Past with the Chairman of the Law Firm that Just Got a Big Win in His Court in the JPMorgan Sex Trafficking Case.)

WALL STREET ON PARADE

******MUST READ ***** JPMorgan’s Federally-Insured Bank Is Fined $348 Million for Losing Track of “Billions” of Trades

 

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JPMorgan’s Federally-Insured Bank Is Fined $348 Million for Losing Track of “Billions” of Trades

By Pam Martens and Russ Martens: March 18, 2024 ~

Jamie Dimon Sits in Front of Trading Monitor in his Office (Source: 60 Minutes Interview, November 10, 2019)

On Thursday of last week, two of JPMorgan Chase Bank’s federal regulators fined the riskiest bank in the United States $348 million dollars for engaging in “unsafe and unsound banking practices” for failing to supervise “billions” of trades on at least 30 global trading venues.

The Office of the Comptroller of the Currency (OCC) fined JPMorgan Chase Bank $250 million while the Federal Reserve fined the bank $98.2 million. The OCC said the misconduct occurred since at least 2019. The Fed said the bank had engaged in the misconduct over the span of nine years, from 2014 to 2023.

The key outrage embedded in these charges – that mainstream media failed to point out in its coverage last week – is that this “trading” activity did not occur at the registered brokerage firm of JPMorgan, which has properly licensed traders and trading supervisors. It occurred at the federally-insured bank, which is not allowed to have licensed traders – because casino banking brings on bank runs, bank panics and giant scandals that undermine Americans’ confidence in federally-insured banks.

Under Jamie Dimon at the helm of this federally-insured bank, as both Chairman and CEO, JPMorgan Chase Bank has turned giant scandals into an art form. Its rap sheet reads like that of an organized crime family and includes an unprecedented five criminal felony charges.

***JP MORGAN CHASE settled to avoid public release of 
damning information...THEY KNEW what JEFFREY 
EPSTEIN was doing...it needs to be investigated WHO and WHY funds were paid....there are still unanswered questions****

Just last year, its salacious activities with sex trafficker Jeffrey Epstein, to whom it doled out mountains of hard cash for more than a decade (which he then used to silence his underage victims and accomplices), generated news headlines around the world. The bank settled those charges last year, which had been brought in two civil lawsuits by his victims and by the Attorney General of the U.S. Virgin Islands, for a combined $365 million. (See JPMorgan’s Settlements Reach $365 Million Over Civil Claims It Banked Jeffrey Epstein’s Sex Trafficking of Minors; Criminal Charges Could Lie Ahead.)

Adding to the outrage over the mild slap on the wrist from these two regulators last week is that this federally-insured bank was previously charged with engaging in unsafe and unsound banking activities when it used depositors’ money from its federally-insured bank to engage in massive high-risk credit derivative trades in London in 2012 and lost $6.2 billion of depositors’ money. The case became infamously known as the London Whale scandal.

The OCC wrote as follows in its settlement document covering the London Whale matter in 2013:

“The credit derivatives trading activity constituted recklessly unsafe and unsound practices, was part of a pattern of misconduct and resulted in more than minimal loss, all within the meaning of 12 U.S.C. § 1818(i)(2)(B)”;  and “The Bank failed to ensure that significant information related to the credit derivatives trading strategy and deficiencies identified in risk management systems and controls was provided in a timely and appropriate manner to OCC examiners.”

The Securities and Exchange Commission (SEC) also settled charges with the bank in the London Whale matter. The SEC focused on JPMorgan’s ineffective internal controls and failure to keep the Audit Committee of its Board informed in a timely manner as required under its own rules and under the Sarbanes-Oxley Act. The SEC also found the company violated securities laws by filing false information with the SEC: “As a result of its failure to maintain effective internal control over financial reporting as of March 31, 2012, and disclosure controls and procedures, and as a result of its filing of inaccurate reports with the Commission (specifically, the Form 8-K filed on April 13, 2012, and the Form 10-Q filed on May 10, 2012), JPMorgan violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-11, 13a-13, and 13a-15 there  under,” the SEC said in its settlement document.

At the time of the London Whale scandal, a woman named Ina Drew was in charge of the unit of the federally-insured bank that oversaw the derivatives trading in London. That unit of the bank was called the Chief Investment Office. (That unit was created after Jamie Dimon took the helm at the bank.)

Ina Drew testified about the matter before the U.S. Senate’s Permanent Subcommittee on Investigations on March 15, 2013. Drew told the hearing panel that beginning in 1999, she “oversaw the management of the Company’s core investment securities portfolio, the foreign-exchange hedging portfolio, the mortgage servicing rights (MSR) hedging book, and a series of other investment and hedging portfolios based in London, Hong Kong and other foreign cities.”

Drew told the Senate Subcommittee that the investment securities portfolio exceeded $500 billion during 2008 and 2009 and as of the first quarter of 2012 was $350 billion. But during the 13 years that Drew supervised massive amounts of securities trading, she had neither a securities license nor a principal’s license to supervise others who were trading securities.

At the time, we asked numerous Wall Street regulators to explain how this is possible at Wall Street mega banks. One regulator who spoke on background only told us that Drew could not hold a securities license because she worked for the federally-insured bank, not its broker-dealer (a/k/a brokerage firm). Only employees of broker-dealers are allowed to hold securities licenses. But apparently, not having a securities license does not stop one from supervising a $500 billion portfolio of securities that are, most assuredly, traded by someone.

It is a long-held requirement by U.S. securities regulators that if you are going to supervise persons holding a securities license, you must also hold the appropriate securities licenses yourself. Drew, without a license, was supervising traders in London who were registered with the Financial Services Authority (now Financial Conduct Authority).

In its 10-K (annual report) filing in February with the SEC, JPMorgan Chase indicated there is a third unnamed regulator that is currently investigating these billions of unsupervised trades. The bank said it was “also in advanced negotiations with a third U.S. regulator, but there is no assurance that such discussions will result in a resolution.”

That third regulator should closely examine what is going on in JPMorgan’s own Dark Pools, where the bank is preposterously allowed to trade large amounts of its own bank stock in its own Dark Pools. (See chart below as an example of what went on in the week of October 23, 2023.) Dark Pools are thinly regulated trading platforms inside the mega banks on Wall Street, and elsewhere, which lack the transparency of stock exchanges.

Related Articles:

If a Stockbroker Had Jamie Dimon’s BrokerCheck Record, He’d Be Unemployable on Wall Street

JPMorgan Chase Owns $2.2 Trillion in Stock Derivatives; Two-Thirds the Total for All Banks

OCC Report: JPMorgan Chase and Citibank Control 76 Percent of all Precious Metals Contracts at 5,362 Federally-Insured Banks

Both Citigroup and JPMorgan Have Now Received Huge Fines for Crimes the Regulators Won’t Reveal

https://wallstreetonparade.com/2024/03/jpmorgans-federally-insured-bank-is-fined-348-million-for-losing-track-of-billions-of-trades/

After Being Criminally Charged for Rigging Precious Metals, JPMorgan Chase Controls 53 Percent of All Precious Metals Contracts Held by Banks

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After Being Criminally Charged for Rigging Precious Metals, JPMorgan Chase Controls 53 Percent of All Precious Metals Contracts Held by Banks

By Pam Martens and Russ Martens: April 3, 2023 ~

Jamie Dimon Sits in Front of Trading Monitor in his Office (Source: 60 Minutes Interview, November 10, 2019)

According to the Federal Deposit Insurance Corporation (FDIC), there were 4,706 federally-insured banks and savings associations in the U.S. as of December 31, 2022. Of those, according to the quarterly report released last Friday from the Office of the Comptroller of the Currency (OCC), a little less than one-quarter found a reason to engage in derivative trading activities.

As of December 31, 2022, just 1,139 FDIC-insured commercial banks and savings associations reported trading of derivatives in the fourth quarter of 2022, according to the OCC. Ostensibly, instead of running a derivatives casino, the other three-quarters of taxpayer-subsidized banks were doing what taxpayers want federally-insured banks to do: make business loans; provide affordable mortgage loans to homebuyers; provide checking accounts devoid of hacking, identity theft and predatory overdraft fees; and not blow up the bank by getting in bed with derivatives, crypto or dodgy Wall Street IPOs.

As it does each quarter, the OCC report rang this alarm bell:

“A small group of large financial institutions continues to dominate trading and derivatives activity in the U.S. commercial banking system. During the fourth quarter of 2022, four large commercial banks represented 88.2 percent of the total banking industry notional amounts [of derivatives] and 62.5 percent of industry net current credit exposure (NCCE).”

Those four banks are Goldman Sachs Bank USA with $52.6 trillion in notional (face amount) derivatives exposure; JPMorgan Chase Bank N.A. with $49.5 trillion in notional derivatives exposure; Citigroup’s Citibank with $47 trillion in notional derivatives exposure; and Bank of America with $19.4 trillion in notional derivatives exposure.

One area that particularly stands out in the current OCC report is data showing JPMorgan Chase Bank N.A. held $200.12 billion in precious metals derivative contracts at its federally-insured bank as of December 31, 2022, versus a total of $378.12 billion for all banks in the U.S. holding derivatives. That’s one bank holding 53 percent of all precious metals contracts in the U.S. banking system. (See Table 21 on page 26 of the OCC report.)

And there’s no guarantee that the OCC report captures the full picture of this highly concentrated derivatives market. (See our report: Wall Street Banks Are Dangerously Evading U.S. Derivatives Rules by Making Trades at Foreign Subsidiaries.)

It is hard to understate the regulatory failure of allowing JPMorgan Chase to continue to have this outsized presence in the precious metals derivatives market.

On September 29, 2020, the U.S. Department of Justice charged JPMorgan Chase with rigging the precious metals market and a hit it with a criminal felony count for its conduct, to which it admitted. According to the Justice Department, the rigging occurred for more than eight years, from March of 2008 to August of 2016, and involved “tens of thousands” of incidents. The Justice Department wrote that traders at JPMorgan Chase:

“…knowingly and intentionally placed orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution (‘Deceptive PM [Precious Metals] Orders’), including in an attempt to profit by deceiving other market participants through false and fraudulent pretenses and representations concerning the existence of genuine supply and demand for precious metals futures contracts. By placing Deceptive PM Orders, the Subject PM Traders intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets, and to deceive other participants in those markets into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand. This false and misleading information was intended to, and at times did, trick other market participants, including competitor financial institutions and proprietary traders, into reacting to the apparent change and imbalance in supply and demand by buying and selling precious metals futures contracts at quantities, prices, and times that they otherwise likely would not have traded.”

The trading conduct in precious metals was so bad at JPMorgan Chase that the Justice Department took the unprecedented step of charging some of the precious metals traders involved under the Racketeer Influenced and Corrupt Organizations Act (RICO), a statute typically reserved for organized crime figures.

Last week, the Senate Banking Committee and the House Financial Services Committee held separate hearings on the bank runs and abrupt collapses of Silicon Valley Bank and Signature Bank in March, the second and third largest bank failures in U.S. history. (The largest bank failure was Washington Mutual in 2008.) Those banks, respectively, held $175 billion and $88.6 billion in deposits as of December 31, 2022. As of the same date, JPMorgan Chase Bank N.A. held $2.015 trillion in deposits in domestic offices, of which $1.058 trillion were uninsured.

Uninsured deposits are at risk of flight if customers lose confidence in the management of a bank. The fastest way for depositors to lose confidence in a bank is a steady stream of scandals and criminal conduct while the Board of Directors of the bank fails to replace the Chairman and CEO who was at the helm of the bank throughout the endless series of scandals and criminal conduct.

The Board of Directors of JPMorgan Chase Bank have allowed Jamie Dimon to remain as Chairman and CEO despite five felony counts (to which the bank admitted) and a rap sheet that is unprecedented in the annals of banking in the U.S.

The Board kept Dimon in place when the bank was charged by the Justice Department with two criminal felony counts for its role in aiding and abetting the largest Ponzi scheme in history – Bernie Madoff’s looting of customer accounts.

The Board kept Dimon at the helm when the U.S. Senate’s Permanent Subcommittee on Investigations issued a 300-page report on the bank’s “London Whale” derivative trades, using bank depositors’ money to engage in reckless gambling and losing at least $6.2 billion.

The bank received another felony count for its role in rigging the foreign exchange market and one felony count each for rigging the precious metals market and U.S. Treasury market.

Now, a Federal Court has ruled that Dimon must sit for a deposition in a federal lawsuit brought by the U.S. Virgin Islands, charging JPMorgan Chase with, effectively, being the cash conduit for Jeffrey Epstein’s sex trafficking ring that victimized underage girls. (See our March 6 report here.)

It’s long past the time for federal regulators to do their job and replace management and the Board at JPMorgan Chase and break up this dangerous trading behemoth that is masquerading as a federally-insured bank.

Related Articles:

JPMorgan’s Board Made Jamie Dimon a Billionaire as the Bank Rigged Markets, Laundered Money, and Admitted to Five Felony Counts

If You’re Baffled as to Why JPMorgan Chase’s Board Hasn’t Sacked Jamie Dimon as the Bank Racked Up 5 Felony Counts – Here’s Your Answer

JPMorgan’s High Risk Footprint; Bloomberg News as PR Agent for Jamie Dimon; and the Untold Story of the Failed “Rescue” of First Republic by the Mega Banks

JPMorgan Chase Quietly Settles Whistleblower Case Involving Charges of Keeping Two Sets of Books and Improper Payments to Tony Blair

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Casino Banking: Wall Street Mega Banks Traded More in their Federally-Insured Bank than the Total for their Bank Holding Company

 

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Casino Banking: Wall Street Mega Banks Traded More in their Federally-Insured Bank than the Total for their Bank Holding Company

By Pam Martens and Russ Martens: October 13, 2022 ~

When something happens for the first time in history at federally-insured banks, Congress and federal regulators need to pull their heads out of the sand and pay attention. We’re talking about the fact that in the second quarter of this year, trading revenues at federally-insured commercial banks eclipsed the trading revenues at bank holding companies – which typically include subsidiaries where traders actually have licenses to trade.

This latest data on what is happening inside the nation’s largest federally-insured banks comes from the Office of the Comptroller of the Currency (OCC), see pages 2 and 3 here. The federally-insured banks generated a total of $10.3 billion in trading revenue in the second quarter versus $10.2 billion for the bank holding companies, or 101 percent of the bank holding company revenues. That’s never happened before according to the data provided by the OCC.

The report provides the following historical perspective:

“Before the 2008 financial crisis, trading revenue at banks typically ranged from 60 percent to 80 percent of consolidated BHC [Bank Holding Company] trading revenue. Since the 2008 financial crisis and the adoption of bank charters by the former investment banks [Goldman Sachs and Morgan Stanley], the percentage of bank trading revenue to consolidated BHC trading revenue has decreased and is typically between 30 percent and 50 percent. This decline reflects the significant amount of trading activity by the former investment banks that, while included in BHC results, remains outside insured commercial banks. More generally, insured U.S. commercial banks and savings associations have more limited legal authorities than their holding companies, particularly in the trading of commodity and equity products.”

The OCC attempts to assign this unprecedented event to a decrease in trading in equity derivatives at the bank holding company. But Figures 15a and 15b in the Appendix of this report actually show equity derivative trading moving to the federally-insured bank in the second quarter. Figures 15a and 15b also show that 100 percent of trading in credit derivatives (the majority of which are credit default swaps) moved to the federally-insured bank in the first and second quarters of this year and out of the bank holding company. Credit default swaps are the most dangerous of the derivatives traded on Wall Street.

Trading does not belong in a federally-insured bank that is backstopped by U.S. taxpayers and that is holding the life savings of average Americans who put their money there because they can’t afford to take risks. The banking collapse of the early 1930s grew out of depository banks being allowed to engage in speculative trading on Wall Street. The runs on banks that followed the 1929 stock market crash and its aftermath led to thousands of banks failing.

In 1933 the U.S. Congress brought this form of casino banking to an end with the passage of the Glass-Steagall Act. It banned the combination of Wall Street trading houses with deposit-taking banks and created federal deposit insurance for commercial banks to restore the public’s faith in banking and stop the runs on banks. Glass-Steagall served the country well for 66 years until its repeal under the Wall Street-friendly Bill Clinton administration in 1999. It took just nine years after its repeal for Wall Street to collapse in 2008, in a replay of 1929.

The financial crash of 2008 would have ushered in another Great Depression except for the Federal Reserve secretly stepping in with a $29 trillion bailout. The Fed Chairman who just received a Nobel Prize in economics for his work during the 2008 financial crisis, Ben Bernanke, is the same man who battled the media in court for more than two years, rather than come clean with the details of this unprecedented bailout of – not commercial banks that finance the real economy – but Wall Street trading houses such as Citigroup, Morgan Stanley and Merrill Lynch that finance speculators. Bernanke was, in reality, bailing out his and the Fed’s failure to competently regulate these casino banks before they blew themselves up. Does that really deserve a Nobel Prize?

But we do not have to go back to the 1930s to understand what can blow up when federally-insured banks take on improper trading risks. In 2013 the Senate’s Permanent Subcommittee on Investigations released a 300-page report on JPMorgan Chase’s London Whale scandal. That case involved deposits at the federally-insured bank being used to trade exotic derivatives in London and losing $6.2 billion of depositors’ money along the way.

The Chair of the Senate Subcommittee at the time was the late Senator Carl Levin. He said this about the matter:

“JPMorgan’s Chief Investment Office rapidly amassed a huge portfolio of synthetic credit derivatives, in part using federally insured depositor funds, in a series of risky, short-term trades, disclosing the extent of the portfolio only after intense media exposure.” 

The Co-Chair of the Subcommittee, the late Senator John McCain, said this at the hearing on the matter:

“This case represents another shameful demonstration of a bank engaged in wildly risky behavior. The ‘London Whale’ incident matters to the federal government because the traders at JPMorgan were making risky bets using excess deposits, portions of which were federally insured. These excess deposits should have been used to provide loans for main-street businesses. Instead, JPMorgan used the money to bet on catastrophic risk.” 

If you care about the stability of the U.S. financial system, pick up the phone today and call your Senator and demand hearings on the speculative trading that is taking place in the nation’s federally-insured banks.

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Is the Crypto Threat to U.S. Financial Stability $889 Billion or $10 Trillion?

 

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Is the Crypto Threat to U.S. Financial Stability $889 Billion or $10 Trillion?

By Pam Martens and Russ Martens: June 23, 2022 ~

Yesterday, Benzinga reported on a curious statement made by Fed Chair Jerome Powell during his appearance before the Senate Banking Committee on Wednesday. Powell was asked by Senator Kyrsten Sinema (D-AZ) if the Fed had been tracking the events in the crypto markets in the past several weeks. Powell responded that the Fed was watching those events “very carefully” but the Fed “did not see significant macro-economic implications.” The article goes on to lend credence to this observation from the Fed by noting the following:

“It is important to note the entire cryptocurrency market cap is $889.25 billion versus the American GDP, which is $25.34 trillion, and an equities market that controls more than $49 trillion.”

Before we drill down into the weeds of that crypto market cap figure, it’s important to note that former Fed Chair Alan Greenspan told Congress that he saw no major economic threat coming from subprime debt. In October 2008, as much of Wall Street and the U.S. economy lay in ruins from subprime debt bombs and related derivatives, Greenspan testified to a House Committee that “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

Seriously? The most corrupt industry in America for more than a century and the head of the U.S. central bank thinks it’s an altruistic protector of shareholders’ interests?

The Fed and fellow Wall Street regulators appear to have made the same mistake today with crypto. As large financial institutions have entangled themselves deeper and deeper into all things crypto, federal regulators have been studying the problem rather than taking action.

So exactly how big is the problem? The $889.25 billion market cap for crypto cited by Benzinga is a miniscule part of the problem. That’s just the market value of all of the crypto that trades. And it should be noted that the market cap of crypto stood at $2.7 trillion as of last November, so investors have already experienced a negative wealth effect of $1.8 trillion.

But what about all of the crypto mining stocks that went public and have now lost 70 to 90 percent of investors’ money? What about the loans taken out by the crypto mining companies to buy all of that energy-guzzling computer equipment? What about the billions of dollars in margin loans sitting at federally-insured banks that were made to hedge funds to leverage their crypto bets? What about the bank loans to venture capital firms to invest in hundreds of crypto startup firms?

Estimates are that the real size of the crypto market is more in the range of $10 trillion. Anyone who thinks that a market of that size can implode without “significant macro-economic implications” is likely not an economist. (Unfortunately, Jerome Powell, the head of the monetary policy setting institution in the United States has a law degree, not an economics degree. And not to put too fine a point on it, but Powell was dead wrong on inflation being transitory and we’re all paying a steep price for that botched forecast.)

Another potential negative wealth effect may come from investors who bought cryptocurrency on their credit card and are watching the value of their crypto collapse while the interest rate on their credit card balance soars as a result of the Fed’s rate hikes. LendEdu reports that its survey showed that “18.15% of Bitcoin investors answered ‘I used a credit card to fund and purchase.’ ”

If you are gasping for breath at the news that U.S. regulators have actually allowed cryptocurrencies (variously called “rat poison squared” and a Ponzi scheme by very smart people) to be purchased on credit cards, you might want to sit down and put aside any cup of hot liquid in your hand while we fill in the rest of the details.

Over the past few days, we have been emailing some of the major providers of credit cards to find out if they allow their card members to purchase crypto on their credit cards. (We did that because crypto exchange, Coinmama.com, shows a Mastercard and a Visa emblem directly below the “Buy” button on their website. The crypto exchange, Binance, also prominently features Mastercard and Visa and says this: “At Binance, you can buy crypto with everyday fees using a VISA or Mastercard credit card. Alternatively, Binance also provides crypto purchases via bank transfer, fiat deposit, and e-wallet.”) 

Here are the answers we have received thus far from the credit card companies:

Mastercard responded as follows: “Mastercard is working with over 60 crypto leading wallets and platforms. We continue to launch a range of products and services with these players, including the 24 crypto card programs that have been publicly announced. Consumers can buy crypto using their Mastercard card to instantly convert their crypto holding into fiat and spend wherever Mastercard is accepted at more than 90 million merchants worldwide. Only fiat currency enters Mastercard’s network. Mastercard is leading in innovation through programs like our recent partnership with Nexo and the launch of the Gemini Card with a simple mission — to deliver people new and one-of-a-kind choices in how they pay and to make crypto more accessible across the ecosystem. We also have partnerships with Bakkt and Uphold to make crypto card spend more accessible. You can learn more about our programs here and here.”

American Express told us this: “In line with industry practice, today we don’t allow our cardmembers to purchase crypto using their credit card, as much as we wouldn’t allow them to buy stocks. We see decentralized crypto, like Bitcoin, still largely an asset to store value, rather than a good or service. As the space evolves, we will continue to monitor it and to pursue parity. We are, however, working with partners to help them launch payments products on our network. For example, Abra just launched the Abra Crypto Card on the American Express network. This card transacts in U.S. dollars, and offers cryptocurrency as rewards. We are not the issuer, rather, facilitating their U.S. dollar transactions in our capacity as a payments network, while extending some of the unique American Express benefits to their customers.”

The entanglements at Visa with crypto are so mind-numbing that you’ll have to read it for yourself.

Capital One shared this: “Capital One does not enable consumers to purchase cryptocurrencies by borrowing on their Capital One credit cards. Consumers can, however, purchase cryptocurrencies via their debit cards and direct ACH transactions with their Capital One 360 checking accounts.”

Chase, part of JPMorgan Chase, told us this: “We decline crypto purchases on credit cards.”

Adding to the insanity of allowing cryptocurrencies (many of which are backed by nothing) to continue to make major encroachments into the U.S. financial system, the Fed has taken no action, other than to say it’s studying the problem. On November 23 of last year, the Fed, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) released a joint statement on crypto which said this:

“Throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to:

• • Crypto-asset safekeeping and traditional custody services.
  • Ancillary custody services.
  • Facilitation of customer purchases and sales of crypto-assets.
  • Loans collateralized by crypto-assets.
  • Issuance and distribution of stablecoins.
  • Activities involving the holding of crypto-assets on balance sheet.”

Citigroup, the bank holding company which received the largest bailout in U.S. banking history during and after the 2008 financial crash, apparently isn’t waiting to find out from its regulators what’s legal and what’s not legal.

According to a press release yesterday at Business Wire, Citigroup has selected Metaco “to develop a platform to enable clients to store and settle digital assets seamlessly and securely. Citi intends to fully integrate METACO’s bank-grade digital asset custody and orchestration platform, Harmonize, into its existing infrastructure, to develop and pilot digital asset custody capabilities.”

Citigroup’s exposure to risky derivatives and subprime debt instruments collapsed its stock price during the 2008 financial crash. Its stock traded at 99 cents in early 2009. Beginning in December 2007 and lasting through at least June of 2010, Citigroup received the following in bailouts: $2.5 trillion in secret cumulative loans from the Federal Reserve; $45 billion in capital injections from the U.S. Treasury; the Federal government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits.

Citigroup has apparently received a warning from the SEC that if it builds a crypto platform and begins to act as a custodian for cryptocurrencies, it’s going to impact its balance sheet – which means that the Fed will also have to require it to hold more capital against risky assets. Citigroup reported the following on its quarterly filing (10-Q) with the SEC for the quarter ending March 31, 2022:

“In March 2022, the SEC issued Staff Accounting Bulletin (SAB) No. 121, which expresses the views of the SEC staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users. Specifically, the guidance requires issuers that hold digital assets for their platform users to recognize a liability for their obligation to safeguard the digital assets held and a corresponding asset, measured initially and subsequently at fair value. The guidance is effective for interim and annual periods ending after June 15, 2022, with retrospective application to the beginning of the fiscal year, with early adoption permitted. Citi is currently assessing the application of SAB 121, but based on its current activity does not expect any impact to its results of operations as a result of adopting SAB 121.”

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Senator Sherrod Brown Goes After 0-Count Felon Wells Fargo; Ignores 5-Count Felon JPMorgan Chase

 

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Senator Sherrod Brown Goes After 0-Count Felon Wells Fargo; Ignores 5-Count Felon JPMorgan Chase

By Pam Martens and Russ Martens: June 1, 2022 ~

Senator Sherrod Brown

Wall Street On Parade was previously a big fan of Senator Sherrod Brown, the Chair of the Senate Banking Committee. Not so much anymore.

Brown supported the nutty nomination of Saule Omarova to head the Office of the Comptroller of the Currency (OCC), the regulator of national banks, while attempting to spin the naysayers as part of a smear campaign.

So far this year, the Senate Banking Committee has held hearings on tangential areas while ignoring the biggest threats to financial stability in the U.S.: the $200.18 trillion in notional derivatives (face amount) concentrated at just five Wall Street megabanks (JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America).

There have been no subpoenas flying from the Senate Banking Committee as the Fed continues to cover up the largest trading scandal in its history and refusing to release to the media the dates of the former Dallas Fed President Robert Kaplan’s trades. Two of the megabanks overseen by the Senate Banking Committee – Goldman Sachs and Citigroup – have potential involvement in this trading scandal but the public has had no enlightenment from the Senate Banking Committee. (See our Fed Trading Scandal archive here.)

There has also been no in-depth investigation with subpoenas by the Senate Banking Committee of how many more Archegos family office hedge funds are out there, ready to blow up a federally insured megabank on Wall Street because it has given these hedge funds 85 percent leverage on margin loans, while disguising the hedge funds’ stock positions as if they belong to the bank. We have also seen no pushback from the Senate Banking Committee as the Justice Department portrays the most sophisticated megabanks on Wall Street as the victims of Archegos.

We could go on and on but you get the point.

Now Brown is going after Wells Fargo and its CEO Charles Scharf – which has zero felony counts notched in its belt – while ignoring JPMorgan Chase and its Chairman and CEO, Jamie Dimon, who has presided over five criminal felony counts, all of which the bank admitted to, while entering into an endless series of highly-suspect non-prosecution agreements and probation periods with the U.S. Department of Justice.

Yesterday Brown’s office sent out a press release assailing Wells Fargo and Scharf, calling out its “history of consumer abuses and gross mismanagement.” While it’s true that Wells Fargo has not been an Eagle Scout , it’s also true that when it comes to criminal activities, Wells Fargo is completely out of the league of JPMorgan Chase.

JPMorgan Chase’s first two felony counts from the Justice Department came in 2014 for its aiding and abetting role in the way it handled the business bank account of Ponzi-schemer Bernie Madoff. The bank told U.K. authorities that it thought Madoff was running a Ponzi scheme while failing to report its suspicions and money laundering by Madoff to U.S. authorities. The very next year the bank pleaded guilty to its role in a bank cartel (actually called “The Cartel”) that rigged the foreign exchange market. That resulted in felony count three.

There was a litany of other non-felony charges brought against the bank between 2015 and 2019. See its jaw-dropping Rap Sheet here. Then in September 2020 the bank agreed to pay criminal fines and admit to two felony counts of wire fraud for manipulating (spoofing) trading in the precious metals and U.S. Treasury markets. The Justice Department charged that JPMorgan Chase’s traders engaged in “tens of thousands of instances of unlawful trading in gold, silver, platinum, and palladium…as well as thousands of instances of unlawful trading in U.S. Treasury futures contracts and in U.S. Treasury notes and bonds….” Not to put too fine a point on it, but the U.S. Treasury market is how the U.S. government pays its bills and instills trust in the U.S. dollar as the world’s reserve currency.

In every one of these criminal cases, instead of going to trial, JPMorgan Chase was simply allowed to admit guilt and was given a deferred prosecution agreement by the U.S. Department of Justice. And, more outrageous, after every criminal count, the Chairman and CEO of the bank, Jamie Dimon, was not only allowed to remain in place but ended up with a bigger salary and bonus. (See After JPMorgan Chase Admits to Its 4th and 5th Felony Charge, Its Board Gives a $50 Million Bonus to Its CEO, Jamie Dimon.)

That $50 million “retention” bonus, by the way, was voted down by shareholders two weeks ago but the bank’s Board decided to ignore what its shareholders wanted and pay the bonus anyway. The $50 million bonus was on top of Dimon’s regular compensation for 2021, which totaled $34.5 million.

If Senator Brown is looking for the quintessential symbol of “gross mismanagement,” let us spell it out for him: the year after JPMorgan Chase, under Dimon’s management, scores its fourth and fifth criminal felony counts from the Justice Department, its Board of Directors awards Dimon a total of $84.5 million. That’s because the Board of JPMorgan Chase is, itself, a study in outrageous conflicts of interest.

In the letter that Brown sent to Wells Fargo’s CEO Charles Scharf yesterday, he says this about keeping the growth restriction that the Fed placed on Wells Fargo in 2018:

“It is clear that Wells Fargo still has a long way to go to fix its governance and risk management before it should be allowed to grow in size.”

But despite the fact that Jamie Dimon has presided over an unprecedented series of criminal charges, his bank has been allowed to grow to a mind-boggling size. Since the criminal charges started in 2014, JPMorgan’s deposit base has been allowed to double in size, from $1 trillion to more than $2 trillion according to the Federal Deposit Insurance Corporation’s data.

The OCC reports that the bank holding company for JPMorgan Chase has grown its assets from $2.57 trillion as of December 31, 2014 to $3.74 trillion as of December 31, 2021 – an increase of 46 percent in seven years. (See Table 14 here.)

As of December 31, 2021, Wells Fargo’s holding company’s assets stood at $1.95 trillion, or $1.79 trillion less than JPMorgan Chase.

In addition, the OCC also reports that the bank holding company for Wells Fargo held just $9.3 trillion in derivatives as of December 31, 2021 versus a staggering $49.2 trillion in derivatives at JPMorgan Chase. (See the same Table 14 linked above.)

What might explain why Senator Brown and the Fed are shining a bright light on Wells Fargo while allowing Jamie Dimon and his criminal enterprise to hide in the shadows? When it comes to Senator Brown, it’s more than likely that he has either conflicted or incompetent aides rooting out the problems at the megabanks.

When it comes to the Fed, the facts speak for themselves. JPMorgan Chase is the largest shareowner of the New York Fed, the regional bank to whom the Federal Reserve Board of Governors has outsourced supervision of the megabanks in that region. To put it more bluntly, bank examiners investigating JPMorgan Chase report to an institution that is owned by the very banks they are examining and whose CEOs rotate on and off its Board of Directors. (Dimon previously served two terms on the Board of Directors of the New York Fed, and was allowed to remain in that perch while he was Chairman and CEO of JPMorgan Chase and his bank was under investigation by the Fed and FBI for losing $6.2 billion of bank deposits from its federally-insured bank. The losses arose from its gambling in derivatives in London.)

Wells Fargo, headquartered in San Francisco, is a shareowner of the San Franciso Fed and is supervised by that regional Fed bank. It lacks influence at the powerful New York Fed.

JPMorgan Chase became the largest shareowner of the New York Fed because it has been insanely allowed to gobble up huge banks, antitrust law be damned. JPMorgan Chase’s massive deposit base came about as a result of these prior commercial bank mergers:  In 1955 Chase National Bank merged with The Bank of the Manhattan Company to form Chase Manhattan Bank. In 1991, Chemical Bank and Manufacturers Hanover announced their merger. Both banks had been severely weakened – Chemical from bad real estate loans and Manufacturers from bad loans to developing nations. In 1995, Chemical Bank merged with Chase Manhattan Bank. In 2000, JPMorgan merged with Chase Manhattan Corporation. In 2004, JPMorgan Chase merged with Bank One. In 2008, during the height of the financial crisis, JPMorgan Chase was allowed to buy Washington Mutual. These are just the largest bank consolidations. Over the years, Chase acquired dozens of smaller banks.

It’s time for Senator Brown to hire an experienced, non-conflicted investigative team to genuinely examine what’s really going on at the Wall Street megabanks – starting with the viper’s nest at JPMorgan Chase.

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