[Type the company name] | Ethical Breaches in the Bank | A Look in the London Whale Scandal | ACC557 Professor Brandy Havens | Kristi Spann | 1/23/2014 |

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In recent times, there have been several ethical scandals that, in some cases, destroyed companies. The most infamous scandal was Enron. Enron was an energy company that was formed in 1985. It was the seventh largest energy company in America. According to Forbes.com, the charges related to knowingly manipulating accounting rules and masking the enormous losses and liabilities of the company. Ultimately charges were brought against the company’s high ranking executives including former CEO Jeff Skilling and his successor Kenneth Lay. They were charged with over twenty charges by the SEC (Securities Exchange Commission) and sentence to prison. Unfortunately, Kenneth Lay passed away before he was sentenced. Scandals like as Enron affected many people such as shareholders, employees, customers, and the economy. Shareholders lost their investments, employees lost their jobs, and customers lost their services. With all the losses, the economy was affected. Because of this scandal, Congress passed the Sarbanes-Oxley Act in 2002. Under this law, corporations would be held accountable for their actions. Organizations are required to be transparent. Under the Sarbanes-Oxley Act in section 302, one of the parts that are required by organizations is for the financial reports to reveal any and all internal control deficiencies and any and all fraud information involving employees. With Sarbanes-Oxley in place, current regulatory and environment is more conducive to ethical behavior. “Ethical behavior is how an organization ensures that all its decisions, actions and stakeholder interactions conform to the organization’s moral and professional principles.”(One-center.com). Shareholders can have more confidence in their investments. When shareholders purchase stock, they invest in the company or organization and have no expectations that the organization would deliberately mishandle shareholders’ investment. Employees also have more confidence in their place of employment. Under the law, employees would not have to worry about whether their job is in jeopardy as a result of the deliberate mishandling of financial records by higher-ranking managers and accountants. JP Morgan Chase is one of the largest financial services firms in the world. The company offers many different financial services such as assessment management, commercial banking, private banking, investment banking and other investment services, and treasury services. JP Morgan Chase has been in operation for over two hundred years. The company began as The Manhattan Company in 1799 in Manhattan, NY. In 1955, Chase National Bank merged with The Bank of Manhattan and was known as Chase Manhattan Bank. Some years later, the financial institution came to be known as JP Morgan Chase with branches spreading across the globe. In 2012, JP Morgan became the center of a scandal which was known as the “London Whale” scandal. “The London Whale was a trading scandal where JP Morgan traders bet huge sums on complex financial instruments and covered up the losses when trades went wrong and problems escalated.”(itv.com) The London Whale scandal cost the company nearly $6 billion in losses and millions of dollars in fines. Bruno Iksil, a top French investor for JP Morgan Chase in London, was the fall guy for the entire scandal. Iksil was known as the “London Whale.” According to the Wall Street Journal, Iksil had a wager against junk-bond-rated companies. He bet $1billion that some of these companies would default in a matter of months. Iksil cost the firm $450 million when the parent company of American Airlines filed for bankruptcy protection. As a result of this bet, other traders in the market were furious sought revenge on Iksil which cost JP Morgan over $2 billion in losses. Javier Martin-Artajo was a former executive in the chief investment office in London in which JP Morgan Chase sued for the multi-billion dollar loss. Martin-Artajo was the supervisor of Bruno Iksil who was responsible for the bad deal. Martin-Artajo, Iksil and two other were under a federal investigation, however, Iksil agreed to testify which granted him immunity. They no longer are employed with JP Morgan Chase. Bruno Iksil, the highest paid investor at that time, was known as the “London Whale” because of his profitable, yet very risky, bets. Iksil’s supervisors at the Chief Investment Office in London, including CEO Jamie Dimon, were aware of the bets. CEO Jamie Dimon made a public announcement about the initial $2 billion loss. It was on later that the public would find out it was a nearly $6 billion dollar loss due to risky investments. “The bank was criticized for its high-risk trading strategy, weak management and poor response to the problems and failing to cooperate with regulations.” (itv.com). The purpose of the Chief Investment Office in London was to control risk. Because of the limited supervision and the lack of a strict checks-and-balances system, investors like Bruno Iksil did not help control risks. Instead, he participated in high-risk bets that could possibly cost the company a large amount of money. Under the Code of Ethics on the JP Morgan website, it states, As a finance professional of the firm, you are expected to engage in and promote ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and to disclose to the Office of the Secretary any material transaction or relationship that reasonably could be expected to give rise to such a conflict.
Making risky bets on junk-bond companies was not in the best interest in the company. Although some of those bets did in fact pay off very well (since Iksil was the highest-paid investor), however, those bets put the company at risk for the employees’ own benefit. When Iksil made the billion-dollar bet, he made the bet with the company’s money. When business ventures (such as bets) risks are higher than the return, the venture should not be pursued. As a CFO, I would like to make recommendations in which measures could have been taken to prevent this ethical breach and how each measure should be implemented in the future. Iksil was able to make bad billion-dollar bets due to a lack of supervision. As CFO, proper supervision would be in place. There should be a proposal by the investor and approval by senior officials in order to put that much money at risk. If the risks out way the benefits then the venture should not be considered. Next, management would be cross-functionally trained. Managers who are trained to only perform in one area or department are limited. Cross-functionally training managers not only maximizes human resource capability it allows others to perform each others’ job. That way all managers are aware of what is required from each manager. Another recommendation is when there an emergency occurs within the company it must be reported immediately. The London Whale scandal was not immediately or fully reported to the CEO of JP Morgan. Instead, the Chief Investment Office attempted to cover up the scandal. That led to a bigger problem. As a CFO, any issues that would put the company in jeopardy are required to be reported to higher authority so that issue can be handled appropriately. Depending the problem or problems employees would attempt to cover up would cost them their job and possible criminal charges brought against them. Iksil is no longer employed at the Chief Investment Office in London; however, because he agreed to cooperate with the authorities Iksil was immune of any criminal indictment from American or UK authorities. When problems occur in a company, employees tend to cover up the issue in fear of losing their job. Employees need to understand that problems arise in all companies and as long as decisions made were not malicious or in the better interest of themselves, their job would not be in jeopardy. High-risk strategy, weak management and a poor response were the problems that JP Morgan Chase faced in the London Whale scandal. This scandal was preventable and could be avoided. High-risk trading ventures were their way of earning profits and their main source of demise.

References
10 Biggest Banking Scandals Of 2012 - Forbes. (n.d.). Retrieved from http://www.forbes.com/sites/halahtouryalai/2012/12/27/10-biggest-banking-scandals-of-2012/2/
Bruno Michel Iksil: White Whale, or Jonah? (n.d.). Retrieved from http://www.ibtimes.com/bruno-michel-iksil-white-whale-or-jonah-705480
Exactly Whose Money Did the London Whale Lose? - Bloomberg. (n.d.). Retrieved from http://www.bloomberg.com/news/2012-09-23/exactly-whose-money-did-the-london-whale-lose-.html
Glossary of Terms for ONE Award Cincinnati and Northern Kentucky. (n.d.). Retrieved from http://www.one-center.com/applicants/glossary.php
Sarbanes-Oxley Act Section 302. Sarbanes Oxley 302 Made Easier. (n.d.). Retrieved from http://www.soxlaw.com/s302.htm
Scandals cost JPMorgan $1 billion in fines| Reuters. (n.d.). Retrieved from http://www.reuters.com/article/2013/09/19/us-jpmorgan-whale-idUSBRE98I0JL20130919
What is the 'London Whale' trading scandal? - ITV News. (n.d.). Retrieved from http://www.itv.com/news/update/2013-09-19/what-is-the-london-whale-trading-scandal/
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