JP Morgan Chase bank is one of the oldest banking entities in the world and the largest in the United States, it has been involve in various legal proceedings due to its mismanagement of risk.

For financial institutions, reputation is one of the most important factors, since it defines them, keeps them in the market and makes them reach new customers.

In the case of the JP Morgan Chase bank, speculative, market, financial and legal risks have damaged the image of that organization, which has implied a decrease in its assets and a loss of confidence on the part of its clients and investors. .

The magnitude of the financial frauds relate to this banking entity has been echoe throughout the world, from Argentina to the United States, passing through Europe and even Asia. Below we present some of them.

Hernán Arbizu: the frauds of a senior manager

In June 2016, the Argentine Federal Police detained Hernán Arbizu, former vice president of the JP Morgan Chase bank, in a house in the Belgrano neighborhood of Buenos Aires.

Arbizu had a long career as a banker, holding different positions in the most prestigious banks in the world: Citybank, Bank Boston, Bank of America, UBS and Deutsche Bank.

From each bank, Arbizu left with a vast list of data with names of users and companies. Accessing this privileged information, which he then used to contact potential clients, brought him handsome commissions as a reward.

When he became Vice President of JP Morgan Chase, Arbizu continued to manage, in parallel and in secret, different bank accounts of different banks in which he had already worked. In addition, he made unauthorized bank transfers. Through them, he laundered money from some of his clients in Argentina, transferring the assets to tax havens.

When the situation became untenable, Arbizu extracted confidential information from the bank and used it as evidence to denounce JP Morgan Chase for tax evasion.

In the end, the banker’s complaint turned against him, which ended in his own extradition to the United States, accused of fraud, money laundering, identity theft and having made fraudulent transfers.

Although this case may seem like an isolated personal action, the truth is that much of the responsibility lay with the bank itself.

The lack of controls and the poor management of financial risks within the bank allowed Arbizu to operate comfortably to set up an asset laundering and tax evasion scheme at the expense of the financial institution’s own resources. 

Bernard Madoff: A pyramid difficult to ignore

With sad eyes and the appearance of an old man, when he speaks, Bernard Madoff moves his hands like a snake charmer. He swings them in the air, sways them like a conductor. He pauses for a moment and, meanwhile, crosses the fingers of both hands to pause and think about what to say next.

Behind that harmless face and that grandfatherly look that calculates every word, hides the mastermind behind the biggest financial scam the United States has ever seen.

64 billion dollars, 13,600 people defraud and several suicides, including that of Madoff’s own son, are the result of an unprecedent pyramid scheme, a financial fraud that seems to have been take from a movie.

The supposed millionaire operations that Bernard Madoff won on Wall Street were nothing more than a system of illegal money collection that worked by adding new “investors” who contributed capital to pay the old ones.

Madoff used JP Morgan Chase accounts to hide his operations. However, the exorbitant amount of money and the immense volume of transactions seemed difficult for the bank to ignore.

Despite this, some employees of the bank ignored the alert signals emitted by the fraudster’s transactions and never reported suspicious operations in a timely manner. In addition, the bank’s money laundering policies seemed too lax or were not applied rigorously enough.

These were the arguments of the financial authorities of the United States to condemn the bank in 2014 to pay a sum of 1,700 million dollars to compensate the victims of the pyramid built by Bernard Madoff.

Bear Stearns: An Unprofitable Buy

On the verge of bankruptcy, Bear Stearns bank was acquired by JP Morgan in 2008 with the authorization of the US Federal Reserve.

Bear Stearns had gone bankrupt after investing heavily in subprime mortgage securities. These mortgages were granted to people with low financial solvency or who did not have a stable income, that is, high-risk profiles. For this reason, the banks insured the investment by charging high interest or with the seizure of the properties that were mortgaged, a vicious circle that moved with unpayable loans.

Through misleading information provide by bank employees, many of these mortgage securities were offer as safe investments.

Thus, subprime mortgages, which were grant to people who could not afford them, created a false appearance of growth in the US housing sector, but when the bubble burst, it ended up affecting the world banking system.

As those mortgage securities lost their value, Bearn Stearns was left owing more than $48 billion, and confidence in that bank waned to the point where the bank had to file for bankruptcy.

That’s when JP Morgan Chase comes on stage. Although this bank also participated on its own in the subprime housing bubble, its influence in the 2008 crisis increased after buying Bear Stearns bank to save it from collapse.

This damaged JP Morgan Chase’s reputation as an organization and significantly diminished its credibility as a financial institution. For this reason, this bank was sanction with a fine of 13,000 million dollars for engaging in bad practices.

Once again, the poor management of financial risks, the lousy management of credit risks and operational risks produced a series of reputational risks, which still impact the image of the largest bank in the United States.


The end of 2017 dismissed JP Morgan Chase with investigations by the financial authorities of Switzerland, Singapore and the United States, all because of the 1MDB (1Malaysia Development Berhad) scandal, a state investment fund belonging to the Malaysian government.

It appears that the Malaysian Prime Minister, Najib Razak, appropriated several million dollars from the 1MDB through illegal financial transactions that he carried out in different banks around the world.

Specifically, JP Morgan Chase is accuse of not identifying the money laundering risks related to transactions between commercial and personal accounts of this state fund.

In one case, billions of dollars were move from the 1MDB fund account, ostensibly to buy a company, into the personal account of an individual close to a company associated with the Malaysian fund.

JP Morgan Chase did not question the origin, purpose or procedure of this transaction, which involved an extraordinary sum of money. Furthermore, it admitted inconsistent customer data without first doing rigorous analysis of it.

For now, the US bank will not receive a sanction, but the mismanagement of the money laundering risk and the deficient segmentation of its clients were evident.

Like the case of 1MDB, many of these legal problems that JP Morgan Chase has suffered in its history still have repercussions today. Some of them have not been resolve or have negative consequences that seem permanent.

This shows that, when a risk materializes, it not only triggers others, as if it were a snowball, but also that it can last a long time, leading from a lawsuit to a sanction, from a fine to a bankruptcy.

For this reason, it is important that financial institutions have tools that lead them to have good risk management and avoid future lawsuits, claims or million-dollar fines.


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