March 20, 2023

DealBook: Online Betting Site Intrade Is Shut After Audit Queries had allowed people to make wagers can be made on real-world had allowed people to make wagers on real-world events.

The online betting site Intrade announced late on Sunday that it had halted trading and frozen customer accounts after the company said it had discovered potential financial irregularities.

The moves followed concerns raised by the company’s auditors over more than $1.5 million payments to Intrade’s founder, John Delaney, and other unnamed third parties. The transactions, according Intrade’s auditors, were not sufficiently documented.

There were “significant financial irregularities in the internal accounts,” Intrade’s outside accountants said in a recent report to Irish authorities. “Insufficient documentation was available regarding payments made into bank accounts controlled by Mr. Delaney and other third parties.”

It was not clear whether the financial irregularities that prompted Intrade to halt trading were related to the payments. Mr. Delaney died in 2011 as he tried to reach the summit of Mount Everest. The company’s current executives are not connected to the potential irregularities, the auditors added.

Founded in 1999 by Mr. Delaney, Intrade had become a popular place where customers could bet on the potential outcome of world events like the United States presidential election and the selection of the next pope. But the business model has faced scrutiny from regulators.

In November, Intrade shut its Web site to United States residents when the Commodity Futures Trading Commission filed a civil complaint accusing the company of offering the contracts outside traditional exchanges and without regulatory approval.

The commission also said last year in its filing against the company that Intrade and an affiliate company had filed false annual forms with the agency, which had misled authorities over which investors could enter into contracts on the firm’s Web site.

Late Sunday, Intrade said it would close all outstanding bets after the company had discovered potential “financial irregularities” under Irish law. The company said it also had ceased trading, settled all outstanding customer contracts and stopped users’ banking transactions from the Web site.

“We will investigate these circumstances further and determine the necessary course of action,” Intrade said in a brief statement.

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DealBook: JPMorgan Regulators in Spotlight After Firm’s Huge Loss

Jamie Dimon, chief of JPMorgan Chase.Randy L. Rasmussen/The Oregonian, via Associated PressJamie Dimon, chief of JPMorgan Chase.

WASHINGTON — JPMorgan Chase’s regulators will be in the spotlight here on Wednesday, when they testify before Congress on the bank’s multibillion-dollar trading blunder and its implications for the future of Wall Street regulation.

One of the bank’s primary regulators, the Office of the Comptroller of the Currency, will face particular scrutiny for its oversight of the JPMorgan unit responsible for a trading loss of more than $2 billion.

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JPMorgan disclosed the loss from its chief investment office last month. Just months earlier, top executives from the chief investment office had traveled to Washington to persuade the comptroller that new trading restrictions threatened the future of the bank. The executives argued that the so-called Volcker Rule could prevent the powerful unit from hedging risk throughout the bank.

“This is important to maintaining the safety and soundness of JPMorgan,” Ina R. Drew, then the head of the chief investment office, told comptroller officials, recalled one person who attended the meeting.

Ms. Drew was joined by five other JPMorgan executives who echoed her concerns about the Volcker Rule, saying the regulatory crackdown “could restrict or cast in doubt strategies” that the bank “successfully employed during the financial crisis,” according to a memo summarizing the meeting.

The trading blowup that followed has now become a flash point in the fierce debate over the Volcker Rule, which would ban banks from trading with their own money in an effort to prevent them from placing risky wagers while enjoying government backing.

In their testimony before the Senate Banking Committee, regulators are expected to defend their oversight of JPMorgan, which had significant sway with policy makers after emerging from the 2008 financial crisis relatively unscathed. None of the more than 100 regulators embedded in JPMorgan’s Manhattan headquarters kept daily watch over the chief investment office, people briefed on the matter have said, raising questions about gaps in oversight.

In testimony prepared for Wednesday’s hearing, the comptroller of the currency, Thomas J. Curry, said that his office “has been meeting daily with bank management” on its response to the trading loss and its risk management. As part of its review, he said, the comptroller’s office will examine how employees in the chief investment office were paid and whether JPMorgan will try to claw back some of their compensation. He added that the agency was reviewing how to “improve O.C.C. supervisory approaches.”

The committee will also hear from officials of the Federal Reserve, the Treasury and the Federal Deposit Insurance Corporation. Senator Tim Johnson, the South Dakota Democrat who leads the banking committee, said in a statement that he hoped to hear from regulators “on potential implications of the loss for supervision and Wall Street reform rule-making going forward.”

The testimony from regulators, while significant, is only the opening act for a hotly anticipated hearing next week with JPMorgan’s chief executive, Jamie Dimon. Once considered Washington’s favorite banker, Mr. Dimon is also expected to testify before the House Financial Services Committee.

Federal investigators, meanwhile, are taking a closer look at JPMorgan’s trades. In the wake of announcing that it lost at least $2 billion on positions tied to complex credit derivatives, JPMorgan has received requests for documents and information from an array of federal investigators, including the Commodity Futures Trading Commission and federal prosecutors in Manhattan, according to people briefed on the matter. Federal authorities are examining, among other matters, JPMorgan’s accounting practices and whether the bank’s public disclosures played down the dire state of the trades.

The trades also hit at the heart of the controversy surrounding the Volcker Rule, named after Paul A. Volcker, a former chairman of the Federal Reserve. Under the rule, which regulators expect to complete in coming months, banks may still hedge their risk.

A difficult question remains for regulators: What amounts to hedging? JPMorgan officials say the chief investment office initially hedged the bank’s broad exposure to the markets, until the positions morphed into a proprietary bet.

But some Democratic lawmakers have seized on the loss to illustrate the case for the Volcker Rule, saying that tough rules are needed to rein in the risk-taking on Wall Street.

“The growing losses from JPMorgan’s fiasco underscore the urgent need for a strong Volcker Rule firewall that lays out bright, clear lines between banks and hedge funds,” said Senator Jeff Merkley, an Oregon Democrat and a member of the Senate Banking Committee who has championed the rule. “I’m hopeful that the O.C.C. and others will listen to the warning sirens JPMorgan has sounded and implement a loophole-free Volcker Rule without delay.”

Amid the scrutiny from Washington, other big banks are moving to stem the fallout from JPMorgan’s mistake. In a recent meeting with regulators, one Wall Street official was told it was too soon to tell whether JPMorgan’s trading would affect the outcome of the Volcker Rule. The regulators acknowledged, however, that the episode could ultimately “reset the table” for the rule-writing process.

JPMorgan has not let up, either. One day after the bank disclosed its losses, a team of JPMorgan officials met with a member of the Commodity Futures Trading Commission to discuss the Volcker Rule and whether other new rules would apply to American banks operating overseas. The meeting, which was scheduled before the announcement of the trading loss and was held at the bank’s New York offices, began with a description of what went wrong in the chief investment office, a person who attended the meeting said.

The bank, which runs one of the best-financed lobbying operations within the commercial banking industry, second this year only to Wells Fargo, noted that it supported many new rules in the Dodd-Frank financial overhaul law. In the company’s annual report, Mr. Dimon wrote: “If the intent of the Volcker Rule was to eliminate pure proprietary trading and to ensure that market making is done in a way that won’t jeopardize a financial institution, we agree.”

The bank has been concerned about the scope of the hedging exemptions. Through hedging, the chief investment office deftly steered the bank through the 2008 financial crisis. JPMorgan did not record a losing quarter at a time when the rest of Wall Street nearly collapsed, a fact that gave the investment unit credibility on Wall Street and in Washington.

When Ms. Drew and other executives met with the comptroller officials in February, they pointed to the unit’s success during the crisis. The executives arrived at the comptroller’s Washington offices after eating lunch at a local Italian restaurant — and attending another Volcker-related meeting at the Federal Reserve.

At the end of the trip, some JPMorgan officials remarked that the comptroller officials were particularly familiar with the issues facing the investment unit.

“They get it,” one person remarked.

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