JPMorgan Chase Bank Risks

Abstract: Fraud has remained a predominant factor in the trade of stocks, shares and other securities because of its unpredictability. The government has laid down many structures and developed enormous laws and enforcement agencies to handle the same. JPMorgan investment bank stands as an example of how hard it is to combat high-risk gambling, given that a bank of its standing and success could fall a victim of the same, notwithstanding the implication of its Chief Investment officer in the same. The essence of this is to show the challenges that the administrative agencies are faced with, and the actions and strategies they have laid down to deal with such incidences. In addition, it shows the centrality of the investor, and the financial institutions, in entering into a contract. There are several key elements to be considered in entering into a contract and it is important that all are adhered in order to ensure that both parties are well protected. They should be entered into in good faith, and as such, there are regulations that determine whether the investor had full disclosure on the investment they were entering into.

Shares and securities of JPMorgan investment bank plunged down at an alarming rate after the company announced that it had made losses amounting to over $2 billion, with speculation that the losses could rise to over $7 billion (Leo, 2013). These enormous losses have in particular been caused by portfolio hedging, something that has allowed the bank to make high risk bets sometimes of way to high values, in a bid to boost performance. A good case example is exemplified in JPMorgan’s investment in arcane portfolios that were made of huge credit default swaps. These swaps were made in order to cushion investors from defaulting borrowers. This was done in anticipation that the credit markets would grow stronger paving way for the approval of riskier loans. This move has exposed the institution to its competitors who have been placing contrarian bets, hoping to profit from a weakening in the financial institutions. As it turns out, these competitors are not only winning in the betting process but also reaping huge rewards. The above scenario representing JPMorgan investment bank is a classic example of the high risk gambles that investors are exposed to on a daily basis. With the increasing to grow portfolio, and managements given targets based on the profits and the market share in a given country, nation or target group; top managers of such financial institutions are always tempted to expose the finances of their clients. This they do by making bets that their clients would otherwise not make. The government has developed and instituted various agencies to handle such cases. The idea is to prevent high-risk gambles, and to protect the financial resources as well as the stability and sanity of the major investment institutions, and financial banks (SEC, 2013). In addition, the government has a responsibility to ensure that those responsible for such undertakings take responsibility for their mistakes. The U.S. Securities Exchange Commission is amongst the various organizations that have been instituted to protect the interests of investors, aiming to ensure that the markets are fair, efficient and conducted in an orderly manner. In addition, it serves in facilitating the formation of capital by aiding the pooling together of resources. Securities, e.g. stocks and bonds are very complicated to deal with. This is because to a large extent, profits are a guaranteed as losses are. This is because they always stand a chance of losing value, and when this happens, there are those who reap profits when they lose value, and those who make losses when the same happens. One of the laws used in curbing high risk-gambling is the law that requires all investors, regardless of the size and the fame of the institutions involved, to be allowed access to the basic and relevant facts on the investment before making a purchase. The key administrative agencies e.g. SEC require that an investor should be given meaningful information on the financial standing of the securities they are purchasing including what prospects they stand to gain (SEC, 2013). The work of the administrative agencies lies in overseeing the key players in the securities world. It enforces this policy by ensuring that investors have obtained full disclosure of the relevant, meaningful and important market related information, in order to cushion investors against fraudulent deals and gambles. These administrative agencies compile evidence of fraudulent acts done by both individuals and companies, and in enforcing the law; it raises law suits against them. This achieved mostly with heavy reliance on the investors since they are the ones who stand to lose when the deals go sour (Chris, 2013). To achieve the trust and confidence of investors, these organizations endeavor to build a cordial relationship with all the essential players in the securities world, and most importantly, the investors themselves. In a bid to strengthen their grip on all fraudulent dealings and gambles, SEC for instance, has developed a website that offers comprehensive information on securities, and the regulations that govern investment in securities. On top of this, it provides disclosure documents that companies are supposed to file with the commission. This is helpful, because in case a client feels cheated, they can always visit the website and see whether the information they got is consistent with what SEC has concerning the said organization, or securities. With the increasing creativity in which frauds are committed, it follows that high-risk investments find channels of camouflaging, and especially where the leading investment banks and stock brokers are involved. The agencies therefore have to prudent, and very wise in handling such issues. One of the recent techniques that have been applied effectively is the use of risk-based proactive initiatives that aid in identifying any threats. This aid in ensuring that the institutions and agencies are not operating on the back foot where they respond to crisis, but rather on the driving wheal where they can detect loopholes and seal them up before fraud happens. In addition, incentives are provided to insiders who come forward with information to expose any loopholes, or high-risk gambling activities in the financial front. This is best exemplified by SEC’s establishment of the office of the Whistleblower, which receives both complaints and accurate tips, investigates them, and uses the derived information to counter any unprofessional acts. CFTC on the other hand has recently introduced the Dodd-Frank rules that aim at protecting the client collaterals that are availed in swap trades. In addition it drafted the Volcker rule that is aimed to bring to a stop the habit of risky trading that banks have delved into with great impunity (Leo, 2012). Futures are usually used by farmers unlike swaps that are favor larger corporations and banks. These rules are therefore meant to protect this group that falls lower in the securities markets from the exploitative hands of other players in the market. In entering into a legal contract, there are several elements that act as proof of its legality. One of them is offer and acceptance. An offer is usually a definite promise that remains binding as long as the preset terms of offer are accepted. For this to be, what is being offered has to be precisely and extensively presented. Another element is that there must be an intention to create a legal relationship. This means that the parties must be aware that the agreement is legally binding, that can be inferred based on the circumstances it was made. In addition, for it to be a contract there has to be consideration. This involves considerations of both the price and the promise. Consideration involves rights, interests, forbearance or any other responsibility given to one party by the other. In addition, the contract should asses the legal capacity of either parties in entering into such an agreement. In this, an investor should have the legal capacity to interpret the information presented to him before making buying the stocks or securities. Lastly the free and fair consent of both parties plays a key role in sealing the contract. An investor should give consent as regards the purchase or sale of their securities. In dealing with each other, the consumer has a responsibility to ensure that the banks are fully aware of their financial situations. On the other hand, banks should invest their customers’ money with great prudence, and more so, by advising their clients and ensuring that the clients are in the right state of mind before engaging them in high-risk investments. There is a huge difference between intentional torts and negligent torts, even though drawing a line between the two is always a complex endeavor (Chris, 2013). Negligent torts are usually committed without the intention of committing them; but rather one falls a culprit of not taking due care. It entails breach of duty, the cause of the breach and the harm or cost implication of the harm. It is worth noting however, both intentional and negligent torts are compensable and come be raised in a court of law. A person is proved guilty of negligent tort if it is proved that they had duty of reasonable care. Intentional torts on the other hand are acts that have been carried with the aim of causing harm on the other party or organization. This does not necessarily imply that the individual intended to cause tangible harm, but rather that there was intent to commit the tort. The tort action of interfering with contractual relations is one that is categorized as an intentional tort. If this happens, it is not the responsibility of the defendant to prove their innocence, but rather the plaintiff’s responsibility to justify the actions of the defendant (Chris, 2013). Since the investment decisions made by the chief investment officer exposed the finances of the JPMorgan bank as well as those of its investor, the Chief Investment Officer, Mr. Dimon, is liable for interference with contractual relations. This is because the bank had not informed its investors that their finances would be used for such high-risk gambling. A breach of fiduciary duty occurs when one’s action are in such a way that he puts the commodities held in trust at risk. The investor acts in vulnerability and good faith when putting their trust in the fiduciary, and doing this, the last thing they expect is negligence or intentional tort aimed at them. In this action, JPMorgan would be able to prevail given that their overall profits outweigh the losses they made. However, the interference of Contractual relations by Mr. Dimon means that he is liable for his actions, together with the other management staff. The introduction of mobile banking has in itself stretched the technological arena in a bid to create phone software that is more secure than the SMS-based mobile banking. This has been resolved by tapping into the well established and expansive internet protocols, allowing for services that can be used on mobile phones, and similar devices, with wireless internet. Therefore the introduction of Mobile-application based banking is more secure, and so is web-based banking though it’s hard to draw a line between the two (Leo, 2012). Currently, mobile applications are also being developed that contain secure coding techniques.

References
SEC. (2013). The Investor’s Advocate: how SEC protects investors, Maintains Market Integrity and Facilitates Capital formation. SEC, U.S. Securities Exchange Commission. Retrieved from http://www.sec.gov/about/whatwedo.shtml
Leo, S. (2012). A look at JPMorgan’s (JPM) Massive Losses. Retrieved from http://www.investorguide.com/article/10538/a-look-at-jpmorgans-jpm-massive-losses/
Chris, F. (2013). Elements of a contract. Retrieved from http://www.lawhandbook.org.au/handbook/ch12s01s02.php