Business News : SEC says probing JPMorgan's financial reporting

WASHINGTON (Business News) - The head of the U.S. Securities and Exchange Commission told lawmakers on Tuesday that her agency is probing JPMorgan Chase and Co's financial reporting and emphasized that big banks are required to publicly disclose changes to the models they use to measure risk.

SEC Chairman Mary Schapiro assured a Senate Banking Committee that the SEC is investigating JPMorgan's revelation earlier this month that it suffered at least $ 2 billion in losses on complex trades that started as hedges but morphed into a risky bet.

"The SEC will be primarily interested in and focused on the appropriateness and completeness of the entity's financial reporting," Schapiro said.

She also addressed reports that JPMorgan's change to its value-at-risk model, an estimate of losses that could occur on a particular trade or portfolio of trades, allowed that trading portfolio to appear safer than it actually was and gave traders more leeway to make risky bets.

"When there are changes to the VaR model -- as newspapers have reported was done at JPMorgan; they changed their VaR model -- those changes have to be disclosed," Sch apiro said.

JPMorgan Chief Executive Jamie Dimon first announced that the unit responsible for the trades had changed its VaR model when he announced the trading losses on May 10.

The rest of the bank's divisions apparently kept to more conservative modeling to measure the risk of trades.

Schapiro did not elaborate on whether this change is a specific focus of the SEC inquiry into JPMorgan, the nation's largest bank.

The Senate Banking Committee's hearing on Tuesday was the first in a series of hearings expected to be held on JPMorgan's trading loss. Dimon will likely testify before Congress this summer.

Schapiro appeared alongside Gary Gensler, the chairman of the Commodity Futures Trading Commission, which has also opened a probe of the trading losses.

G ensler would not elaborate on the specifics of the probe, but noted that the CFTC has the authority to look into the trades "under our anti-fraud and anti-manipulation regime."

PUSHING REFORMS

Regulators and supporters of the 2010 Dodd-Frank financial oversight law are using JPMorgan's trading blunder to advocate for tough implementation of reforms required by the law.

Gensler said the trading losses highlighted the need for tough overseas swaps regulations, calling the losses a "stark reminder" of how overseas trading can transfer risk back to the United States.

The trades at the center of the high-profile losses came from JPMorgan's Chief Investment Office in London.

Schapiro told the committee that her agency will be in a better position to monitor trades like those that led to JPMorga n's losses when final rules required by Dodd-Frank are in place.

"Under the SEC's proposed rules, we would have known the trading desk and the trader who put the positions on, and the dealer would have been registered," she told the committee.