The Financial Conduct Authority (FCA) has today fined Achilles Macris £792,900 for failing to be open and co-operative with the Authority. Mr Macris was Head of CIO International for JPMorgan Chase Bank, N.A. in London. In the role he was responsible for a number of portfolios, including the synthetic credit portfolio, at the time of what became known as the ‘London Whale’ trades.
Mr Macris was the main contact with the FCA’s predecessor the Financial Services Authority (FSA) (FSA and FCA together the Authority) in relation to CIO International and as an approved person he was required to deal with the Authority in an open and cooperative way. Between 28 March 2012 and 29 April 2012 Mr Macris did not inform the Authority about concerns with the synthetic credit portfolio and as a result he failed to meet the standards expected of an approved person under Statement of Principle 4.
Mark Steward, Director of Enforcement and Market Oversight said: ‘A failure to communicate openly with us can affect the well-running of markets and cause unnecessary harm to investors, especially in times of financial stress or crisis. Regulators need open communication with firms so that better decisions can be made sooner. Mr Macris should have explained the position more squarely especially when he knew the synthetic credit portfolio’s losses had worsened.’
The synthetic credit portfolio began to suffer significant losses from the beginning of 2012. On 23 March 2012 the front office was instructed that no further trades should be executed on the portfolio until discussions had taken place. Mr Macris subsequently asked that daily risk reports for the synthetic credit portfolio be produced and in the following days took other measures, such as requesting assistance from outside CIO and arranging daily progress meetings with CIO Risk and the front office. Despite these measures the synthetic credit portfolio continued to suffer losses.
On 28 March 2012 Mr Macris attended a supervision meeting with the Authority, at which CIO International and the synthetic credit portfolio were discussed. The Authority was updated on both positive and negative developments relating to the synthetic credit portfolio, including that it had made a loss of $200m, and that it had experienced rebalancing problems, but was told that it was now balanced and did not require additional trading. Mr Macris did not provide the Authority information about the full extent of the difficulties that the synthetic credit portfolio was then facing or take steps to ensure that the Authority understood there were causes for concern with the portfolio.
On 10 April 2012, Mr Macris took part in a telephone call with the Authority which was set up to try to correct any inaccurate impression that may have been given by the publication of articles about the ‘London Whale’. By the time of the call Mr Macris was aware that the position of the synthetic credit portfolio had worsened and its losses had increased. The call provided Mr Macris a further opportunity to provide information about concerns with the portfolio and the heightened response being adopted to address them. Mr Macris did not do so. Instead, Mr Macris allowed an inaccurate impression to be given that there had been no material changes since the supervision meeting and that there were not wider causes for concern with the synthetic credit portfolio.
Mr Macris should have appreciated that, by failing to inform the Authority during the meeting and the call of the causes for concern and by allowing the Authority to be reassured concerning the position of the synthetic credit portfolio, the message delivered was not an accurate reflection of the state of the synthetic credit portfolio. At the very least a high-level indication that there were causes for concern during the meeting, the call or at any time before the 29 April 2012 would have provided the Authority with the opportunity to follow up with questions about the nature of the concerns and form its own assessment of the position. It would also have encouraged other staff to be open and cooperative in providing information in relation to their specific areas of expertise.
Although settlement in this case was reached during Stage 2 which would usually lead to a 20% discount, in exceptional cases the Authority may accept that there has been a substantial change in the nature or seriousness of the action being taken and that an agreement would have been possible at an earlier stage if the action had commenced on a different footing. The Authority and Mr Macris therefore agreed that an additional 10% discount is appropriate. Were it not for the total discount of 30%, the financial penalty would have been £1,132,747.