DARN THOSE UNDESERVING POOR!:

Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank's chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them. [...]

Hoping to understand JPMorgan's practice of relaxing its valuation method on the troubled investment portfolio, Mr. Levin asked of Mr. Braunstein: "Is it common for JPMorgan to change its pricing practices when losses start to pile up in order to minimize the losses?"

After a bit of back and forth, Mr. Braunstein said: "No, that is not acceptable practice."

Not acceptable, perhaps, but that is what occurred, as the Senate report shows. Normal practice at the bank and across the industry is to value these kinds of derivatives at the midpoint between the bid and offer prices available in the market. But in early 2012, as it became apparent that JPMorgan's big trades at the chief investment office were going bad, the bank began valuing the portfolio well outside the midpoint. This reduced its losses.

For example, in January 2012, the portfolio valuations hewed closely to the midpoint on all but 2 of the 18 measures, the Senate investigators found. A month later, 5 of the 18 valuation measures deviated from the midpoint. In March, however, all 18 deviated, and 16 were at the outer bounds of price ranges. In every case, the prices used by the bank understated its losses.

While these valuation shifts were taking place in the chief investment office, JPMorgan's investment bank officials continued to mark their identical positions using the midpoint value.

RISK limits, intended to protect the bank from losses, were also routinely breached at JPMorgan Chase, the report found. From late 2011 to the first quarter of 2012, Senate investigators saw a huge jump in the number of risk-limit breaches -- to more than 170, from 6. Then, in April 2012 alone, risk limits were exceeded 160 times.

"Should someone have investigated the risky trading activities that triggered all these breaches?" Mr. Levin asked. Yes, but no one did, the report concluded. The risk limits were either ignored or modified to make the portfolio look better.

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