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JPMorgan risk disclosures fell short for regulators: documents

A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010. REUTERS/Lucas
A flag hangs on the wall of the JP Morgan company stall on the floor of the New York Stock Exchange in New York July 15, 2010. REUTERS/Lucas

By David Henry and Emily Flitter

NEW YORK (Reuters) - For months after JPMorgan Chase & Co executives first admitted that they had wrongly brushed off questions about the "London Whale" derivatives losses, officials at the U.S. Securities and Exchange Commission pressed the company to disclose more to investors about risks it was taking.

The SEC's Division of Corporation Finance, which is charged with making sure companies provide investors with enough information to make good decisions, pushed the bank from at least July to February to revise disclosures about changes it had made in models used to calculate value it put at risk in its derivatives portfolio.

Correspondence between the SEC and the bank released on Wednesday shows the bank made incremental changes to increase its disclosures at the SEC's urging. The highly technical exchanges were conducted even as JPMorgan vowed to be more transparent with investors.

A JPMorgan spokesman declined to comment.

An SEC spokeswoman declined to comment.

The correspondence was made public on the SEC's web site on Wednesday. The letters ended with a February 27 note from the division saying it had completed its review of JPMorgan's filings, but was not ruling out actions by the regulator against the company.

In July, the SEC told JPMorgan to expand its future disclosures about its risk models and to explain further what it had said earlier in the month about changes it was making in company risk controls. JPMorgan responded in a letter in August that described how it tracked risk and noted that it was disclosing more about its models in its new quarterly financial report.

The SEC came back with more questions in November about JPMorgan's response and about the company's views on how much regulations require it to disclose about details of risk model changes. JPMorgan responded in December, received the last questions from the SEC in February and added more disclosure in its annual report.

Many of JPMorgan's responses were redacted from the letters made public on Wednesday. The redacted sections appear to have involved details of the company's risk models.

JPMorgan has disclosed that the SEC and at least seven other government agencies are probing the company over the derivatives loss. In May the then head of the agency told a panel of lawmakers that the agency was investigating JPMorgan's financial reporting and emphasized that big banks are required to publicly disclose changes to models they use to measure risk.

CEO Jamie Dimon first said on May 10 that he had been wrong one month earlier to call press reports about possible losses on derivatives trades in London a "tempest in a teapot."

The company also said then that a previously undisclosed change in its risk model early in the year had wrongly made it seem that risk levels in the office making the trades had not increased.

JPMorgan ultimately acknowledged losing $6.2 billion on the trades, executed by Bruno Iksil, known in the derivatives market as the "London Whale," for the size of the positions he took.

The SEC began posting disclosure correspondence with companies in 2005. Its policy calls for releasing the letters no earlier than 20 days after the reviews are completed.

(Reporting by David Henry and Emily Flitter in New York and Sarah Lynch in Washington; Editing by Alden Bentley)

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