NEW YORK (TIP): A Senate committee has launched a probe into JPMorgan Chase’s “London Whale” trading losses, according to a source familiar with the investigation.

The Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, is interviewing current and former employees of JPMorgan’s Chief Investment Office in connection with the bank’s $5.8 billion loss on trades in an obscure corner of the credit market, according to the source.

JPMorgan’s losses stemmed from bets by London-based CIO trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname “London Whale” from the hedge fund traders taking the other sides of his positions.

An internal investigation by the bank revealed the possibility that the trades may have been deliberately mismarked in JPMorgan’s books to make the losses look smaller.

Federal investigators and the Securities and Exchange Commission are looking into whether anyone involved in the incident committed a crime.

So far, seven current and former JPM employees have hired lawyers to help them navigate the investigations. The bank’s internal probe is ongoing.

“At a time when questions are regularly being asked as to why more prosecutions are not being brought against financial institutions, the Senate Committee obviously thinks it has an important role to play in exploring these matters,” said Daniel Richman, a professor at Columbia Law School.

Levin’s committee has examined other big banks’ behavior in the past and issued reports that have become part of the foundation for new financial regulation.

“This subcommittee has no legislative jurisdiction, but it has formidable clout,” said Karen Shaw-Petrou, co-founder of Federal Financial Analytics in Washington.

“It can’t move legislation, but it can change public opinion in ways that force the hand of both other Senators and, even if Congress is stymied, regulators. A clear case in point is the subcommittee’s recent hearing on HSBC, which is having far-reaching impact on enforcement actions related to Iran sanctions,” she added.

There was no major reaction in the stock market to the news of the committee’s investigation.

Paul Miller, managing director at FBR in Washington, said he thought the investigation would in the end have little impact, and that the events that prompted it did not warrant so much attention.

“This never put JPMorgan in a failure mode, it was contained,” he said of the losses on the CIO desk.
“This is overkill. The stock has been punished; (JPMorgan CEO) Jamie Dimon’s reputation has been tarnished.”
The probe by Levin’s committee was first reported by Bloomberg news