JP Morgan Chase - Valid Contract - Essay Example

? JP Morgan Chase In summer JP Morgan Chase underwent serious losses which were initially declared to be the consequence of poor investment decisions. However, later on it was identified that massive gambling took place internally in the bank. The case was primarily investigated by SEC and CFTC. This paper aims to explain the case of JP Morgan Chase along with some other legal issues related to gambling. JP Morgan Chase Banks are often subject to financial losses due to political and social instability within the country. However, losses also occur due to internal frauds and corruptions which lead to comparatively severe consequences. Due to this banking activities are administered by the security agencies like Security and Exchange Commission (SEC) and Commodities Futures Training Commission (CFTC). The prime responsibility of these security agencies is to look after the financial dealings within the banking sector and to investigate the losses and fraudulent activities. The summer of 2012 brought a very distinctive case forward in the history of financial gambling as a leading bank of United States of America was found to have a loss of $5.8 billion. The company officials reported that the loss occurred due to the poor investment decision made by the management with respect to trading. Later on this statement given to the CFTC inspectors was found to be false and the overall inspection showed some counter results. The bank officials working on trading investment left the bank soon after this event which raised a lot of questions to the investigating officers (Farrell, 2012). Role of SEC and CFTC in preventing high risk gambles When a bank or any other financial institution faces a loss due to gambling then the overall economy of the country has to bear its consequences since these two economic sectors act as the most significant structural blocks for any nation. In relation to this the role of SEC and CFTC also becomes substantial as they are the key forces behind the prevention of such activities. Their prime concern is to ensure that maximum protection is extended to the investors, rules are fairly followed by the banks, financial market is operating efficiently and lastly there is enough capital available to the banks and other financial institutions to carry on their activities (Schapiro, 2012). Among these the duty of protecting the investors safeguards high risk gambles. In addition to this, these agencies implement laws regarding the fraudulent activities reported by the financial institutions. For instance, in the case of JP Morgan Chase the CFTC investigated the overall scenario and found that initial reporting made to the agency was falsified and that the real reasons behind the massive loss were in kept hidden by the Chief Investment Office (CIO). CFTC was responsible to look after trading and financial derivatives while on the other hand SEC supervised the bank’s financial disclosures from the stockholders so as to investigate the details of such a massive loss (Gary Shorter, 2012). Valid Contract Contracts are not just general agreements between two parties rather they are the legally supported documents which can be challenged in the court. The contracts are made to give legal assistance to an agreement so that in future if either of the parties commits an illegal activity then the other one can save itself from potential losses. Due to the legalities attached to contracts there are certain essential elements of a Valid Contract which makes it fully acceptable in courts and in legal institutions. Following are the essential elements of a Valid Contract (Elements of a Contract, 2013): Offer and Acceptance: First of all an offer is made by one of the parties which can be accepted or rejected by the second party. If the offer is accepted by the other party then the procedure moves on. The acceptance of the offer reflects the agreement of the other party regarding all the stated rules and regulations. Intention to build successful legal relations: A valid contract cannot exist between two parties until and unless both of them share an intention to legally bind the nature of the contract. This is in fact done to increase the authenticity of the agreement. Consideration: It indicates the price that is paid to the other party as part of the agreement made. Price necessarily does not mean money rather it can be anything which has substantial value. Legal Capacity: Everyone is not authorized to enter into a legally valid contract; there are certain prerequisites so as to make a valid contract. These include: mentally retarded individuals, people below the age of 18 years, prisoners and bankrupts who cannot participate in a valid contract. Consent: There should be maximum trust between the two parties. All the operations must be performed with mutual understanding without any forceful intentions or actions. The banking relationship is a super sensitive relation between customers and service providers. This relation is subject to losses and fraudulent activities. Therefore the existence of good faith and fair dealing between consumers and banks plays a substantial role. The banking relationship is also developed through a legally valid contract which indicates that both the parties must share mutual understanding and respect for one another. The exchange of money and services should be based upon sound ethical foundations so that fruitful results are generated for both the consumer and the bank. Tort Actions Tort actions are defined as the civil wrong or the illegal activity which can be challenged by the victim in courts. It is broadly categorized into two sub branches i.e. intentional trot actions and negligent tort actions (Tort, 2010). Intentional Tort Actions: It includes all the illegal activities which are consciously done while making a deep consideration of its future impacts. For instance, if a person is has been seriously injured then it would be considered an intentional tort since the act was consciously committed. Negligent Tort Actions: It includes as those activities which were result due to ignorance or non-serious attitude. These might not generate fatal consequences neither they are generally challenged in the court. For instance, a traffic accident as a result of the red light signals being ignored in the first place. Tort Action of Interference with Contractual Relations Law commends a defendant to compensate for all the damages that have occurred as a result of interference with the contractual relations. In this situation the defendant is not inquired for justifications rather the plaintiff has to prove its claim on the basis of following elements (Intentional Interferance with Contractual Relations, 2013): 1. The contract exist between the two parties was valid in nature and could be challenged in court. 2. The defendant had the complete knowledge of the contract along with its rules and regulations. 3. The act of defendant comes under the intentional tort actions. 4. Finally the plaintiff has faced substantial loss or injury due to defendant’s action. Participating in a Breach of Fiduciary Duty Fiduciary duty indicates the responsibility of one party to act in other party’s best interest. The banks cannot carry out any operation without the permission of the principals. When tort actions are identified in Fiduciary duty then following key elements are considered (Frankel, 1983): 1. The fiduciary duty must exist between the two parties. 2. The duty must be breached. 3. Damage proximately occurred due to that breach. As mentioned previously that the relationship between bank and customers is highly sensitive in nature due to the involvement of monetary transactions. Therefore they both require maintaining good faith and fair dealing so as to keep the relationship beneficial for both the parties. If my bank behaves in the similar way as JP Morgan then I would not be able to survive in such a situation. Rather I would consequently change the bank and would withdraw all the money since tort actions especially in banking are very harmful for the sound existence of both the parties. Online Transactions Primarily the Secure Socket Layers (SSL) is used to provide protection to the online transactions. This software was basically developed in association with the Bank of America which is solely based to prevent fraudulent activities which might take place during the online transactions. SSL is not supported by the ‘protocol used’ which ensures its effectiveness in providing protection to online money exchange. In addition to this it makes an extra layer between the application and transport layers so as to ensure smooth transference of data (Cryptography - Secure Sockets Layers (SSL), 2013). References Cryptography - Secure Sockets Layers (SSL). (2013). Retrieved March 3, 2013, from Kioskea.net. Elements of a Contract. (2013). Retrieved March 3, 2013, from The Law Handbook.org. Farrell, M. (2012, July 13). JPMorgan's trading loss: $5.8 billion. CNN Money . Frankel, T. (1983). Fiduciary Duties. The New Palgrave Dictionary of Economics and the Law, 127-128 . Gary Shorter, E. V. (2012). JP Morgan Trading Losses: Implications for the Volcker Rule and Other Regulation . Congressional Research Service. Intentional Interferance with Contractual Relations. (2013). Retrieved March 3, 2013, from Legal Information Institute. Schapiro, M. L. (2012). FISCAL YEAR 2012 AGENCY FINANCIAL REPORT. U.S. SECURITIES AND EXCHANGE COMMISSION. Tort. (2010, Aug 19). Retrieved March 3, 2013, from Legal Information Institute. Read More