The Madoff Scandal, London Whale and JP Morgan Chase: What Went Wrong?

• In Event: Reception with ELS posters

Abstract

This paper describes the implementation of a “JP Morgan $3.6 Billion Penalty case study” in auditing classes. The author developed an instructional case based on banking practices at JP Morgan Chase. The case study examines the role of JP Morgan Chase in the London Whale incident and the Madoff Ponzi scheme. JPMorgan Chase agreed to pay $2.6 billion in fines to the U.S. government and Bernard Madoff victims. JP Morgan also paid $1 billion dollars in penalties related to the "London Whale" trading debacle. This “teaching case” exposes students to several auditing-related concepts: 1) fraud red flags; 2) ethical reasoning and utilitarian, justice and rights principles; 3) analytical procedures; 4) internal control evaluation (AS 5); 5) Ponzi scheme shenanigans; 6) regulation and 7) governance issues. This case enables students to assume the role of an auditor and participate in some active learning. Students worked in groups outside of class to answer questions. Students came up with several red flags associated with governance failure and suggested many new internal controls. They also answered questions on ethical issues/theories, risk assessment, internal control weaknesses, governance issues, internal audit, and regulatory failures. Students found the case to be very interesting and were actively engaged in the learning process. Student opinion surveys were also conducted about the learning outcomes of this project and the survey results indicate strong student engagement, group learning, and satisfaction.

Author

• Srinivasan Ragothaman, University of South Dakota