JP Morgan Chase agreed to pay a $20 million fine to settle a case filed by the Commodity Futures Trading Commission; a case filed because of JP Morgan's role in the demise of Lehman Brothers - specifically via the overextension of credit for approximately the two years leading up to Lehman's bankruptcy in 2008.

This follows on the heels of a Commodity Futures Trading Commission suit against Royal Bank of Canada for schemes it engineered to receive undue tax benefits; and speaks to the more active role being taken by regulators in recent months.

JP Morgan attracted scrutiny for its questionable treatment of customer money - an issue the bank also currently faces regarding the MF Global implosion. What JP Morgan did was to extend credit using an inaccurate evaluation of Lehman’s worth. In essence improperly counting Lehman’s customer money as belonging to the firm. This is a violation of federal laws providing that firms are not allowed to use customer money to secure or extend credit.

The key takeway for our readers is that there is debate regarding whether JP Morgan actually knew it was using client money that belonged to clients but that the outcome of this debate did not matter. What mattered, according to regulators, was that JP Morgan should have known, as the funds were maintained at JP Morgan accounts. We further address the issue of banks and due dilligence compliance requirements in our soon to be released 2012 Compliance Guide.