Friday Sept 20 2013
Yesterday Paul Petrucci of Petco discussed how internal audits aim to reduce firm risk.
Here is a great case in point but a bit late for J P Morgan. Morgan is paying a $920 Million fine to the SEC. You will recall that Morgan had a London trader engaging in transactions so large and one sided he was dubbed The Whale. Turns out only one person was monitoring the Whale's trades. And that person often did not independently check the value of the account. Rather he took the trader's word for it.An internal audit revealed the truth about what was going on, but a bit late to keep a $ 6 Billion loss from occurring.
Amazingly Morgan made their predicted earnings per share despite the huge loss. Gee that's amazing don't you think!
Recall that Paul said it was important to be getting out in front of risk rather than looking over your shoulder at what had happened. Here is a great example of the need to do just that.
Professor Elam 
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