Senior managers at JPMorgan Chase & Co , including Chief Investment Officer Ina Drew, were told for months about the bad derivatives bets that ended up costing the bank $6.2 billion but did little to rein them in until it was too late, according to a U.S. Senate report.

Telephone calls and instant messages show traders felt pressure to misstate the values of the derivatives and were upset about doing so, but the bank stood by the prices and said in an internal document they were "consistent with industry practices," according to the report.

The bank has described the position, built by a trader who came to be known as the "London Whale," as one caused by rogue traders and the bank's lack of proper oversight and risk limits.

But the Senate panel said five risk limits already in place were breached in early 2012. Bank managers as senior as Chief Executive Jamie Dimon knew of the breaches, but the bank lifted the limits or altered the risk measures to improve the results, the report said. The Senate permanent subcommittee on investigations, which wrote the report, is holding hearings about the trades on Friday.

The report will likely give ammunition to financial industry reformers who support the Volcker rule, a ban on banks betting with their own funds. Regulators are struggling to finalize the rule, which was part of the 2010 Dodd-Frank Act.

JPMorgan has described the position as a hedge on other businesses, but the subcommittee's investigators said the bank failed to identify any assets or portfolios being hedged.

The bank "increased risk by mislabeling the synthetic credit portfolio as a risk-reducing hedge when it was really involved proprietary trading," the subcommittee's top Republican, John McCain, said in a briefing with reporters.

Emails and phone recordings disclosed in the report also showed the efforts bank employees made to devise complicated means of flouting new international capital requirements.

Friday's hearing will feature JPMorgan executives including former finance chief Douglas Braunstein; Drew, who led office that was responsible for the trades; and investment banking co-head Michael Cavanagh, who led the internal investigation into the losses.

The report paints a picture of senior managers doing little to rein in major risks that had paid off for the bank in the past, misleading the public and regulators about those bets, and expressing outright disdain for regulators.

While Senator Carl Levin, who chairs the subcommittee, said he had not yet decided whether to refer the report to criminal or civil authorities, he said the panel could hold further hearings and left the door open to calling Dimon.

"While we have repeatedly acknowledged mistakes, our senior management acted in good faith and never had any intent to mislead anyone," a JPM spokeswoman said.

MISLEADING STATEMENTS

In addition to identifying mismanagement at the bank, Senate investigators faulted regulators at the Office of the Comptroller of the Currency for missing red flags and failing to be aggressive in monitoring problems at the bank. The agency was informed of JPMorgan's risk limit breaches and of changes to the model the bank was using the calculate its risk, yet raised no concerns at the time, the report said.

A testy relationship between the bank and the OCC went to the highest levels of the bank including Drew, who criticized the OCC for being overly intrusive, according to the report.

But investigators laid the blame mainly on the bank itself, and said at times JPMorgan withheld documents from the OCC, declined to tell the agency about its position even as its notional size grew to $51 billion from $4 billion, and downplayed the importance of the portfolio by claiming it planned to reduce the value when the bank instead tripled it.

An OCC spokesman said the agency recognizes shortcomings in its supervision and has taken steps to improve its supervisory process. The spokesman also said the agency is continuing to investigate the matter and "will take additional action as appropriate."

The bank also made inaccurate statements to regulators and to the public, the report said. On an April earnings call, for example, JPMorgan executives said the positions were fully transparent to regulators, that decisions about the portfolio were made on a long-term basis, and that they were designed as hedges consistent with the Volcker Rule, it said.

Committee sources also said the losses appeared to stretch beyond $6.2 billion, but as other parts of the bank absorbed the portfolio, JPMorgan declined to provide more information about the values of the assets.

SKEPTICISM ON HEDGING

The report could fuel further skepticism about whether banks are telling the truth in describing derivative positions as hedges.

In April 2012, as the positions came into public view, Dimon asked the chief investment office for a information about a portfolio the trades were meant to hedge, according to the report. The OCC sought such an analysis, but the subcommittee found no evidence it was completed, the report said.

In recommendations outlined in the report, Levin called for regulators to require banks to tell them about all portfolios containing large derivatives positions, and provide documentation to back up any described hedge.

(Reporting by Aruna Viswanatha and Emily Flitter; Editing by Steve Orlofsky)